IBM as a Multinational Enterprises - Case Study Example

International Business: IBM Case Study This paper looks into the history and the strategy of International Business Machines (IBM), and how it expanded globally. It answers some questions about the company and most surprisingly, unveils the difference between a multinational enterprise and a global company. Q1: Is IBM a multinational enterprise Is it global A multinational enterprise or corporation is a company that produces or distributes products or services in more than one country. IBM satisfies both conditions of the definition of a multinational enterprise. IBM operates in more than 160 countries and its products are distributed in almost every country of the world. By this definition, IBM is a multinational enterprise. However, being a multinational enterprise and global are two different things. In IBM's case though, it is both a multinational enterprise and global. In fact, IBM is one of the only nine companies in the Fortune 500 companies to be considered global. A company's recognition as being global is only measured by the percentage of their revenue from different markets. The three triad major world markets: North America, Europe, and Asia, are considered when companies are measured. According to the rules for a company to be called global, the revenue from each of the three major markets must be greater than 20% of the total revenue of the company (2006). In the case of IBM, it passed the test since IBM's revenue from all the three major world markets exceeds 20% of the total revenue. The company gets 42.7% of its revenue from North and South America, 32.7% from Europe, and 21.6% from Asia. Other big companies can be considered multinational enterprises, but not global companies. The number of countries IBM operates in, along with the vast availability of its products throughout the world is sufficient to conclude that IBM has a global reach. IBM interests the masses of other countries, and that is why it is the largest firm in its industry. IBM started to expand beyond national borders through the merger of its Canadian predecessors, and establishing and maintaining a special relationship with its customers. According to the case presented, IBM expanded with speed and commitment into many different markets of the world. Q2: How does contract manufacturing fit into IBM's strategy Contract manufacturing is outsourcing manufacturing tasks to other firms. In IBM's case, the company uses contract manufacturing to manufacture a lot of its products in different parts of the world. IBM's strategy is to remain a global company, and contract manufacturing fits in perfectly in IBM. Contract manufacturing allows the company to expand faster than if the company would manufacture everything directly from the host country. Furthermore, it saves a lot money and time for the company because production facilities are not to be purchased, as it would be the case if IBM decides to manufacture them. It also involves getting the most out of the workforce. Local firms would know more of how to utilize their resources in the best possible way, and hence, local firms would a better job at managing local resources. Moreover, consumer tastes and demands differ in each country, so it is beneficial to use the knowledge of contractors about the home market. The contractors know more about the market for technological products in the home market. Furthermore, with specific assistance from IBM, the local firms can provide an IBM product with specific customization tailoring to the local population. Part of the reason for IBM's success in other countries is contract manufacturing. IBM would have to deal with a lot of issues such as location, availability of human resources and technology, training, market research, and government rules and regulations etc. To better minimize the risk of getting others to do the company's work, IBM has created six research centers across six countries to ensure that these centers conduct research in their region. Creating research centers has saved a lot of bucks for IBM because research departments are not present in every country, but in the region to develop products specifically for every region. The task of satisfying local consumers has been left to the contractors. This also ensures support for the contractors, who can then plan their marketing efforts. Also, the contractors are well aware of the laws in the country of operation, and they are already adapted to provide the best product and service to local consumers. However, contract manufacturing is not free of problems, and in order to succeed, contractors would need special assistance from IBM regarding the company's core values, and their objectives for the country of operation. Q3: Using the integration and national responsiveness matrix, in what quadrant does IBM's strategy fall IBM's strategy analysis requires an insight into the case study presented. First, four companies merged to form the Computer-Tabulating-Recording-Company. Then, the CTR merged its Canadian operations to form IBM. This was an example of national responsiveness. Four local and one international firm merged to form a local firm that strived to respond to the demands of the American population. The demand was technological innovation. Furthermore, the company sought to gain competitive advantage, and did this through industry down-sizing (mergers and acquisitions), and expanding beyond national borders. IBM integrated economically by expanding into regional markets. It currently operates in 160 countries. IBM takes advantage of the low cost labor in developing countries like China and Mexico. Manufacturing most products in developing countries allows them to supply products at competitive prices throughout the world. In my opinion, IBM's strategy falls into quadrant I because it seeks to gain competitive advantage through mergers and acquisitions, and strive to achieve economies of scale (n.d.). Furthermore, the lack of national responsiveness is low because IBM is in an industry that is global. It is one of the fastest growing industries of all. Even at times of an economic crisis, the industry is expected to grow. The world wants technological products, and many of those are quite similar. In short, even standardized technological products are accepted by the world in general. However, there may be certain minor adjustments to cater to different populations. References 1. (2006). Redding, G. The myth of the global company-Management Today. Retrieved from: http://www.managementtoday.co.uk/news/547322/the-myth-global-company/ 2. (n.d.). Globalization vs. National Responsiveness. Retrieved from: www.bus.ucf.edu/lmigenes/internmgmt/NEW%20chp%208.ppt Read More