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Global Strategy: Managing for the 21 st Century The term globalization has acquired considerable emotive force. Some view it as a process that is beneficial as well as inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress. This paper is intended to offer an overview of some of the aspects of globalization and aims to identify ways in which countries can tap the gains of this process, while remaining realistic about its potential and its risks. Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly.
Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Outward-oriented policies brought increased activity and greater prosperity to much of East Asia, transforming it from one of the poorest areas of the world 40 years ago. And as living standards rose, it became possible to make progress on democracy and economic issues such as the environment and work standards. By contrast, in the 1970 s and 1980 s when many countries in Latin America and Africa pursued inward-oriented policies, their economies stagnated or declined, poverty increased and high inflation became the norm (Graham, 1998). In many cases, especially Africa, adverse external developments made the problems worse.
As these regions changed their policies, their incomes have begun to rise. Encouraging this trend, not reversing it, is the best course for promoting growth, development and poverty reduction. The crises in the emerging markets in the 1990 s have made it quite evident that the opportunities of globalization do not come without risks. Those risks arise from volatile capital movements and the risks of social, economic, and environmental degradation created by poverty (Graham, 1998).
This is not a reason to reverse direction, but for all concerned to embrace policy changes to build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced. Additionally, the globalization of the marketplace has created a need for managers who can function effectively in the international business environment (Walter, 1997). Despite this movement toward globalization, there remains significant environmental differences between countries and regions. Managers in an international business must be sensitive to these differences and also must adopt the appropriate policies and strategies for dealing with them.
It is a cliche to say that we live in a globalized world in which investment flows, communications, and the operations of multinationals from all parts of the world have changed the character of the international business environment (Yip, 1995). But the easy concept of globalization poses as many questions as it answers. Additionally, many managers wonder whether their business should have a global strategy and if so how global should the business strategy be. In Total Global Strategy, Yip (1995) defines measures for not only identifying the raw characteristics necessary for the successful globalization of a business, but the tools needed in order to adequately measure success of an implemented strategy.
Finally, many other resources related to globalization and international marketing techniques and their relevance to todays economic and political structures will be compared to attain a better understanding of how globalization can affect a business and how that business can have an impact on society. Globalization Levers and Industry Drivers First, in keeping with tradition it is of utmost importance to begin with the basics when planning a business strategy which will ultimately have the potential to go global. A core strategy must first be developed which includes several key elements such as the type of product or services, customer base, geographics involved, major resources available, and the overall investment strategy (Yip, 1995). Without a sound core strategy on which to build, a worldwide business need not bother with global strategy. Next, it is important that the core strategy is internationalized so that it can be determined whether or not the company possess the qualities necessary to be effective on a global level (Yip, 1995). The first and most important step in internationalizing the core business strategy is to select the geographic markets in which to compete (Yip, 1995).
In deciding geographic preference one should consider market attractiveness, potential competition and ways in which to adapt to local conditions (Yip, 1995). Many factors must be considered such as barriers to trade, tariffs, laws, language differences and so on (Yip, 1995). Other aspects of the internationalization strategy to take account of are foreign needs, preferences, culture, and climate (Yip, 1995). Obviously, many considerations must be examined and scrutinized in order to determine overall quality of the market.
Finally, once a successful internationalization of the core strategy has been implemented and determined to be effective, a globalization of that strategy must be integrated to take advantage of business leverage and competitive advantage (Yip, 1995). Consequently, industry levers and drivers also play an important role in combination with the successful implementation of a diverse and well planned global strategy to determine the overall success of a business. There are several direct and indirect factors affecting the process by which the core strategy, internationalization of that strategy, and the final globalization of the strategy are successfully or unsuccessfully integrated into the business process. The direct factors I am speaking about, also termed levers, can be directly controlled by the business to either negatively or positively impact a given situation or circumstance. The indirect factors, or drivers, are not as easily controlled and consist of market trends, overall economic growth, and the nature of marketing in a given business (Yip, 1995). Conversely, the levers are accessible and controllable by the business and consist of market participation, product, location, marketing technique, and competitive moves (Yip, 1995).
There are four specific industry globalization drivers which exist as defined by Yip (1995) which include market drivers, cost drivers, government drivers, and competitive drivers. Unfortunately, drivers are primarily uncontrollable by the worldwide business community as individuals and thus can provide the downfall for an otherwise potentially sound organization / business . To get a better grasp of the relevance each lever and driver has on business profitability we will examine in depth the key lever and driver in the specific named groups to show what notable affect each can have on a business. It is interesting to look at the different factors which effect overall success of a business when it initially seems to be a clear cut and well defined parameter in choosing where and what product you will sell in order to succeed. My personal experiences, although limited to domestic applications, have also been driven by the same industry standards (drivers / levers ).
For any given market there exists parameters by which a company must operate in order to be efficient and productive. Without giving thought to specific industry drivers a company would surely fail. A good example of this can be seen in the airline industry where struggling airlines working on a thin profit margin are forced to continually lower prices in order to stay competitive. They do so because the industry has determined that the market will only tolerate a survival of the fittest concept.
