Global Strategy: An Organizing Framework by Sumantra Ghoshal - Article Example

Name: Tutor: Title: Review of the Article Global Strategy: An Organizing Framework Course: Date: Review of the Article Global Strategy: An Organizing Framework Introduction The article ‘Global strategy: an organizing framework’’ by Sumantra Ghoshal is a fluent and well-written analysis of an increasing literature on global competition. The main concern of Ghoshal is how to structure and organize the firms for competitive benefits. He argue that firms require a flexible and dynamic organizational structure which is able to face the external environment in relation to the internal components and processes. Ghoshal claims that there are three things which can bring about competitive advantage, specifically, national differences, and scope of economies and scale of economies. He asserts that the strategic undertaking of managing internationally is to make use of all these sources of competitive benefit to enhance efficiency, risk as well as learning concurrently in a global business. Managing the connections between these different objectives is key to an effective global strategy (Ghoshal, 1987). In this article, Ghoshal suggests an organizational structure which can assist managers formulate an international strategy with three mechanisms that he believed would make adaptation to future modifications easier. They include management of risks, operational efficiency and development of education capacity. Efficiency can be achieved with proper global alignment of the value chain. To effectively manage risks, MNCS needs to take into account the additional risks, such as political, macroeconomic, and resource-related among others, in their decisions. Moreover, it is critical to increase the learning capacity of the MNCs through gaining knowledge of the different markets as well as technological spaces the MNCs operate in (Ghoshal, 1987). Ghoshal creatively discusses the primary objectives of companies operating internationally as being managing risks, achieving efficiency, innovation and learning and adaptation. Developing and implementing approaches which optimizes the attainment of these three types of objectives by the firm is key to creating the competitive advantage of the firm. This may necessitate trade-offs to be generated between these objectives as sometimes they might conflict. For instance, the objective of attaining efficiency with economies of scale within production can clash with the objective of reducing risks resulting from political or economic conditions in a nation where the firm is situated. The differences among markets can be leveraged through allocating every value chain’s activity to the locales which gives the best benefits in regards to the overheads or else the qualities. Ghoshal also emphasizes on the structural system that must be sufficient to assess, comprehend as well as act in the external markets to engage the location bound advantages. It is crucial that the global strategy of MNC be reinforced with a bigger production volume which is to generate scale economies for it to compete effectively. Moreover, the practical learning impacts of bigger production volume can create yet additional competitive advantages. According to Ghoshal, the scope economies results from drawing together internally the various value chains of a differentiated portfolio whereby all manufactured goods of the portfolio can be modified to the idiosyncrasies of the host country (Ghoshal, 1987). However, his matrix is ambiguous in several ways. First, to properly understand global strategy, it is critical to find out how the growth across national markets changes strategies as regards opportunities and costs. Failure to properly identifying this concern can lead to unfortunate outcomes such as trite though inconsequential educational issue of credit. The concern of credit come about because the inattention of ignoring the above question permits references that are not related to the global setting to work mostly on an ad hoc basis. The rationality of selection is made unclear when these gates are left open. Basically, failing to find out what varies when a firm cross borders results in a synthetic detachment in the strategy scope (Bartlett & Ghoshal, 1986). Ghoshal argues that learning, adaptation and innovation are the same considered objectives to be traded off beside risk and efficiency. This rises a very thought-provoking social issue of whether premeditated planning tools centered toward economic competence stamp out attention that must be concentrated on learning and innovation. The exploration of market exploitation as well as market generation might need, socially, different analytical strategies. However, this technical issue of selection of analytical approach ought not to cloud the substantive assessment of the benefits and costs of innovation and learning. It is irrational to assert that education should be traded off beside efficiency because education is the root of benefit whereby MNCs often knowledgeably invest and exploit in related risks and efficiency. For instance, the aircraft manufacturer’s decision to consolidate airframe assembly, while contract globally for other components is grounded on the efficiency advantages of local learning at the expense of the threat of employment interruption (Hamel & Prahalad, 1985). Moreover, it is logical to find out whether adaption to local management practices is efficient and useful to the firm in the future taking into consideration the revenue impact. The revenue effect of moving future advantages back to the firm gives us an insight as to why this thought is inadequate when outlined as a tradeoff, yet still a benefit. It is a crucial argument that internationalization of the activities of a firm is useful because of the fall in unit costs as well as creating new opportunities for profit and development of new capabilities. The advantages of foreign investment can hardly be evaluated on an objective project basis. An international firm rather should be seen as comprising of proprietary assets whereby it obtains current cash flows and of a variety of options characteristic of operating multiple environments. Analyzing as many question as possible as regards strategy is imperative as it helps find out whether buying an option is valuable in the future. Often, managers argue that investing in a nation is worth as it denotes a growth opportunity. Though net present value is not good, incremental option value need to be taken into account (Furrer, Tomas & Goussevskaia, 2008). Random events like exchange rate movements that promote a strategy of various plants through the capacity to shift production can drive options. The other types of options include the options that innovations can vary across nations and it is important to let operating assets be distributed so as to make good practice of the right to buy and transfer them. It is useful to invest in research and development so as to discover, comprehend as well as transfer such inventions as they take place. It is therefore wrong to refer to investment in that kind of options as tradeoff having efficiency or risks. Such kind of investments denotes incremental value of handling overseas subsidiaries as a system rather than as an established dyadic relationships between subsidiaries and headquarters. Hence, the acknowledgment that multinationality could be appreciated as a variety of options has substantial effects for the global firm’s organization and