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).
Cost reduction are imperative to ensure the ongoing viability of corporations. The sharing of costs globally for items such as R & D and mass production both provide examples of significant cost reductions, while enhancing learning and knowledge. By increasing the availability of information across the group you are more likely to also encounter a higher quality product as the innovation and knowledge is shared for the corporations greater good. Often companies forget that knowledge does not just reside in just the home country. Important information such as the local consumer market are often best to be determined by local managers so as to respond to local needs.
In relation to local responsiveness Theodore Levitt (1983) provides a somewhat extreme view of the global market. His philosophy is that technological, social and economic developments over the last two decades have combined to create a unified world marketplace in which companies must capture global-scale economies to remain competitive. As we have discussed, the need to become competitive through reduction in costs is imperative for every business. However Levitt’s concept of a unified marketplace with homogenous needs has still some way to go. As researched by Procter and Gamble even how we wash our clothes differs throughout the world, sometimes even within each country. The provision of a standardized product to suit all in this industry would be a failure due to not meeting the needs of local consumers (Bartlett 1983).
When we review these three elements of cost reduction, leverage of knowledge and local responsiveness we are aware that these terms are somewhat contradictory. History tells us that to provide local responsiveness you need to increase costs to increase the number of products which meet a specific consumer groups needs. The alternative is to standardize products to achieve economies of scale during production and marketing. Caterpillar has somewhat successfully implemented such a strategy. They redesigned their products around the use of standardized components. These are produced on mass through large production facilities to reduce the component costs and provide economies of scale. Machines are then transported to foreign markets where localized knowledge and components adapt the machines to the needs of local consumers (Srinivasa 1985). The overall approach is that they are able to combine all three elements of the transnational approach.
Corporations also need to be aware of the increasingly complex nature of undertaking business in an international market. Social, cultural, and political environments, as well as currency fluctuations, and geographic diversity need to be considered carefully in any decision to undertake a foreign operation. It is best to research thoroughly and constantly review any strategy for overseas ventures as situations can change as in any business venture quite quickly. An example of this would be the increased use of Indonesia as a low cost production base for Australian corporations. With the increased political instability and also terrorism most corporations would be considering the ongoing viability of continuing in this market.
Finally corporations need to be aware that to make any significant changes to an corporation strategy or structure it is both extremely complex, time consuming and challenging. As Ford has discovered, by constantly changing strategies to seek higher profitability, all they have been able to achieve has been another announcement of huge losses in 2001 from failed global ventures (Hill, Jones 2004 p276). The move to a transnational approach for most corporations would need to be a slow progression, while for some it is even perhaps out of reach. By focusing on the main elements of cost reduction, knowledge leveraging and local differentiation perhaps this will provide an avenue in the future for continued competitive advantage in an environment which is slowly moving towards Levitt’s concept of the ‘global village’ (1983). Perhaps the key lies with Bartlett and Ghoshal when they tell us that companies “must now respond simultaneously to diverse and often conflicting strategic needs. Today, no firm can succeed with a relatively unidimensional strategic capability that emphasizes only efficiency, or responsiveness, or leveraging of parent company knowledge and competencies. To win, a company must now achieve all three goals at the same time” (1989 p 25).
REFERENCE LISTING
Bartlett, Christopher A. 1983 “Case 6-1 Proctor and Gamble Europe: Vizir Launch”, taken from Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore, pp 632 – 647.
Bartlett, Christopher A. & Ghoshal, Sumantra 1989 Managing Across Borders: The Transnational Solution, Harvard Business School Press, Boston Massachusetts.
Barlett, Christopher A. 1999 “Case 2 -4 Phillips and Matsushita 1998: Growth of 2 Companies”, taken from Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore, pp 164 -180
Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore.
Gomes-Casseres, Benjamin & McQuade, Krista 1991 “Case 4-1 Xerox and Fuji Xerox”, taken from Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore, pp 418 – 443
Hill, Charles W. L & Jones, Gareth R. 2004 Strategic Management Theory: An Integrated Approach, 6th Edn, Houghton Mifflin Company, Boston, Massachusetts.
Levitt, T. 1983 “The Globalization of Markets” Harvard Business Review, May – June, pp. 92 – 102.
Srinivasa, Rangan V. 1985 “Case 3-1 Caterpillar Tractor Co.”, taken from Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore, pp 259 – 279.