This means that if smaller, more fragile airlines cannot match the predatory pricing strategies of the industry leaders then the success of their companies will be in jeopardy. Therefore, it can be seen over the years that airlines such as Eastern, Pan Am, and recently Valu Jet have succumb to industry pressure and failed miserably while attempting to allude industry drivers in order to turn a higher profit. Thus, we you can see that a globalization strategy is multidimensional. As well, it can be determined that many factors are present when determining effectiveness and success. Perhaps, the most controllable lever which has been evaluated is international marketing.
The world has indeed become a smaller place. International marketing has intensified and is evident in nearly all aspects of daily life. The shoes we wear may come from Brazil, stockings from China, trousers from Taiwan, belts from Korea, shirts from France, ties from Italy, and watches from Switzerland (Walters, 1997). Competitive forces are no longer restricted by local regions or national boundaries. According to Walters (1997), to be successful in todays economy, companies must be simultaneously responsive to local and global market conditions, within the context of being supportive of the companys own overall strategies. The global corporation accepts for better or for worse that technology drives consumers relentlessly toward the same common goals-alleviation of lifes burdens and the expansion of discretionary time and spending power (Levitt 1999).
This is especially true in a world of increasingly complex competitive structures. Companies must resolve the strategic issues of product / market scope, long-term objectives, and functional policies (Levitt, 1999). International marketing skills are an important ingredient for every company, whether or not it is currently involved in exporting activities (Buzzell 1997). International marketing skills are important ingredients for every company, therefore it is vital to identify which skills are needed. After searching the literature, there seemed to be no studies regarding identification of the specific skills needed to be effective in international marketing.
However, three studies (Busche, 1990; Scott, 1999; and Graham, 1998) were completed to determine the general perceptions of business people regarding their need for international trade training. Each of these studies concluded that international marketing was the number one priority area for international business training. A study completed by Busche (1990) found that nearly 77 percent of the respondents supported a need for international training. Marketing was the area identified by nearly 64 percent as a potential problem area. Respondents showed a special interest in international marketing with a highly perceived need for training in six topics: (1) research on foreign markets; (2) working through agents and distributors; (3) export marketing know-how; (4) how to find international opportunities; (5) developing an international business plan; and (6) cultural aspects of sales to foreign consumers (Busche, 1990). These topics were mixtures of both skill sets and areas for knowledge acquisition, yet clearly identified the general area of international marketing as a priority.
Another study concurred with the identification of international marketing as a topic deserving training priority. Scott (1999) found that 84 percent of the southern California business respondents polled expressed a need for training at the California community colleges. The course selected by 67 percent as being useful to employees was International Marketing. Unfortunately, the conclusion of this study did not reveal any insight about which skills were needed to be effective in international marketing although a need still remains to identify those necessary skills needed to be effective in this area. Since the vast majority of international marketing studies involve context-specific knowledge, markets and cultures are widely different across countries (Myers, 1999). As Graham (1998) said, this may be why not much has been learned about international marketing in the last twenty-five years.
The conclusion of the study was that research should pursue an exploratory approach to building knowledge in international marketing. Research identifying the skills needed to be effective in international marketing may, in fact, create the progressive portfolio of skills needed to cut across context-specific knowledge and themes effectively (Graham, 1998). A progressive portfolio of international marketing skills would allow employees to accumulate skills that help them adapt to technological and market changes, to improve their prospects or to explore their potential (Wills, 1998). Conclusions from the three studies previously cited clearly point toward the necessity to identify which skills are needed to be effective in international marketing.
However, these studies also indicate that there is much difference of opinion regarding which international marketing skills are most important. Using the knowledge available, academic international marketing experts could provide a sound assessment of the relative importance of international marketing skills. The structure of the field of international marketing has remained basically the same over the past several decades. However, the emphasis given within the literature clearly reveals that international marketing activities have been given diversified breadth and depth of coverage over the years, with distinct clusters of international marketing skills being emphasized sporadically throughout the time period from Borden (1964) up to Smith (1998).
The marketing mix elements of product, price, place, and promotion, as understood by Neil Borden (1964), were emphasized as the basis for marketing activities for several decades, yet a study completed by Berry (1990) which ranked the importance of marketing mix activities, offered a distinct difference of opinion. The Berry (1990) study identified customer sensitivity as the most important marketing mix activity. This reflects a major shift in emphasis regarding the importance of various types of skills-from certain skills being needed primarily by employees within the marketing function, to certain skills now being needed by all employees whose work affects customers, which involves almost everyone in the business (Has, 1997). Dissimilar emphasis on the importance of various types of international marketing skills continues in recent literature and studies.
