Where once organisations could rely on their home markets to provide the foundations for limited, albeit, profitable exports, today the rules of competitive advantage have changed. At a corporate level, as well as, at business and operational levels, unless you are globally competitive it is unlikely that in the long run your organisation will succeed. As more public services move into the private sector, or are tested against market forces, the opportunities for global competition in the provision of public goods and services is enhanced, e.g. the provision of infrastructure projects by companies such as Hyder, the Welsh utility company, in the Far East.
Two of the major pieces of evidence of globalisation comes in the form of the increase in global production as discussed above and the growth in movements of production in the form of what have become known as ‘inward investment’, where organisations establish operations in different geographic regions. (Dicken, 1992, p.11) There has been an extraordinary growth in the number of significance of what Dicken (op cit.) calls Transnational Corporations (‘TNCs’) or what other writers call Multinational Enterprises (‘MNEs’) (Dunning, 1992) or Multinational Corporations (‘MNCs’) (Piggott, 1993; Pucik, 1993). In this note the term MNCs will be used. Whatever you choose to call these organisations that have grown beyond their initial markets and boundaries, they have actually been around for some time. The East India Company and the Hudson Bay Company are examples of organisations that certainly had international, if not global aspirations, in pervious centuries. However, until this century companies tended to be international trading, rather than trading and producing, companies. The move to global production is the key change that has taken place this century and particularly in the last 20 to 30 years.
“One of the key characteristics of the best global competitors is an emphasis on the long-term accumulation of competitive capabilities. These firms’ strategic intent is clear: long-term product/ market leadership in the areas in which they have chosen to compete.” (Pucik, p.2).
Marketers are all too quick to jump on the global bandwagon - at their peril. Producing a global product, such as a food product, has proved less easy than first envisaged. Not only do tastes differ around the World, but also branding and marketing on a global scale are notoriously difficult, as companies, such as Grand Metropolitan Plc, have found to their cost.
There has latterly been a shift in the growth of global companies from the manufacturing sector to service (Dicken, 1993, p.57). Traditionally the areas within the manufacturing sector that have been subject to globalisation are: high technology; volume; and mass production. Interesting today is the developments in finance, banking, accountancy, consultancy and other areas in the service sectors.
MAIN DRIVERS FOR GLOBALISATION
Without going into depth about the economic factors underpinning this topic it is necessary to point out a number of key elements in the development of the global organisation. Certainly in the last century economies and organisations could have been broadly divided into core, semi and peripheral economies (Dicken, op. cit. p.13). The Bretton Woods and its successor the General Agreement on Tariffs and Trade (‘GATT’) were designed to open up World trade and in some ways they are seen are catalysts to the development of global companies. The development of MNCs has seen the breakdown of the traditional trading relationships between areas. MNCs have ‘broken across’ boundaries. 50% of all trade of the US and Japan is conducted by MNCs (Dicken, op. cit. p.49). Where once certain economies were seen as core, semi-core or peripheral, the distinction between them has been blurred and particular economies have changed classification, e.g. South East Asian economies, such as, Taiwan, Singapore, have moved from the periphery into the core.
Early writers in economics, such as Ricardo, Von Thunen and Weber, identified some of the concepts and issues for the development of globalisation. Ricardo introduced the concept of comparative advantage in 1817 (Dicken, 1993, p.92), where he proposed that countries should export those products in which they have a competitive advantage and import those products in which they do not have such an advantage. Many economists have expanded upon this concept. One of the more recent, popular and familiar is Michael Porter, who in his texts, ‘Competition in Global Industries’ (1987) and ‘Competitive Advantage of Nations’ (1990) identifies what he believes are the key factors that give economies competitive advantage (also succinctly explained in his article in People Management, 1997, p.37).
Certainly writers such as Dicken (1993) see MNCs as the main drivers of globalisation. However perhaps is better to look at these corporations as the methods by which organisations gain global status, rather than the reason why they globalise.
Technology is identified by virtually all writers looking at this phenomenon as critical in the development of globalisation (Dicken, 1993, Ch.4). Dicken (op. cit.) uses the term ‘space shrinking technologies’, which really sums up one of the drivers that has allowed the development of MNCs. Technology has increased the speed and efficiency in the transportation of materials, but more recently the electronic revolution and today the Internet is demanding that some service industries have to be global to survive, e.g. Insurance; banking; airlines.
Certainly in the last century economies and organisations within them could have been broadly divided into core, semi and peripheral economies (Dicken, op. cit. p.13). The Bretton Woods and its successor The General Agreement on Tariffs and Trade (‘GATT’) were designed to open up World trade and in some ways they are seen are catalysts to the development of global companies. The development of MNCs has seen the breakdown of the traditional trading relationships between areas. MNCs have ‘broken across’ boundaries. 50% of all trade of the US and Japan is conducted by MNCs (Dicken, op. cit. p.49)
Yip (1991, p.3) identifies four main drivers of globalisation; market; cost; government; competitive. Within each of these categories are a wide array of factors that will force an organisation to take a global strategic position in preference to the ‘safer’ option of domestic or multi-domestic development.
STRUCTURES
Developing a global infrastructure helps create strategic advantage in itself, in that, it extends the value chain and makes this critical element in the organisation of capabilities even more difficult to imitate and copy. Thus an organisation’s competitive advantage, cost, differentiation or any combination of the two will BE more sustainable as a source of long-term success.