management (Porter, 1985). It is beneficial to utilize and transfer local resources among subsidiaries. It is also important for MNCs to have the capacity to exercise flexibility. To effectively manage the dyadic relationships between the subsidiaries and the headquarters, it is crucial to emphasize on area and product division. The system also presume that subsidiaries is supposed to be implementers of product development and corporate plans. The previous structures may not be favorable to compete on the multinational network. It is critical to have an integrated network in order to effectively exploit the resources of home subsidiaries for the wider system. However, the challenge is not just the dyadic effecting of the desires of the headquarters in a home market but also how to create organizational structures and networks that allow the utilization of opportunities in-built in the system of operating in multiple home environments. There no documented evidence that this is dificult to achieve and some companies do it better. Moreover, the notion of decentralization and centralization does not ignore the significance of network coordination. Furthermore, it may be difficult to describe the operating structures to pull the global strategy off than it is to isolate its substantive strategic content. However, the management question ought to be perceived as a complement rather than as a replacement, of the determination of the global strategy’s content (Kogut & Zander, 1993). Basically, there are fewer aspects of global competition than Ghoshal suggested in his article. It is critical to distinguish the incremental variance between a local and global setting in order to avoid the improvidence of extreme division of the strategy sphere. Moreover, global strategy should avoid concentrating solely on the initial overseas investment to including exploring the international system as a foundation of competition. The starting point for analysis of international strategies is finding out what varies when an organization moves from the domestic environment to the global environment. Traditionally, it has been assumed that the earth is a larger place and thus all economies associated with the size of processes are affected. But it has been proven that variations in national markets generates profit opportunities as well as affect the competitive standing of international organizations (Gupta & Govindarajan, 1994). Basically, the incremental value of international organizations is driven by the operating side. This operating flexibility arises from the advantages of managing the flows in a multinational system. The benefit of such flexibility stems from exploiting differential in capital markets, product and factor as well as the transfer of innovation and learning across the firm and the enhanced influence to respond to the threats of the governments and competitors. However, this flexibility expensive and organizationally sophisticated to attain as corporations differ widely in terms of their acknowledgment of contending on the international system and their capacity to do so. There are strategic benefits of operating assets in many nations including increased economies as a result of serving a bigger market and the gaining of benefits created by working on a multinational network and the scope and scale of economies, learning as well as exploiting options engraved on movements in domestic conditions (Adenfelt & Lagerström, 2006). Ghoshal asserts that it is vital for firms to support a flexible system, whereby the geographically isolated subsidiaries are not restricted to the task of reproduction headquarters-derived portfolio of strategies and products. He sees MNCs as a system of dependent subunits, whereby every subunit has a dynamic role in leading to the success of the whole firm. Indeed, it is possible that every subunit could create its own distinguished role and this allow firms to embrace a structure which enables the transfer of knowledge among subsidiaries. Moreover, this allows a firm to take into account the changes in the markets where it runs. Ghoshal helps us comprehensively understand the traditional opinion advanced that subsidiaries are undeniably assimilated in the MNC, upholding uniform operations, inflexible reporting to the head office as well as centralization of decision making at the firm office. Ghoshal proposes a model in which subsidiaries are symbiotic at basic level concerning the product as well as the flow and transfer of information can be done in all directions, with some level of intervention from the headquarters. In other words, he asserts that for MNCs to be globally successful they need a structure which is sufficient, perhaps with some level of autonomy of the subsidiaries. Ghoshal therefore changes the conservative analysis on the subsidiaries’ role and propose a model founded on allocating responsibilities in a way to exploit the global advantages for the firms. Every subsidiary must have distinguished roles. His main aim is for subsidiaries to stop being perceived as simply distribution channels in international markets in order that they can begin assuming a dynamic role in generating an organization varied competitive advantage (Ghoshal, & Nohria, 1989). In conclusion, Ghoshal has explored a variety of concerns associated with the strategies that firms use on their international operation. His aim is to disentangle how firms should organize internally the relationships between the headquarters and subsidiaries as well as among subsidiaries themselves. Ghoshal’s main aim was to find out how firms can compete more effectively and how they can better exploit the likely benefits which accessible to international firms, especially those benefits which can emerge from the setting in different geographic and industrial spaces. It is evident in this article that Ghoshal relies on valuable and relevant research which connects theory with MNCs and the practice of directors to build on his argument. No doubt his work has had a great impact on strategies that firms employ as well as on managers’ practice and is recently the standard material in graduate and undergraduate business courses. References Adenfelt, M. & Lagerström, K. (2006), “Knowledge development and sharing in multinational corporations: The case of a centre of excellence and a transnational team”, International Business Review, Vol. 15, pp. 381-400. Bartlett, C. & Ghoshal, S. (1986), “Tap your subsidiaries for global reach”, Harvard Business Review, Vol. 64, pp. 87-94. Furrer, O., TomasH. & Goussevskaia, A. (2008), “The structure and evolution of the strategic management field: A content analysis of 26 years of strategic management research”, International Journal of Management Reviews, Vol. 10, No. 1, pp. 1-23. Ghoshal, S. & Nohria, N. (1989), “Internal differentiation within corporations”, Strategic Management Journal, Vol. 10, No. 4, pp. 323-337. Ghoshal, S. (1987), “Global strategy: An organizing framework”, Strategic Management Journal, Vol. 8, pp. 425-440. Gupta, A. & Govindarajan, V. (1994), “Organizing for knowledge flows within MNCs”, International Business Review, Vol. 43, No. 4, pp. 443-457 Hamel, G. & Prahalad, C. (1985), Do you really have a global strategy? Harvard Business Review, pp. 139-148. Kogut, B. & Zander, U. (1993), “Knowledge of the firm and the evolutionary theory of the multinational corporation”, Journal of International Business Studies, Vol. 24, pp. 625– 645. Porter, M. (1985), Competitive advantage. Free Press: New York. Read More