The switch in emphasis to personal skills is reflected by other recent literature as well. A companys ability to conduct business in global markets depends primarily on how closely the skills of its personnel match the opportunities present in the market (Dahringer, 1994). International marketing is viewed as a system of interacting and interrelated activities which requires multifunctional skills, according to Album (1994). Skills needed to be effective in international marketing may encompass more than just the technical skills needed on the job. According to Michael S. Schell, president of Windham International, a New York-based global relocation-management company, Expatriate assignments rarely fail because the person cannot accommodate to the technical demands of the job.
The expatriate selections are made by line managers based on technical competence. They fail because of family and personal issues and lack of cultural skills that havent been part of the process. (Solomon 1994). Given the distinct opinions regarding skills needed for effective international marketing, there is a need, therefore, for international marketing experts, both accomplished international marketers and academic researchers to determine the importance of each of the skills identified as being needed for effective international marketing. The need exists not only to identify the skills necessary for effective international marketing and determine the importance of each of these skills, but also to realistically identify the degree to which employees have these skills.
A need exists to identify the extent to which employees perceive that they have the identified skills. These skills encompass more than just the technical aspects of international marketing. A means of identifying the gap between the skills these employees have and the skills they need, and an understanding of this gap is required before appropriate training programs can be developed (Solomon, 1994). Most important is that the identification of the general skills needed to be effective in international marketing have not been previously studied and are especially needed at a time of a rapidly changing global economy. Second, available research indicates the level of importance attached to each of the identified skills. Third, it provides information on the degree to which employees in exporting companies typically have these skills.
Finally, if there is a gap between the skills employees in exporting companies have and the skills they need to be effective in international marketing, there must be studies that will provide information on types of training modules needed to develop the skills identified as necessary. Conversely, the most prevalent industry driver, which is often an uncontrollable form of market or business trend determination, is the combination of market, cost, government, and competitive drivers (Yip, 1995). This is established by the fact that each feeds off of the other and when one driver is affected the whole group tends to be affected. Market drivers can be associated and affected by many phenomenons.
When large nations began to have per capita income convergence such as Japan overtaking the United States or Hong Kong overtaking New Zealand we began to see a shift in the drive towards market growth. Other examples are the convergence of life styles and tastes, increasing travel creating global customers, organizations beginning to behave as global customers, and establishment of world brands such as Coca-Cola, Levis, etc. (Yip, 1995). Cost drivers can be affected when there is a continuing push for economies of scale and accelerating technology innovation with advances in transportation and emergence of newly industrialized countries. Likewise, government plays an important role and can be an effective protagonist or antagonist by reducing tariff barriers (NAFTA), creation of trading blocs, and decline in the role of governments as producers and / or customers (Yip, 1995). Finally, we examine competitive drivers and reveal that they are associated with a continuing increase in the level of world trade.
The overall effectiveness of this driver will either increase or decrease based on scenarios such as the incident of a rise in new competitors intent upon becoming global competitors and when there is increased formation of global strategic alliances (Yip, 1995). Together, these four sets of drivers cover all the critical industry conditions that affect the potential for globalization. While other groupings are possible, these four distinguish among the sources of the drivers and, therefore, help managers to identify and deal with them more easily. Global Organization and Human Resource Management It seems as though a day cannot go by without reading about the growing revenues multinational organizations are generating from their international sales. Recently, there was a flurry in the press of the flattening of McDonalds sales in the U. S. , and how the company was going to lower the prices of their burgers to get more competitive and recapture a larger market share.
Buried in those stories were statistics, such as the fact that McDonalds generates 54 % of its profits from its 20, 000 -plus Golden Arches in 100 countries, and that it was opening restaurants in four or five new countries each year (Shepherd, 1999). So, while domestic sales were flat, the companys income was still growing. Also buried in those stories was the fact that McDonalds restaurants are kosher in Israel, are made without beef in India, and represent gourmet dining in Moscow (Shepherd, 1999). The company is a master at tailoring to local tastes. While the McDonalds story is interesting, it is not extraordinary. It serves as an example of what most companies are doing in adapting product for the global marketplace.
Organizations are also focusing on building global management skills as well as tailoring products. The process of business globalization is not a one-shot event, and needs to represent an ongoing effort by companies to position themselves for success in the international arena. That is why Windham International likes to refer to globalization, not as a process, but as a cycle (Solomon, 1994). The dividends of having a globally competent workforce and business culture, are enormous. In fact, in the coming millennium, global business skills will become a prerequisite for corporate management. Understanding how to shift between cultures and intuitively adjust management behavior will be essential if a company is to ensure success and maximize the potential from its core businesses in a global, competitive environment (Solomon, 1994).
Creating a globally coherent corporate culture requires weaving cultural awareness into the corporate fabric. Companies do this by integrating the cultural lessons learned through actual practice into all of their human resource development and training programs (Van Wachem, 1994). Furthermore, the importance of conducting global awareness programs cannot be overemphasized, especially in an American environment which has been insulated from international competition by the depth of its own marketplace and resources. Global Awareness programs can last anywhere from one day to several weeks (Van Wachem, 1994).