The structures that organisations have developed to accommodate or facilitate their global developments have been the focus of much research. The relatively straight-forward structures within which organisations can operate effectively within a national context, e.g. Divisional; holding; conglomerates; etc., have not proved to be rigorous enough to withstand the pressures imposed when having to operate on a global basis. Thus new and innovative structures have developed, such as; networks; alliances; joint ventures; matrix structures. These developments have forced organisational theorist and strategists alike to rethink why, when and how organisations should develop. Dicken (1993, ch.7) contains a useful section looking at this factor in globalisation.
In 1993 an article in the Economist reporting on some of points of discussion at the annual meeting of the World Economic Forum, put forward the views of one of the contributors, Cyrus Freidheim, vice-chair of Booz, Allen and Hamilton, a firm of management consultant. He predicted the demise of global firms was nigh. The argument proposed was that firms, or companies, because of the increasing complexity of markets and intervention by authorities (be they national or regional), will no longer be able to act as separate entities. Alliances, networks and other such structures will develop between competing or even unrelated businesses. However this article did caution that the type of structures that it predicted are notoriously difficult to manage.
POSITIVE AND NEGATIVE EFFECTS OF GLOBALISATION
Freeman (in Piggott, 1993, pp.304-306) suggests the benefits of globalisation are:
1. to the employees of MNCs. The numbers employed and their wages are ameliorated by globalisation;
2. to the shareholders of MNCs. They receive, on average, higher returns;
3. to the customers. Globalisation and mass markets give benefits to individual customers.
Galbraith (in Piggott, 1993, p.306) has a more negative view of the development of MNCs. He believes that when some organisations gain such control over a market, particularly due to technical innovation, they can, because of their dominance, inhibit further innovation by organisations, who, in the past, might have imitated and developed their product. An example of this could be Bill Gates’s Microsoft. It has also been suggested that global companies can adopt an almost monopolistic position in their markets, to the detriment of the consumer. In this case state, or trading block (e.g. EC) intervention may be necessary.
Dicken (1993, part 4) gives a more comprehensive assessment of the costs and benefits of globalisation at both the micro and macro economic levels.
BARRIERS TO GLOBALISATION
Culture is a major problem for organisations wishing to expand into foreign markets. Again there is a growing body of literature that looks at this aspect of globalisation, particularly at the operational level (Kanter, 1989; Joynt, 1996, ch.2; Jackson, 1995; Fatehi, 1996). The mechanism chosen will determine the level of cultural issues that should be considered. Invariably organisational, sectoral, regional and national cultural issues should be analysed. Euro Disney was almost a disaster until steps were taken to address some fundamental cultural issues that were adversely effecting the performance of the organisation.
Porter (1987, 1990; 1997) of an economy's infrastructure in the development of competitive advantage. A major problem in the development of the Scottish electronics industry was identified as its lack of infrastructure to support high technology development.
Political/ Legal barriers have been a major barrier to the development of global organisations. Although it could be argued that in certain cases they have been an incentive to form alliances that cross borders in an innovative way. The European Union, although initially a trading body, has moved far beyond that remit, so as to determine every aspect of political, economic, social and technological development in its member states, has proved, in some cases, a block to the expansion of global organisations.
CONCLUSION
Undoubtedly there has been in the last three decades an unprecedented increase in the size, diversity and speed of response of organisations operating on a global basis. This has been the result of an incredibly rapid improvement not only in the speed of information flows, but also in the quality of the data available. The service industries have been best placed to take advantage of these developments, which is the reason why sectors such as finance have seen the most rapid progression to a truly global industry.
The environmental forces behind globalisation are compelling organisations to look at their structures and reassess traditional relationships across borders. Alliances and networks are of increasing importance, however the development of these mechanisms will raise new and intriguing questions for the managers in the next era.
Lists of MNCs can be found in Dicken (1993, p.50) and Piggott (1993, p.303 and p.305)
REFERENCES & BIBLIOGRAPHY
The list below contains specific references contained in the above note. However if you wish to get an overview of the factors encompassed within the topic, then the emboldened references should be consulted. Dicken’s text, in particular, gives much of the economic theory underpinning the subject in a very readable manner.
Bartlett, C. A. and Ghoshal, S. (1987), Managing Across Borders, Sloan Management Review, Summer.
Dicken, P. (1992), Global Shift, (2nd ed.), London: Paul Chapman Publishing
Dunning, J. H. (1992), Multinational Enterprises and the Global Economy, Wokingham: Addison-Wesley
Drucker, P. (1986), The Changed World Economy, Foreign Affairs, Vol.64, pp.786-791
Economist, (1993), The Global Firm: R.I.P., February 6th, p.85
Fatehi K, (1996), International Management: A Cross Cultural Approach, Prentice Hall
Jackson T. (ed.), (1995), Cross-Cultural Management, Management Readers
Joynt, P. and Warner, M. (eds.), (1996), Managing Across Cultures London: Thomson Business Press (Ch.2)
Kanter Rosabeth Moss, (1989), When Giants Learn to Dance, Routledge
Piggott, J. and Cook, M. (1993), International Business Economics: A European Perspective, London: Longman
Porter, M., (1997), Ace of Diamonds, People Management, 23rd October, pp.36-39
Porter, M. (1990), The Competitive Advantage of Nations, London: Macmillan
Porter, M. (1987), Competition in Global Industries, Boston: Harvard Business School Press
Pucik, V., Tichy, N. M. and Barnett, C. K eds., (1993), Globalizing Management, Creating and Leading the Competitive Organisation, Chichester: Wiley
Yip, G. S. and Coundouriotis, G. A. (1991) Diagnosing Global Strategy Potential: The World Chocolate Confectionery Industry, Planning Review, January-February, pp.4-14
