Transcript Document

Global Strategy
and The Debate over
Centralization vs. Decentralization
S. Tamer Cavusgil
Michigan State University
• What is Global Strategy?
• Which company best illustrates
pursuance of global strategy?
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General Motors?
Wal-Mart?
Steelcase?
Cardinal Health?
Dell?
IKEA?...
Pressures for Global
Integration
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Economic efficiency imperative
Promoting cross-fertilization
Converging demand patterns
Acceptance of global brands
Harmonizing product standards
Diffusion of uniform
technology
eBusiness integration
Pressures for Local Responsiveness
Availability of pan-regional
media
• Unique industry and product
Integration of markets
standards
through economic blocs
• Local market requirements: customer
Spread of international
need, competitive environment,
collaborative ventures
distribution structure
Need to monitor competitors
• Cultural differences
on a global basis
• Geographic separation
• Nation states and protectionism
• Tariffs and Non-Tariff trade
barriers
Shifting Focus
The Outdated Regime:
The New Regime:
Minimum guidance from HQ
Little cross-fertilization
Autonomous units
Synergistic, coordinated
Enhanced cross-fertilization
and learning
Loose federation of country
subsidiaries with great
autonomy
Tightly coupled
networks, integrated
units
Trend Towards Global
Strategy
National
or Multi-Local
Strategy
Piecemeal approach to strategy
Country-specific practices
and systems
Global or
Geocentric
Strategy
Worldwide strategic
integration
Coordination and control
Optimal configuration of VA
activities
National or
Multi-local
Companies
• Strong national identity
• National endowments: talent
pool, skills, capabilities
• Unique corporate
governance/ownership patterns
• National regulations on
employment
• National patterns of investment
in R & D
IKEA, Nestle, Unilever,
Citibank, Sony, CocaCola
Global or
Transnational
Companies
• Dependence on global markets
• Worldwide manufacturing capability
• Standardized products
• Coordinated planning and resource
allocation
• Globally integrated strategy
• Centralized structure and decisionmaking
• Uniform operational policies and
routines
• Global organization and culture
• …
www.ikea.com
Product
Standardization
IKEA’s Global
Marketing
Strategy
Integration of
Competitive Moves
Market
Participation
Promotion
Standardization
Channel
Standardization
Coordination
of Mktg Activities
Price
Standardization
Concentration
of Marketing
Activities
Source: Zou and Cavusgil 2002 – Journal of Marketing
Worldwide Integration and Coordination
within Internationalizing Companies
• Pursued with greater sense of
urgency…
• Integration between Headquarters
and subsidiaries, and…
• Across supplier and customer
networks
• Greatly facilitated by advances in
Information Technology
Spread of Common Business
Practices
• Global procurement
• Global supply chain management
• Global product development and
product launch
• Global branding
• Global account management
• Lead centers of excellence
• Global teams
• Global talent pools
•…
Global
International
GM’s Global Brand
Hierarchy
Europe, Middle East,
Asia
North America,
Middle East, Europe
North America
North America, Asia
North America
Local
United Kingdom
Australia
Korea
Companies are Pursuing Global Integration
with Greater Determination
• Industry consolidation; intense
competitive pressures
• Desire to achieve global scale efficiency;
rationalization; cross-fertilization,
• IT as an Enabler:
– ERP, EDI, CRM, Collaboration
software, Intranets, Extranets,
eBusiness...
How to Best Organize for
Global Operations
• Where in the organization should key
decisions be made?
• How should country operations report to
HQ / Home Office?
• What kind of staff is needed at
subsidiary and HQ levels?
• How much do you delegate?
Centralization vs Decentralization
• How do you optimize on a global basis?
An MNC Network
BE
RD
SD
SA
CE
BA
RB
BD
A
CF
F
H
BF
SB
B
CD
SF
RE
E
RA
CA
D
SE
BB
RC
SC
CB
RF
Subsidiary Level Network
BC
S: Suppliers R: Regulatory institutions
B: Buyers C: Customers
C
CC
A : Home plant
H: Headquarters
B … F: Subsidiaries
17-7
Global Company Network
Distributed
specialized
resources and
capabilities
Complex process of
coordination and
cooperation in an
environment of shared
decision making
Large flows of
components,
products, resources,
people and
information among
interdependent units
Exhibit
Source: Reprinted From Managing Across Borders: The Transnational Solution by Christopher A. Bartlett
17.6 and Sumatra Ghoshal, Boston, MA, p.89.