Programs focus on providing participants with an understanding of how culture impacts lives and creates a set of values, how cultures are different, and how some of those differences manifest themselves. The objectives of these programs is to build intercultural fluency (Van Wachem, 1994). In their most basic form, global awareness programs provide participants with greater understanding and new skills to operate more effectively in the international business arena. They enable employees to better understand and implement the companys global strategies and appreciate the importance of the global market in the vitality of the company. A typical program might instruct participants how to (Van Wachem, 1994): ?
Appreciate cultural diversity. ? Recognize the impact of culture on business. ? Master global management skills. ? Understand how culture impacts business issues... Impart knowledge about challenges faced by business people around the world, including significant concerns and motivations of business people. ? Develop a framework for understanding cultural differences. ?
Master strategies for cross-cultural problem-solving and negotiation skills. ? Learn decision-making strategies that work across cultures. ? Explore ways to build business relationships. But the business globalization cycle doesnt end with a one-shot program.
It then becomes important for organizations to continue to integrate these global awareness exercises into their ongoing training efforts, and by developing a continuous flow of information and knowledge, be able to build global business skills, and enhance global understanding (Van Wachem, 1994). Obviously those programs need to be different for different levels of the company. While senior managers need to learn to think and act globally, individuals at other levels of the organization must learn to communicate by phone, fax, and e-mail. Thus, ongoing training is crucial.
Intercultural training and global business awareness workshops are, quite simply, the next logical step in companies that are active learning organizations, those that adapt and learn what the marketplace presents (Van Wachem, 1994). Understanding culture and global markets and acquiring competencies about what is appropriate in different parts of the world is central to the development of any corporate culture that is going into the international marketplace. These kinds of skills and learnings must be integrated throughout. Within this context, repatriation is part of the continuing effort to globalize the corporate culture.
Repatriated employees play a crucial role in the globalization process. First, they add invaluable knowledge to the global wisdom of a company as a result of their international experiences and they continue to broaden the scope of global vision and general global awareness within the corporation by sharing their experiences, both triumphs and failures (Van Wachem, 1994). Second, they serve as role models and mentors for others who may consider expatriate assignments (Van Wachem, 1994). In order to succeed, repatriation programs must address the expatriates need to return to the home country with minimal emotional turmoil. Reentry to the home country can be traumatic, and many experts agree it is a time requiring as much cultural adaptation as the initial international move. Not only is the expatriate and family returning to an environment that is quite different from the one they left, but they dont expect it to be altered.
Good repatriation programs also recognize that expats are an important asset to the business because of their accumulated knowledge and experience (Van Wachem, 1994). What better and more visible role model could future expats have than someone who has been in the trenches and returned having done the job successfully? If the organization recognizes and values the contribution, it sends out a profoundly different message than a firm where employees return to no job, passed over for promotion or slotted into a dead-end position. The way returning expats are treated in an organization sends out clear and strong signals to others who are considering taking such assignments. Keeping in mind that the talent pool for potential expats is not great even in the largest and most successful global companies, retaining the wisdom of returning employees and institutionalizing it is critical for the message it sends to future expats as well as the ability to retain global wisdom (Van Wachem, 1994). Finally, when you think about it, few roles for the human resource manager are as consistent with an organizations global business mission as providing a globally astute workforce throughout all levels of the organization who will implement that mission.
Globalization Process and Strategy: A Time Line Globalization has become an increasingly fashionable term and in fact it is still the economic buzzword. Despite much loose talk about the new global economy, todays international economic integration is neither unprecedented nor is it an innovation of the past. The shrinking of distance and the increase in interplay and interdependence has been a subject of the whole century, and longer (Emmott, 1999). Basically it all started when men crossed the border of their caves in order to exchange supplies with someone else.
Phoenician traders roamed the known world with goods, twenty-five centuries ago, during the Golden Age of Greece, collecting market specific data and bringing information as well as products to customers (Lewis 1999). Seven hundred years ago, the Medicis became what may have been the first vertically integrated global operator, buying raw materials and converting or manufacturing them (Lewis, 1999). The Medicis eventually operated some 100 branches in France, Naples and Turkey, with trading offices in London and many other capitals, and to this day may be one of the most efficient and profitable international companies ever developed (Lewis, 1999). The difference in our century is the speed of change.
A decade ago no one would have anticipated the collapse of communism in the Eastern European countries, dismantling of apartheid in South Africa, Berlin becoming the capital of a reunited Germany, Czechoslovakia, Yugoslavia and the USSR broken up into over 20 states, or 150 countries backing a climate convention. Economic historians like to argue that trade and capital flows were more global in the late 19 th century, a laissez-faire era that came to abrupt end with the outbreak of World War I. Although barriers and other government interventions were practically non-existent, capital took a week or more to cross the Atlantic and much longer to reach Asia (Shepherd, 1999). The capital exporting countries were mainly Britain, France and the Netherlands. The hot emerging markets during this period were in the United States, Japan, and Argentina and trade was, by todays standards, minuscule and corporations were tiny (Shepherd, 1999).
