Strategy and international business

STRATEGY AND INTERNATIONAL BUSINESS

2006

Strategy and International Business

Introduction

Globalization has been a major force that shape modern economies Discussions on the seem to have no end because new phenomena constantly appear in the new global economy . Companies perform cross b businesses since the day they were born thus , break theories on stages of internationalization . People are taking profit from production facilities a thousand miles away from their offices . Increasing attention are given to the factors existed within the process of globalization because performing business in the global

economy is significantly different from operating businesses in the local realms

In a book titled `Organizing for Worldwide Effectiveness : The Transnational Solution , Christopher A Bartlet and Sumantra Ghoshal reveled a relatively new concept -at the time- of `transnational companies . The book was resulted from reflections of the changing business environment in the 80 's . After discussions and interviews with over 250 managers from nine multinational companies , Bartlett and Ghoshal discovered that organizational challenges facing multinationals in the 1980 's had changed fundamentally (Bartlett and Ghoshal , 1987 Bartlett and Ghoshal has designed a new organizational model in to address the changes reveled

Within this , we are aiming to outline and critically evaluate the organizational changes suggested by Bartlett and Ghoshal to make international corporations capable in meeting the challenges of the global business environment . We will use several quotations to explain the concepts offered by Bartlett and Ghoshal and then we will use concepts and considerations from other to evaluate Bartlett and Ghoshal 's theory

The Global Background

According to the Upsalla model of internationalization , there are four common stages of internationalization to foreign markets . First companies will generally perform direct export activities to the foreign market . The step is usually performed first because it constitutes the smallest risk , although with the smallest sales volume also . After a while , companies will initiate the second step , which is to perform indirect export activities , with slightly larger sales volume . The nest step is to develop a sales subsidiary within the target market . After ensuring a profitable prospect , companies would then build manufacturing facilities abroad . These steps represent the general tendencies of how a company performs its internationalization processes (Johanson Wiedersheim-Paul , 1975 . Johanson Vahlne , 1977

Nevertheless , recent reports indicated that companies have moved beyond this model of internationalization . There are those called the born global or the global start-ups , which performed their foreign operations as soon as they were born . Furthermore , within internationalization efforts , there are frequently asked questions , such as the preference of international companies when they performed their global business . These questions seek to determine the better decision between centralized and decentralized management system . A study revealed that some factors lead to a centralized organizational structure , while others lead to decentralized ones (Campa , 1995

In 1995 , a study of 843 Spanish firms suggests that the use of mass production technologies decreases a firm 's likelihood of centralization of corporate operations , while the level of export orientation of the company increases it (Campa , 1995 . Within this , we will observe how Bartlett and Ghoshal viewed the choice between centralized and decentralized operations in terms of international operations The General Idea : Integrating the Strategic Dimensions

The principle argument comes from Bartlett and Ghoshal 's `Transnational companies ' concept , is concerning the dimensional strategic posture of international operations . Traditionally , strategic aspects of international operations are divided into three one-dimensional postures : global efficiency , local responsiveness , and company-wide knowledge . Bartlett and Ghoshal however , stated that in global market conditions , companies must integrate all postures into a multi dimensional single approach : the transnational approach (Bartlett and Ghoshal , 1988

Within this approach , Bartlett and Ghoshal explained that transnational companies must have the ability to overcome constraints of their administrative heritage and internationalization process . There are several challenges included within the quest

First , the companies would need to be able to differentiate business functions while at the same time integrating distinct operating units

Companies that claimed to be transnational in nature must also be able to design resources and responsibilities to be interdependent throughout the entire operations

Most importantly , there is a great need for transnational company to manage their entire operations within a common corporate philosophy

(Bartlett and Ghoshal , 1988

These basic principles are concluded from series of observations and discussions . Each of them will be elaborated more clearly below

III . Origins of the Transnational Concepts

III .1 Integration for Efficiency

The idea that companies need to integrate distinct operating units as well as to differentiate business functions comes from the study over the electronic industry . In the study , a Japanese company , Matsushita was mentioned to experience a major success in the electronic industry due to its ability to centralize most of its major operations . The study revealed that the strategy to centralized production systems was balanced by focusing on distribution channels to meet the needs of local markets

By centralizing operating activities , the company obtained significant benefit from economies of scale and global efficiency . On the other hand , by focusing on providing high quality distribution channels , the company strives to meet local preferences . In addition , the company maintained its vision on development by funding R D from global production volumes

Observing the case study , Bartlett and Ghoshal concluded that the ability to integrate production operations to reap benefits from global efficiency and economics of scale is an important feature of survival within the global environment

