Think global, act local has long been the mantra of the transnational.
True transnational capability requires:
· Exploiting the global integration
· Assuring local acuity, responsiveness and flexibility
The transnational corporation simultaneously pursues global efficiency, national responsiveness and knowledge development and exploitation on a worldwide basis.
The most successful global corporations have found a way to manage these dynamics successfully, interdependently and interchangeably.
Absent this balance companies typically operate internationally either as multi-domestics – providing a high degree of strategic freedom and organizational autonomy to subsidiaries or as mega-nationals – retaining tight control of strategic decisions and information at the global hub (worldwide facilities typically centralized in the parent country, products standardized, and overseas operations considered delivery pipelines to access international markets).
The problems with these models are:
· The mega-national may fail by blindly applying home country rules and practices to the new environment (under adaptation). Local entities increasingly act independently, redundancies and conflicts abound and the benefits of global reach erode.
· The multi-domestic firm can fail by playing entirely by the local rules (over adaptation). Increasing this model becomes out of touch with customers and employees and fails under its own inflexible weight.
· A hybrid that attempts to balance both dynamics – often called a matrix – works in concept more than reality - the matrix may fail due to complexity and procedural confusion (over-engineering).
New transnationals (and some incumbents) continue to experiment with alternative organizational forms and BCG highlights many that are at the cutting edge of architectural design. Often flexible networks replace more conventional designs. The challenge is that organizational performance doesn’t happen by osmosis and is planned and orchestrated and an adhocracy ultimately will prove problematic to sustainability. The balance of global and local will still be necessary.
Global integration means centralized control over key resources and operations that are strategic in the value chain; decisions are made from a global perspective
Global integration can provide a firm operating internationally with a number of important benefits derived from a worldwide optimization of resources:
Economies of scale. A company can lower its unit costs by centralizing critical value chain activities, such as manufacturing or logistics. This may involve having a small number of large facilities to make products for export, or creating a network of specialized and focused operations spread around the world that are tightly controlled by the central hub.
Value chain linkages. Sometimes competitive advantage comes from tight linkages between value chain activities - between R&D, manufacturing, and marketing in the home country which is a technological leader (for example Silicon Valley in the Internet equipment business); or between manufacturing and logistics. Tight integration allows the firm to stay ahead of technological and competitive changes.
Serving global customers. To the extent that customers are integrated and operate on a global basis, their suppliers may be forced to adopt a similar structure. Subsidiaries do not have their own stand-alone customers; prices, quality standards and delivery terms are determined globally.
Global branding. Consumer product companies such as Coca Cola or Gillette promote a united brand image around the world. Coke standardizes its formula and advertising themes (its two critical success factors), gaining efficiencies in utilization of marketing tools such as advertising and merchandising.
Leveraging capabilities. Some companies expand globally by transferring capabilities developed in the home market. The international expansion of both IKEA and Wal-Mart depends on supply-chain management skills that allow these companies to pursue their traditional low price strategies around the World.
World-class standardization. Key processes are standardized and centrally controlled so as to maintain competitive advantage. The pharmaceutical giant Merck manufactures locally to meet government requirements. Its manufacturing processes are complex, however, and these are standardized in order to maintain quality.
Competitive platforms. Tight control of local subsidiaries by central headquarters may allow rapid response to competitive conditions and redeployment of resources so as to facilitate expansion worldwide. For example, tightly centralized Japanese multinationals penetrated new markets in the past through price subsidization funded by profitable operations elsewhere.
Information advantage. Prime examples of mega-national firms - Japanese trading companies (sogo shosha) - are located in every corner of the world. Through the network of local offices, staffed primarily by Japanese expatriates, they optimize global business opportunities by tapping into pricing and delivery information about thousands of products.
Global integration does not necessarily mean distributing the same product or service in the same way all over the world. What it does mean is that decisions on how to address local customer needs or market differentiation are made by managers who have an integrated global point of view.
Forward-looking firms are finding that no region or country has a monopoly on business-level component capabilities and firms that actively seek the latest resources and skills from around the world can build superior knowledge and performance capability.
The ability of multinational firms to access foreign-based clusters of excellence is a clear source of advantage in gaining component knowledge-based advantage.
Implementing Global Integration
Important considerations include:
· The alignment of decision-making to ensure that local decisions reflect a global perspective
· The standardization of processes to achieve desired efficiencies and uniform behavior, using formalized control
· The socialization of key individuals in central and expatriate leadership positions to ensure global orientation
A Case in Point
By way of illustration, one particular client company that occupies a valuable niche position in the global medical device industry saw developing economies as significant growth markets over the next five – ten years. Its business was sound, but not particularly profitable. Years of doing business internationally had not translated into global mindset or practices. Product development was centered in two locations – North America and Europe; products were designed with a local orientation and an export mentality; leveraging local manufacturing capacity and legal entity financial results were blatant priorities; you could drive to most suppliers within a couple of hours; sales reps often competed against each other for international orders. Candidly, the organization was less an impediment to global growth than a foundational barrier.
Amongst the many clear realties facing a new CEO was that he couldn’t get from here to there without transformational change; espousing new values and expecting the organization to miraculously globalize was clearly not going to happen. In fact, what was required was a carefully constructed organizational strategy that – over time – built the practices, capabilities and mindsets of a global company. It is an ongoing journey that involves new leadership, extensive organization development activity, a new organizational architecture, new operating, information and communication systems and practices, a global P&L tied to a new reward system, the development of a global product portfolio, lean manufacturing centers of excellence and a global fulfillment and distribution process. The organizational transitions are immense as the company preserves institutional knowledge, while foundationally changing its modus operandi.