After World War I the world moved into a period of fierce trade protectionism and tight restrictions on capital movement (Eiteman, 1999). During the early 1930 s, America sharply increased its tariffs, and other countries retaliated, making the Great Depression even greater (Eiteman, 1999). The volume of world trade decreased significantly and international capital flows virtually dried up in the inter war period. Capital controls were maintained after World War II, as the victors decided to keep their exchange rates fixed an arrangement known as the Bretton Wood System (Eiteman, 1999).
But the big economic powers also agreed that reducing trade barriers would be vital for a recovery. They set up the General Agreement on Tariffs and Trade (GATT), which organized a series of negotiations that gradually reduced import tariffs. GATT was replaced by the World Trade Organization (WTO) in 1995 (Eiteman, 1999). In the early 1970 s, the Bretton Woods System collapsed and the currencies were allowed to float against one another at whatever rate the market set.
This was seen as a signal for the rebirth of a global capital market. America and Germany quickly stopped trying to control the inflow and outflow of capital. The United Kingdom abolished capital controls in 1979 and Japan in 1980. However, France and Italy did not abandon the last of their restrictions on cross border investment until 1990 (Eiteman, 1999). This is part of the reason why continental Europeans tend to worry more about the power of global capital markets. (Eiteman, 1999) From a historical point of view, globalization can thus be seen as a long and more or less constant process.
Nevertheless, we will see that there are new different ways, in which economy was and is becoming faster and more internationally integrated. Global capital markets are growing at a remarkable rate. A decade ago, about 190 billion dollars passed through the hands of currency traders in New York, London and Tokyo every day (Blecker, 1999). By 1998 daily turnover had reached almost 1. 5 trillion dollars (Blecker 1999). These bold figures confirm that the worlds capital markets have been transformed. Ever larger sums of money are moving across borders, and ever more countries have access to international finance.
The international flows of capital are a major channel of globalization and their importance can be assessed by the development of foreign direct investment (FDI), which is directly concerned with the emergence of international production networks. Over the whole period since 1980, FDI constantly increased as exports did as well (Blecker, 1999). During 1980 - 97 in particular, global FDI outflows increased at an average rate of about 13 percent a year, compared with average rates of 7 percent both for world exports of goods and services and for world GDP (at current prices) during 1980 - 96 (Blecker, 1999). The increase in direct investment flows has laid the foundation for a marked expansion of international production by globally operating corporations, which now have an estimated 3. 4 trillion dollars invested in about 449, 000 foreign affiliates throughout the world (Mallampally, 1999). But over the past few years, the movement of goods and services across national boundaries has become the subject of intense public attention all over the world.
To the public at large, trade is the most obvious manifestation of a global world economy (Boltho, 1999). World trade flows more freely than it ever used to. This is due mainly to international agreements under which governments agree to forswear trade barriers most notably, the General Agreement on Tariffs and Trade (Boltho, 1999). There have been eight rounds of GATT talks since 1947, in which countries have cut their import tariffs. Tariffs on manufactured goods, for example, are now down to around 3. 8 % in industrial countries (IMF, 1999). The most recent GATT round, the Uruguay round, ended in 1993.
The Uruguay round did much more than cut tariffs on goods. It heralded a big institutional change, creating the World Trade Organization, which now boasts 134 members (as of February 1999), as a successor to GATT (IMF, 1999). It also made big changes to the rules of world trade. First, it began the process of opening up the most heavily protected industries, agriculture and textiles (IMF, 1999). Second, it vastly extended the scope of international trade rules, now covering services as well as goods.
New issues, such as foreigners intellectual property like patents and copyrights, were addressed for the first time and services can now be traded internationally (IMF, 1999). As a result of the GATT/WTO negotiations and unilateral decisions, almost all countries have lowered barriers to foreign trade. Although liberalization has proceeded at different speeds in different places, the trend is worldwide. Over the past decade, trade has increased twice as fast as output, foreign direct investment three times as fast and cross-border trade in shares ten times as fast (WTO, 1998). This development suggests that the world economy becomes more integrated (WTO, 1998). Apparently, the gap between export growth and GDP growth has further enlarged in the recent past, which can be understood as an increase in the speed of globalization (Eiteman, 1999).
With the costs of communication and computing decreasing rapidly, the natural barriers of time and space that separate national markets have been falling as well. The cost of a three-minute telephone call between New York and London for example, has decreased from 3 dollars (in constant prices from 1996) in 1930 to less than 1 dollar today (World Bank, 1997). The cost of computer processing power has dropped by an average of 30 % a year in real terms over the past couple of decades (World Bank, 1997). In Information technology, the world has experienced a revolution. The web represents a world wide information network. In 1998, 180 million Internet workstations provided a worldwide network and Andy Grove of Intel believes that there may be 500 million in another five years (Shepherd, 1999).