Global Business
Management
Responsible worldwide
for all product lines:
•Manufacturing
•R&D
•Strategic Marketing
Commercial Operations
Western Hemisphere
Responsible for all
trade marketing and
sales in North America
and Latin America
Commercial Operations
Eastern Hemisphere
Responsible for all
trade marketing and
sales in Europe, Asia,
Africa, Oceania
A Simplified View of Distributing Autonomy
Corporate
Headquarters
Regional
Centers
National
Units
Considerations
• Strength of
globalization
drivers
World
Product
• Product
characteristics
Regionally
based or
Adapted
product
• Strategic
positioning vs.
operational
implementation
Nation
based or
adapted
product
Global
Strategy
Regional
Strategy
National
Strategy
“General Motors wants to be the
winner in the race to the middle
in the centralization vs.
decentralization debate.”
Rick Wagoner
CEO, General Motors
Quoted in the WSJ, 6 October 2004
“I want my business in Brazil to be run
by Brazilians, the business in Japan
by Japanese, the German operation
by the Germans…”
Senior VP, Dow Chemical Company
“From the early 1950s through the late
1970s, Caterpillar placed thousands of
employees abroad. As a result, five out of
six top managers have had international
experience and are well equipped to deal
with global competition. Recently, however,
there has been a marked reduction in the
use of expatriates. How will the future
generations of Caterpillar managers gain
the expertise that is, and will continue to
be, a key factor in the company’s
competitive success?”
Lee Morgan
Retired CEO and Chairman
Caterpillar Corporation
CENTRALIZATION
• Allows for global
strategy
• Creates critical mass in
operations
• Promotes global
objectives
• Promotes product
standardization
• Facilitates coordinated
capital planning; rational
allocation of resources
• Allows for substantial
R&D activity
• Encourages development
of home-country
personnel
DECENTRALIZATION
• Allows for maximum local
adaptation
• Offers flexibility and
responsiveness
• Recognizes diversity of
markets
• Promotes local differences
• May lead to suboptimization and redundancy
• Requires close coordination
for disseminating R&D
discoveries and operational
experience
• Encourages development of
host-country personnel
Factors Relevant to the Choice
• Experience and competence of management
- Bias towards one or the other changes
as the organization evolves
• Nature of the product
• Strength of globalization drivers (nature of
competition; multi-domestic vs. global…)
• Size and strategic importance of foreign
operation
• Caliber and availability of local personnel
• Nature and importance of decision to MNC
Typical Evolution of International Organization
• The Export Department
• The International Division
• Transnational or Matrix Organization
--By regions or product divisions
• Coordination and control achieved
through…
Project-based teams, common practices,
and cross-fertilization… facilitated by
the Internet
Examples of Coordination within the
Global Company Network
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Worldwide strategy teams
Lead centers of excellence
Global account managers
Global talent pools
Common Business Practices:
Global procurement; Global supply
chain management; Global product
development and product launch;
Global branding…
Global Strategy Board at GM
• Global Strategy Board incorporates the
highest officers of GM who are global
process leaders (i.e., labor relations, designengineering, manufacturing, marketing,
quality, HRM, purchasing, etc.)
• Oversee the development of Global Common
Processes
• Spread best practices throughout the global
organization
• Avoid “reinventing the wheel” in individual
regions
• Ensure that common processes are widely
practiced
Global Product Development Council
in Detroit
• Has taken power away from regional
engineering operations
• Oversees GM’s $ 7 billion annual spending for
new model development
• Promotes company-wide use of basic car
platforms developed elsewhere (e.g. Theta)
• Seeks cost economies: The cost of adapting
Holden Monaro (Australia) for North America
(GTO) was $ 50 million instead of $ 500
million it would typically cost to create a new
model
Development of Chevrolet Equinox
• When GM decided in 2001 to develop a crossover
vehicle to compete with Toyota’s RAV4 and Honda’s
CR-V, it tapped its capabilities all over the globe.
• The V6 engine was built in China, with cooperation
from engineers in Canada, the U.S., Japan and China.
• From a “global collaboration room” in Toronto,
engineers teleconferenced almost daily with
counterparts from Shanghai, Mitaka, and Warren.
They swiped virtual-reality renderings of the vehicle,
and collaborated on the styling of exteriors and
design of components.
• The SUV was built at Ingersoll, Ontario factory that
GM shares with its Japanese partner Suzuki.