Coordination mechanisms that help build and bond global integration include:
· Things get done through relationships not hierarchy
· Ties are built that span boundaries
· Events, projects, work assignments, knowledge sharing protocols, problem-solving
· Boundaries can be intra- or extra-organizational
· Conflicts are worked out through relationships, not because somebody decides
· Relationships deepen over time; they represent the social capital of the enterprise
· Fundamental coordinating mechanism for the transnational
· Be clear on purpose and deliverables; provide authorities and boundaries
· Staff for diversity and capability, not representation
· Mix face-to-face, synchronous and asynchronous where possible
· Promote learning as well as results
Global Process Management
· Horizontal standardization of sets of activities that are regularly repeated and focus on clearly identified deliverables
· Foundational pillar of coordination
· Global definition of process, local responsibility for execution
· Little room for local adaptation
· Improvements sought and shared
Know-How and Best Practice Sharing
· Create organizational opportunities, structures and technology platforms
· Set expectations for sharing and knowledge development and deployment
· Provide investment, visibility, recognition and reward
· Maintain, sustain and refresh
· Provides and advances competitive position
· Transfers corporate knowledge from individuals to the firm
· Converts established learnings into shared, organizational platforms
· Develops new sources of value
· Reduces redundancies and wheel re-invention
· Strengthens corporate “glue”; fosters global-local understanding
· Deepens networked relationships; builds organizational competencies
· The socialization that leads to shared attitudes, values, and assumptions - the shared culture of an organization – and emphasizes the importance of a communal sense of identity
Without normative integration, communication across borders would be time consuming since people would have to figure out what terms and concepts meant to others and repeatedly establish new norms for social exchange (leadership expectations, how to surface and deal with conflict, the nature of reciprocity, and myriad other such norms)
Other coordinating mechanisms include global mindset development, transnational leadership development and organizational capability building. We’ll cover each of these in subsequent postings.
Quando vai a Roma, fai come vedi?
· It depends upon the specific situation – what is necessary and what is the context.
· It depends upon the chosen (adaptive) strategy of the company.
· Cultural accommodation (adapting practice to local norms)
· Cultural compromise (deciding to find some middle ground)
· Cultural synergy (finding a way to integrate practices)
· Cultural relativism (practices are established relative to home country norms)
Differentiation of Subsidiary Roles and Responsibilities
Some companies have begun to differentiate the roles and responsibilities of their national subsidiaries.
The intersection of strategic and organizational considerations defines four generic roles that country organizations can play in fulfilling the global objectives of the transnational organization.
The principal strategic consideration is the overall importance of national environments to the firm’s global strategy. A very large market is obviously important, but so is a competitor’s home market, or a market that is highly sophisticated or technologically advanced. The major organizational consideration is the national subsidiary’s competence - in technology, production, marketing, or another area. Depending on its positions along these dimensions, a national organization may function as a strategic leader, contributor, implementer, or black hole.
National organizations with high internal competence located in strategically important markets must be legitimate partners with the headquarters in developing and implementing broad strategic thrusts.
Several companies we try to capture the benefits of certain local facilities or capabilities and apply them to the broader worldwide operations. This pattern was particularly characteristic of subsidiaries in which competence was high but the strategic importance of the market was limited.
Some national organizations have just enough competence to maintain their local operations in a nonstrategic market. Corporate resource commitments reflect the market’s limited potential. In most companies, the majority of national units play this role. It is characteristic of many subsidiaries in the developing countries of Latin America, Africa, and Asia as well as the national organizations in Canada and in the smaller European countries.
These national organizations cannot contribute much to the strategic knowledge of the firm. They do not have access to critical information; they do not control scarce resources.
Fundamentally, they are implementers - deliverers of the company’s value added. Their task is not unimportant, however. The implementers often maintain the commercial viability of the company and generate the resources that support strategic and innovative processes. For this reason, their efficiency is as important as the creativity of the strategic leaders or contributors. The implementers make it possible to capture economies of scale and scope that are critical to most global strategies.
The Black Hole
There may be strategically important markets in which a worldwide company has minimal capabilities. This is true, for example, of Philips in Japan, of Ericsson in the United States, and of Matsushita in Europe. In each of these markets a strong local presence is essential for maintaining the global position of the firm. Yet these competitors have only token positions in these markets.
The black hole is not an acceptable strategic position. The task for management is to find a way out of this thankless role. In essence, the national organization in a black hole situation should be playing the role of a strategic leader but lacks the competence to do so. Remedies will not come cheap. Developing a significant local presence in a large, sophisticated, and competitive national environment is extremely difficult, expensive, and time-consuming.
One common response to this challenge has been to create a small sensory capability to exploit the learning potential of the environment, even if its business potential is beyond reach. Thus, many American and European companies have established small organizations in Japan to monitor technologies, market trends, and competitors. The assumption is that such monitoring will allow the companies to analyze the global implications of local developments and at least prevent erosion of their positions in other markets.
Important reasons include:
· National, regional and local market characteristics
· Network development and leverage; connections
· Customer needs, preferences and buying practices
· Local regulations and infrastructure
· Public opinion/political interests
· Employment norms/workforce appeal
How To Localize?
There are many important imperatives that promote and reinforce a localization strategy:
· Open-mindedness; tolerance for diversity and ambiguity; inclusion; reciprocity; sensory acuity
· Investment and commitment; local presence, infrastructure and relationships; long-term orientation
· Shared vision and goals; distributed authority; information transparency; mutual knowledge and learning
· Product/service/business process adaptation; business, leadership and organization development