The dimension can be illustrated by some examples: Global stars as IBM and Microsoft are increasingly focusing on the Internet business, and Reuters set up a new global ventures group to pursue Internet investments (Shepherd, 1999). Cable &# 038; Wireless bought Mci's US Internet business for 1. 75 billion dollars, then acquired a German and a Taiwan Internet provider and hiked its three year budget by 3. 3 billion dollars to build a global Internet protocol network for multinationals (Shepherd, 1999). E-commerce is predicted to become one of the most important market grounds of the next millennium and all the worlds businesses spend more on telecommunications each year than they do on oil. (Maass, 1997). Another important factor for an increased globalization process is to be seen in the plunge of traditional costs of covering distances by land, sea and air. They have been reduced to approximately one fifth since the twenties and thirties respectively. The death of distance, as Cairncross (1997) called it, facilitates the establishment and monitoring of international production networks, enlarges trading areas, and enables firms to exploit international cost differentials by the fragmentation and relocation of production and global sourcing (Cairncross, 1997).
Furthermore, the development of high tech and telecommunication facilities together with the massive decrease of prices for information sharing and transport can be seen as a dominant force of the globalization process. When comparing different regions in our world one will encounter completely different opinions, languages, gestures, habits, rituals, behavioral patterns and so on. As culture is about values and values are partly unconscious, acquired in early childhood and then further developed, confirmed and reinforced later on, they are hardly discuss ible and will not change quickly (Hofstede, 1996). Therefore one might argue that no globalization of culture is evident.
However, there are tendencies towards a global culture. The increasingly global media and entertainment industry including cross-border satellite television broadcasting and almost global TV-channels like CNN have an integrating effect on cultural diversity (Hofstede, 1996). In most corners of the world for example, the name of Mickey Mouse will elicit at least a glimmer of recognition. Walt Disneys most famous creation was one of the first stars with a global name, showing that there is a kind of convergence in consumer lifestyle and behavior. Signs of Globalization Multinational corporations operate all over the world in ways never before imagined. With operations in 100 or more countries, selling products in as many as 200 countries, global players gain revenues larger than most countries GDP (Shepherd, 1999).
Corporate management can share best practices within seconds with modern telecommunication from New York to Bangkok or have troubleshooting teams fly within hours from Buenos Aires to Seoul. (Shepherd 1999) In order to enhance their operational efficiency and profitability along the entire industrial chain many corporations have adopted global corporate strategies (Yip, 1995). The global enterprise organizes its operations from R&# 038; D for product and process innovation, through production and distribution, to final sales and marketing as an internationally integrated ensemble (Yip, 1995). It obtains raw materials from cost efficient sources, manufactures or assembles goods in the lowest cost zones, acquires and develops technological expertise wherever it is favorable, and uses its managerial and technical resources as economically as possible, to enter markets as efficiently as possible (Yip, 1995). These worldwide operating organizations are particularly common in high-technology, high-skill and capital-intensive industries such as computers, electronics and chemicals, as well as in some assembly industries like automobiles, all of which benefit from economies of scale through the whole industrial supply chain from R&# 038; D to final sales (Graham, 1998). Another sign that companies are becoming global is the fact that more and more companies are transforming their organizational structures based on economic regions to global product lines. Consumer product companies such as Next?
or McDonalds have standardized production and distribution although they customized their products to local tastes (Shepherd, 1999). Partners and suppliers that serve other multinationals, however, have come under increasing pressure to provide the same products and services anywhere in the world (Shepherd, 1999). The growth of the multinational enterprises seems likely to spur further development in the history of globalization. Corporations want the freedom to shift employees from country to country, and to use citizens of one country to alleviate skills shortages in another. This will be not so much a quantitative change but a qualitative one namely, greater migration of workers with skills, or human capital. As already stated above, globalization might be seen, at least historically, as a more or less constant process.
However, it is due to the more recent speed-up of the process that scholars have paid more attention to it and termed the phenomenon as globalization. There has been some dramatic changes taking place, namely the liberalization process leading to more and more free trade and capital flows, the development of information technology, the plunge of transportation and telecommunication costs and the shift from workers to human capital introducing a new quality of globalization (Graham, 1998). Today globalization is often used as a buzzword describing the reality in which corporations are embedded. Complexity in Global Operations Complexity in global operations arises from multiple environments in which global actors are embedded where one must consider the wide variety of issues, the existence of multiple ways of operating globally, and the constant change of the operating environment (Hansen, 1999). As one example of this complexity, we present a framework that highlights complexity in the choosing of foreign operations (Hansen, 1999) which upon deeper examination proves to be a very challenging ordeal. Global forces that create change towards a global operating environment can be identified as deregulation, technological advances, increased competition, demanding customers, etc. (Hansen, 1999).