III .2 Local Responsiveness and Interdependent Design

Within their elaboration , the stated that responsiveness to local conditions is an inseparable feature of efforts to deliver value to customers . Bartlett and Ghoshal describe multinational industries as a multiple national industry structures with minimum directions form the head office . The believed that local responsiveness is crucial to tackle the differences in tastes , costs , etc , within each local market

For this case , Bartlett and Ghoshal used Unilever as a case example . The company has a highly decentralized organizational structure , resulting in the availability to quickly exploit opportunities discovered in each local environments (Hill , 1994 . The argued that centralized operations without any effort to maintain observation toward local conditions will finally lead to failure in the global environment

III .3 Single Philosophy Management and Knowledge Transfer

The final concept that Bartlett and Ghoshal offered is regarding ways to maintain the entire operation within guidance of a single philosophy In other words , managerial perspective must be able to reach even the furthest subsidiary , in to maintain the sense of `direction ' over the entire operations . According to Bartlett and Ghoshal , it is important to have the capability to transfer knowledge company-wide . As an example , Bartlett and Ghoshal mentioned that LM Ericsson is successful due to its ability to foster innovations in its home markets and then transfer these innovations to its international markets

Global Managers

In line with the concept of international companies , the term `global manager ' has also been discussed more often . This term comes from the logic that a multinational company must require their managers to obtain special skills which could extend over national boundaries and constraints . Bartlett however , has a considerably different idea . In 1992 , the writer mentioned that there is no thing called a `global manager . According to Bartlett , managers should be divided to : business managers , country managers and functional managers (Churchwell , 2003

Bartlett argument that companies need to master two contradictory skills (global efficiency and local responsiveness ) is the basis of this perspective toward the global manager concept . In the light of the goals stated above , global managers today are demanded to possess the skill of international operations . Among those skills are the capability to see the world as a collection of national market places , and furthermore as a source of information knowledge , and expertise . According to Bartlett from this requirements , the role of global managers are defined (Churchwell , 2003

Different from the general perspective , Bartlett did not suggested that every managers possess a global managerial skills . However , he suggested that managers placed themselves within one of these three roles

Business managers

They are the one who represents the need to integrate and control worldwide strategies . Their presence represents the need to be globally efficient . According to Bartlett , business managers are the ones to focus on matters such as the economics of scale , producing standard products with cheaper prices and transferring corporate knowledge to corporate units abroad

Country managers

These managers represent the need to be locally responsive . They are responsible for seeing the local market as a source of information and knowledge (Daniels and Radebaugh , 1998 . They are the ones running the direction of local R D facilities and generate suggestions on how to enhance operations in local realms

Functional Managers

These types of managers are the ones dealing with practical matters in implementing the plans generated from both business managers and country managers . These managers are responsible to see the world as a source of idle resources . Their businesses include managing financial , information and human assets

Importance of the Transnational Concept

In their studies , Bartlett and Ghoshal discovered that within numerous industries , companies were faced with consumer preferences toward differentiated products . There were growing uneasiness because large scale imports of globally standardized products upset trade balances Product design are demanded to be locally sensitive and have shorter life cycles because the society are have a growing taste for changes . On the other hand , multinational companies also have the need to achieve economics of scale and lessening costly production processes in to survive international competition . In short , multinationals were increasingly demanded to fulfill two very contradictory demands , to achieve both global efficiency and local responsiveness . In addition there are also apparent needs to transfer corporate knowledge to all units of the worldwide corporations in to maintain direction of the company (Bartlett and Ghoshal , 1988

The rising demand on differentiated products called for locally responsive strategies . Furthermore , the increasingly diverse local characteristics required companies to be sensitive in the multidimensional terms . The shortening product life cycles on the other hand , called for increased organizational learning capability Technically , the demands lead to increased R D cost because new product design needed to be produced in shorter amount of time . The strain of demands stated above logically brings Bartlett and Ghoshal to the conclusion that the transnational concept is required for corporate survival in the new global age (Bartlett and Ghoshal , 1988

Challenges in Adopting the Transnational Concept

However , like any other concepts , there are considerable challenges facing companies in the process of change . Companies accustomed to the one-dimensional environment were facing hard times in adjusting to the multidimensional nature of the global environment . Mainly , the largest challenge came from two factors : facing administrative heritage and internationalization industry

As companies grow , they evolve a design which becomes their typical method of managing their operations . These structural pattern of managerial and operation systems cannot be changed overnight . Even more despite structural changes has been made for some time these inherent systems will usually endure . There are various factors contributed to this administrative heritage . The strongest one is most likely the national culture in which the companies operate

For instance , Japanese companies are accustomed to centralized leadership styles and brotherhood-like partnerships . These patterns of managerial styles might not be appropriate once the companies step into the global environment , nevertheless , traces of their existence will remain long after efforts of changes has been made . Overall , managers usually face difficulties in adopting the transnational concept due to this obstacle (Bartlett and Ghoshal , 1988