Global Centers of Excellence
• A focal point for knowledge
development and dissemination
• A group of individuals recognized for
their leading-edge, strategicallyvaluable knowledge; mandated to
leverage and/or make that knowledge
available throughout the global firm
Monsanto’s Centers of
Excellence
The global HR function at Monsanto has created
centers of expertise in different regions that
handle special activities. For example, Singapore
is the center for cross-cultural training,
Argentina is the “Quality Center,” and Europe
handles the bulk of Monsanto’s salary
administration.
This is part of a deliberate organizational
strategy whereby the U.S. office is no longer the
“center of gravity.”
Types of Centers
• Charismatic centers of excellence are
simply individuals who are
internationally recognized for their
knowledge or expertise in a certain
area
• Focused centers of excellence, the
most common type, are typically
based around a single area of
knowledge, also called a capability or
best practice.
Types of Centers (2)
• Webs of Excellence: the core
individuals live and work in different
cities, and while they all know one
another and meet intermittently, their
means of interactions is through
electronic media. Of necessity, virtual
centers rely to a large degree on the
codification of their knowledge base.
Best Practice in Knowledge Sharing:
Bovis Lend Lease
• Success depends on our ability to effectively
share the intellect, insight and experience of
the business with everyone in the organization.
Our workplace philosophy is one of ensuring
sustained knowledge-sharing, collaboration, and
client focus.
• As an example, iKnow is our database of
research, written reports, and knowledge
networks across the organization.
• iKonnect is our knowledge sharing service which
provides our staff with quick and direct access
to best available knowledge anywhere in the
world.
CORPORATE
CONTRIBUTIONS
• Broad corporate strategy
• Global product
development
• Basic research
• Technology development
• Global product sourcing
• Product allocation during
shortages
• Capital planning
• Transfer pricing
• Global profitability
GEOGRAPHIC AREA
CONTRIBUTIONS
• Geographic strategy
• Geographic product
strategy
• Applications research
• Technical service
• Purchasing
• Sales
• Marketing
CORPORATE
CONTRIBUTIONS
GEOGRAPHIC AREA
CONTRIBUTIONS
• Broad Leadership • Customers
• Resource for
• Action
Experience
• Employees
• Source of
Encouragement
Bottom line:
Participative decision making
Each part bringing unique expertise to create synergy
Sony’s “Global Localization”
• Sony must be a good corporate citizen in
each local community; be involved in
community affairs
• Meet need for global control by:
- company-wide, long-range business
planning and financing
- coordinating worldwide
manufacturing
• Meet need for local autonomy by:
- Delegating sales, manufacturing and
product planning to regional HQ
P&G’s “Organization 2005” Restructuring
• Initiated in 1998, P&G highlighted:
Speed, Stretch, and Innovation
• Create an organizational structure
that can cater to local needs
• Facilitate cross-fertilization
• Single point of contact for ad agencies
• Virtual innovation teams linked by
Intranets
• Streamline some 300 brands to fewer
global brands
Tools for Achieving the Delicate Balance
• Motivation and coaching
- Encouraging local managers to identify
with broad, corporate objectives, and put
their best effort forward..
• HQ staff spending time on the road to instill
corporate priorities
• Transfer of people around the corporate family
• Interaction of country managers among
themselves
• Annual reporting and planning process
• Financial incentives and penalties
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Additional Resources
“Exploring the Marketing Program Antecedents of Performance
in the Global Company,” Journal of International Marketing, (with
Janell Townsend, Sengun Yeniyurt and Seyda Deligonul), Vol. 12,
No. 4 (2004) 1-24.
“The Framework of a Global Company: A Conceptualization and
Preliminary Validation,” Industrial Marketing Management, (with
Sengun Yeniyurt and Janell Townsend,) Vol. 33 (2004) 711-716.
“A Global Market Advantage Framework: The Role of Global
Market Knowledge Competencies,” International Business Review,
(with Sengun Yeniyurt and Tomas Hult), Vol. 14, No. 1, (2005) 1-19.
“The Hexagon of Market-Based Globalization: An Empirical
Approach Towards Delineating the Extent of Globalization in
Companies” New Perspectives in International Business Thought,
Arie Lewin (ed.), Palgrave, (with Tomas Hult and Seyda Deligonul),
forthcoming.
“Turning Three Sides into a Delta at General Motors: Enhancing
Partnership Integration on Corporate Ventures,” Long Range
Planning, (with Elizabeth Briody and Stewart Miller), Vol. 37
(2004) 421-434.