These demand a new attitude to business. A global organization is associated with both different attitude and different activities from its more circumscribed, international predecessor. Success and survival in a global world or when trying to go global yields three main implications for corporations (Parker 1996) Social responsibility: The raising globalization in economy creates a tendency towards a redistribution of power and responsibilities between governments and corporations. There are growing expectations for businesses to adapt roles previously played by governmental entities. On the government side, the resources saved hereby provide the opportunity to reallocate resources in education, training, and other modes of knowledge creation.
On the corporate side again this means adopting roles which governments have played previously and as ethics varies according to culture firms have to find a balance between what is acceptable in different cultures. This involves not tolerating business practices that are illegal in other countries, which involves dangerous work for the population, or which might be harmful to the environment. Also, customers pressure large corporations to tackle human right issues and to promote a democratic society organized around values like freedom, equality, well-being, justice, mutual respect and to deal with the growing gap between rich and poor, armed conflicts around the word, minimal legal protection in some parts of the world and corrupt regimes Organization strategy: In creating sustainable competitive advantage in a global world, strategies must be informed of political, legal and social as well as economic considerations. They should be able to yield industry foresight and leverage global knowledge. Thus global strategies have profound implications for human resource strategies as well.
Global corporations should not just try to establish an elite of jet setters they might be difficult to integrate into the corporate mainstream or an international team of big-picture overseers to the exclusion of focused experts. Here, organizational learning is in a central position. In summary, global corporations should apply an overall strategy to co-ordinate and integrate dispersed operations and diversification in order to provide higher customer and shareholder value in their diverse markets. 3. Organization structure: Global organizations need to develop relationships with their interest groups and manage these relationships well in order to create efficient and productive networks.
Internally, this means that organizations with high organization structures will have to flatten their pyramids and implement cross-functional ways of thinking. Matrix organization structures are one way of doing this. The knowledge revolution associated with globalization has the potential to restructure not only existing organizations but also the way work is organized and conducted (e. g. telecommuting).
This requires fundamental rethinking of how organizational participants think about their relationship with the organization and the organizations role in a global world. Global or Local? In todays international markets it is difficult to find a simple answer to the question whether to globalize or localize a product. The primary goal of a company is usually to maximize its shareholder value, which means maximizing income, minimizing expenses, minimizing assets and maximizing liabilities (Douglas, 1997). Respective to products, maximizing income means adapting products to meet local environments and minimizing expenses means to standardize them as much as possible. International segmentation studies have revealed that global standardization is appropriate only in relation to certain product markets or market segments under certain market conditions (Douglas, 1997).
The choice of strategy on the level of standardization or adaptation is depending on the contingent variables (Porter, 1996): (1) product characteristics from universal over modified to country tailored; (2) country characteristics such as social and political system or, economical and technological development, or cultural context, etc. and (3) consumer characteristics social classes, age, sex, urban or rural residency, lifestyle, etc. An interaction between all three characteristics implies feasibility of an international nothing strategy by customizing the marketing mix to identified consumer niches across countries and segments. An interaction between, product and country characteristics implies a product adaptation strategy by tailoring country-clusters on the basis of a product-market match. An interaction between country and consumer characteristics implies feasibility of a product transformation strategy, in which product offerings are standardized and positioning and promotion are adapted for different target consumer segments in different countries (Walters, 1997).
An interaction between product and consumer characteristics implies a global segmentation strategy concentrating on one marketing mix for one segment or a different marketing mix for each segment. If no interaction between the three characteristics can be shown, a global standardization strategy or a gradual standardization strategy may be feasible (Porter, 1996). Global Market Segmentation A central issue in global marketing is assessing markets, which is usually done by segmenting them. Global market segments are transnational market segments, which have been acquired by utilizing country specific segmentation criteria, individual characteristics of customers or both of the previously mentioned segmentation criteria (Walters, 1997).
Traditionally, global market segmentation has been undertaken by using either county specific criteria or transnational variables common to individual customers in different nations as a basis for segmentation (Walters 1997). Country specific global segmentation criteria include economic growth and development criteria. Individual characteristics of customers as a global segmentation criteria include demographic variables: e. g. sex, age, income level, social class and education level, psycho graphic variables: e.
g. lifestyle factors in regard to work and leisure habits such as activities, interests and opinions, and behavioral variables: e. g. patterns of consumption, product category and brand loyalty and context of product usage (Walters, 1997). More recently, hierarchical segmentation processes have emerged. These hybrids attempt to combine the benefits of both presented approaches to global market segmentation.
The advantage of this type of approach is that initial country sorting allows identifying a context for consumer behavior, which enjoys significant homogeneity (Walters, 1997). In such an environment, it is more probable that similarity in lifestyle, behavior and decision-maker characteristics will translate into viable transnational market segments. Three different ways of carrying out this process are presented by Walters (1997): 1. Kale and Sudharshan: initial country screening followed by micro segmentation, where the focus is on transnational similarities between customer groups. Either segments are identified within target markets and then aggregated across the qualified countries based on similarity or individual customers in all the qualified countries are directly aggregated into segments. 2.