A similar but slightly stronger obstacle to adopt the transnational concept is the internationalization history . This refers to the fact that different multinational find success within their internationalization effort through various means and strategies . It s common mistake among managers to believe that managerial patterns which brought them success in the first place will continue to brought them success in the future . The more successful a company is , and the more obstacles the company has endured would cause the company to become more resistant to change . In short , companies who endure different internationalization processes would have different belief about what constitute as a well-designed managerial structure (Bartlett and Ghoshal , 1988

For instance , companies in Japan did not start their internationalization process until the 1970 's , where a strong and centralized managerial system is a perfect match for the failing national markets in most European and American countries . Within those years , Japanese companies took over many businesses in the foreign land which once belong to famous local entrepreneurs . For example , the British Motorcycle Industry was starting to lose its dominance over the local motorcycle markets as the Japanese started to enter the country in the 70 's . The British was losing the motorcycle business within its local market despite the fact that the first motorcycle ever made was invented in Britain (Chadwick , 2001 . The success obviously brought a considerable amount of confidence to the Japanese , which might explain the current style of Japanese managerial system , which still largely characterized with centralized and dominant leadership roles Evaluation of the Concept

Observing how a company adapted to the concept and what has the concept delivered to the company can represent an evaluation of the concept of transnational companies . In the United Nations Conference on Trade and Development (UNCTAD ) index of transnationality , it was revealed which companies had complied to Bartlett and Ghoshal 's concept with the best methods and manners . In 1995 , the Asea Brown Boveri (ABB ) has been recorded number six within the index (Dowling , 1999 . Once , the company experienced significant problems in managing their international operations . However , after adopting the transnational concept and design the company to meet the multidimensional challenges described by Bartlett and Ghoshal , the company displayed visible development in its operations and processes

This conclusion however , was only temporary in nature . Recent development revealed that the ABB experienced difficulties in managing corporate structures after it was modified according to the transnational concept . For example , the previously decentralized system was taken back step by step in various business areas

There are significant questions whether the concept is manageable at all . The transnational concept results in the increased profitability of the company however , the decentralized organizational structure also increased the cost of coordination and control (Gartner , 2002

In the end , the increased profitability was eaten away by the increased cost of coordination and control . Moreover , the concept was questioned due to its vague s toward what constitutes as a viable transnational managerial system and what is not . The concept is criticized to be merely concept and cannot be transformed into a real organizational model . Various companies prefer to take the concept as a philosophy to increase corporate flexibility and nothing more . It made a lot more sense for them to maintain their traditional one-dimensional structures with more effort to increase corporate flexibility

Many has stated that perhaps the `transnational company ' concept will be a lot more suitable to be applied within newly internationalized companies , because these types of companies do not have to face the problem of inherent international structures

Bibliography

Bartlett , Christopher . Ghoshal , Sumantra . 1987 . `Managing Across B New Strategic Requirements . Sloan Management Review , 28 ,4 , 7-17

Bartlett , Christopher . Ghoshal , Sumantra . 1988 . Organizing for Worldwide Effectiveness : The Transnational Solution . Harvard Business Review , 1 ,1 54-74

Campa , Jose Manuel . 1995 . Stern School of Business , New York University [online] . Retrieved April 25 , 2006 . Available at http /cbi .gsia .cmu .edu /s /cbi_working-1995-05 .html

Chadwick , Ian , 2001 , `An overview of the British motorcycle industry and its collapse (Online ) Retrieved April 25 , 2006 . available at HYPERLINK "http /www .ianchadwick .com /motorcycles /britbikes /overview .html http /www .ianchadwick .com /motorcycles /britbikes /overview .html

Churchwell , Cynthia D . 2003 . `The New Global Business Manager . HBS Working Knowledge [online . Retrieved April 25 , 2006 from http /hbswk .hbs .edu /pubitem .jhtml ?id 3827 t globalization

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Dowling et all . 1999 . `International Human Resource Management Managing People in a Multinational Context , Cincinati : South Western Publishng

Gartner , E . 2002 . ABB Asea Brown Boveri (A : The Merger . Graduate School of Business Administration , University of Virginia , Charlottesville [online] . Available at : http /faculty Darden .virginia .edu /eakem /abb .pdf

Hill , C .W .L . 1994 . `International Business - Competing in the Global Marketplace . Boston

Johanson , J . Wiedersheim-Paul . 1975 . `The Internationalization of the Firm : Four Swedish Case Studies , Journal of Management Studies : 305-322

Johanson , J . Vahlne . 1977 . `The Internationalization Process of the Firm - A Model of Knowledge Development and Increasing Foreign Market Commitments . Journal of International Business Studies , 23-32

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