Globalization Affected Corporate Strategy
In the last 21 years the notion of a multinational company has changed significantly. This is best demonstrated by the 1973 United Nations definition, which clearly stated an enterprise is multinational if it “controls assets, factories, mines, sales offices, and the like in two or more countries” (Bartlett, Ghoshal 2000 p. 3). As we know a multinational corporation is much more then just that it controls foreign assets, it must also have a substantial direct investment in foreign countries, as well as engaging in some form of management of these foreign assets.
The evolution of corporations over this time has been somewhat difficult and by no means is the process of change finalized. As with most things this evolution and learning process could be seen as being life long. The environment in which we operate clearly evolves each year and to stay ahead businesses are now required to stay ahead of developments to compete. Some of the slower players, such as Phillips (Bartlett 1999) merely lost market share through this evolution, others in the past and perhaps in the future will lose their businesses.
To understand the importance of multinational corporations in relation to the world economy we see that they account for over 40 percent of the worlds manufacturing output, and almost a quarter of world trade (Bartlett, Ghoshal 2000 p. 3). Although the focus is often on the larger players such as Ford, Procter and Gamble, or Coca Cola as time progresses it is more the smaller companies which we will need to keep an eye on, as they become important players, especially in international niche markets(Bartlett, Ghoshal 2000 p. 3).
Traditionally there were three motivations for most organisations to enter international markets, or to undertake investment overseas. These were: 1. Suppliers – the ongoing need to source supplies for operations (adapted from Bartlett, Ghoshal 1989, 2000). 2. Markets – seeking additional markets to sell products. Traditionally companies went international to sell excess production lines, or to meet one off needs. The market then moved to increased competition where players were keen to be the first mover to a market, so as to gain a competitive advantage.
Corporations were often driven by the home country size, with the need for further consumers for ongoing viability and growth (adapted from Bartlett, Ghoshal 1989, 2000) 3. Lower Cost – by seeking production facilities which would attract lower labor costs and hence higher profits. Clothing and electronics were the first movers in this strategy, usually looking to developing countries such as China or Taiwan. This is still used somewhat today as a strategy, such as large call centers providing services in India for most Australian banks (adapted from Bartlett, Ghoshal 1989, 2000)
It is not my intention to go into the advantages and disadvantages of a corporation entering an international market, or to continue to operate in an international market, beyond the above three initial drivers. What is imperative that in the 21st Century an organisation must seek a strategy that meets the organisations ongoing needs which is clear and precise so as to provide direction for future growth. Due to the ongoing worldwide demand after WWII, most organisations prospered when entering international markets.
Often however the strategies to entry were ad hoc and did not provide clear objectives or guidance for ongoing management. Operations were based on an ethnocentric approach. Even though at the time they were referred to as Multinational Corporations, literature now refers to them as ‘International Corporations’. As international operations expanded and took on a more important role in the organisation, such as being a key profit centre, or perhaps a product innovation being conceived in an offshore operation, they tended to come under increased management scrutiny, such as the case with Fuji Xerox (Gomes-Casseres, McQuade 1991).
This then progressed the corporation to a multinational approach, international markets being as important or even more important then the home market, which is more a polycentric approach to management. The potential from these operations were reviewed by management; the possibilities for cost reductions due to standardization moved most corporations onto the next phase being the global corporation mentality. This is that the entire world is a potential market.
Retaining a image from their initial home country, such as McDonalds, they seek to enter all markets to service all customers, hence a regiocentric or geocentric philosophy of management. Bartlett and Ghoshal have gone beyond this to advocate the development of the transnational corporation. This takes the concept of global corporations one step further. Corporations to prosper in a globally competitive environment, should concentrate wherever possible on responding to cost pressures, leveraging of knowledge and information, whilst ensuring local responsiveness to consumer needs (1989 p. 13).