Kreutzer: target markets are separated from all other countries, segments are delineated within target countries sharing common features and finally factors that may require marketing mix modification are taken into account. 3. Amine and Cavusgil: country clustering, lifestyle segmentation in which targeted consumers are identified and aggregated across countries thus directly delineating transnational segments and focusing on consumer behavior and identifying two shopping clusters. Walters (1997) states, In the operational ization of segmentation strategies it should be noted, that if the scope of international operations is broad, it might be appropriate to utilize multiple segmentation processes and criteria simultaneously within the corporation. Additionally, many international market segments are less well defined than domestic ones and normally not truly global in scope and finally, the linkage between segmentation and the desire for standardization in global marketing is significant (Walters, 1997).
In the production function Collins (1995) suggest, that corporations need to adopt a global view in order to alleviate the impact of downward pressure of costs, to slash excess capacity and to realize the synergy benefits of mergers and acquisitions. When pursuing a global manufacturing strategy, which means assessing a portfolio of plants and reviewing total manufacturing costs rather than assessing costs on a plant-to-plant-basis, six different issues need to be considered (Collins, 1995): 1. Avoid manufacturing shortsightedness: This means slashing over-capacity (many European manufacturers are operating at less than 50 % capacity utilization rates), avoiding duplication and attaining critical mass. Here, a managerial mindset change may be required. 2. Build product focused plant networks: This implies launching product focused operations, concentrating expertise in a few carefully chosen locations, finding a proper relationship between the head office and subsidiaries and centralizing control and co-ordination. 3. Create pan-regional organization structures: Rationalize plant location decisions by e.
g. consolidating operations to low-cost sites, considering governmental regulations and incentives of setting up a plant in a certain area and taking customer influences on plant location and plant product palette into account. This may lead to improved plant designs that facilitate teamwork, better quality and better and more rapid materials handling. Ultimately, this aspect is about balancing centralized task sharing and local autonomy. 4. Adopt rigid flexibility: The type of flexibility desired should be examined carefully. Then simple operating ways are combined with company internal discipline in order to attain the right kind of flexibility.
Often, this means undergoing Business Process Reengineering (BPR) for establishing a stable, fundamental framework that facilitates the factory's flexibility. Thus adopting rigid flexibility implies increased standardization where possible and attention to manufacturability, production co-ordination, problem solving, and experimentation. 5. Standardize systems, procedures, products and packages to gain effectiveness of material flow and information exchange. This implies standardizing product formulations or engineering specifications, product numbering, components / parts numbering, quality assurance standards, and computer systems. 6. Identify obstacles to implementation: Be aware of implementation problems due to various internal and external factors, such as demolition of executives status or esteem, expatriates, cultural differences, governmental regulations, problems in harmonizing products for different countries, union / management relations, environmental concerns, incompatibility of computer information systems, etc. Management Strategy- (ABB) Unfortunately, no universal global management strategy can be outlined, rather, groups of specialists including business managers, country managers and functional managers should work together to create organization-wide processes and structures in support of their global commitment (Taylor, 1991).
Are Brown Boveri (ABB) is an example of a global enterprise that combines global scale and world class technology with deep roots in local markets. It is more multi domestic than multinational and therefore can be seen as a federation of national companies (Taylor, 1991). The case of ABB highlights some of the implications of globalization on management. The interplay of structure and dynamics can be recognized as creating the core of organizations themselves actors create, develop and manifest themselves in and through enactment. Conducting global business involves several contradictions e. g.
global versus local, big versus small, decentralized versus centralized, flexible versus strong that a company has to tackle in order to work effectively and productively (Taylor 1991). Along one dimension a global company is a kind of distributed global network meaning that executives around the world make decisions on product strategy and performance without regard for national borders. Along a second dimension, it is a collection of traditionally organized national companies, each serving its home market as effectively as possible. ABBs global matrix holds the two dimensions together, allows them to optimize their businesses globally and maximize performance in every company (Taylor, 1991). The matrix is led by business area leaders who co-ordinate the efforts of business area managers, country managers and presidents of local companies (Taylor, 1991).
The business operations are organized by independent companies with their own president, budget and balance sheet. The presidents of the individual companies are relatively autonomous and free to conduct business within their company as best they can. This relative independence from the group motivates the national companies to higher performances, thus optimizing group results. Also, the companies are able to focus better on their core competencies in their home markets (Taylor, 1991). Business area managers optimize the group strategy and performance independent of national borders while allowing local companies to drive execution. Individual companies are kept small in size for the purpose of allowing flexible operations for responding to customer needs more efficiently (Taylor, 1991).
Managing change is crucial in order to tackle the shift from local to global and in order to solve post-acquisition problems associated with integrating the several acquired traditional companies into the global ABB group. To make the individual companies profitable, ABB has developed a business and managerial reform philosophy, which has four core principles (Taylor, 1991): 1. Immediately reorganize operations into profit centers with well-defined budgets, strict performance targets, and clear
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