Global Strategic Management in the Business World - Research Paper Example

Global Strategic Management in the Business World “If a company wishes to be a global corporation, it does not need to locate in every continent – it should focus on those locations that are most profitable.” What do you think? Globalization and liberalization have brought huge changes in the business world. The rapid increase of international or cross cultural business is one of the major contributions of globalization. Majority of the companies are currently looking for opportunities in Asia rather than in America or Europe. This is because of the fact that global wealth is currently shifting from American and European continents to the Asian continent. Countries such as India, China and Korea are developing much more rapidly than regions such as America or Europe. It should be noted that the on-going recession has caused huge problems in America and Europe whereas it caused little problems in Asia. This is because of the fact that Asia’s economy is much more stable than America’s or Europe’s economy at present. Many people believe that India and China may become superpowers in near future itself. All these factors are encouraging signs for companies which are looking for opportunities in Asian countries. One of the major myths prevailing in the organizational world until recent times was that if a company wishes to be a global corporation, it does need to locate in every continent or at least in American and European continents. However, such beliefs have been changed in recent times. It is illogical to argue that a company should invest even in unprofitable continents to know as an international company or global corporation. In order to become a global company, a company should invest only in profitable continents. “Global business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations. These transactions take on various forms, which are often interrelated” (Czinkota, et al., 2004). However, it is not necessary that the business should be established in all continents to label it as a global business. For example, majority of the American and European companies are currently trying to establish manufacturing units in India and China as a cost reduction strategy. It should be noted that India and China are the most heavily populated countries in the world at present and these countries have abundant skilled manpower. At the same time, manpower shortage is a big problem in America and Europe. In other words, America and Europe are expensive labor oriented regions whereas Asia is a cheap labor oriented continent at present. Since international market is heavily competitive, all companies are currently looking for the cost reduction strategies as far as manufacturing is concerned. It is impossible for American and European companies to manufacture goods in their own territories and compete effectively with Indian or Chinese companies in international market. Therefore majority of these companies are currently establishing manufacturing units in India or China. For example, Apple, Ford, BMW, Benz etc are some companies which have manufacturing units in India or China. In fact these companies are manufacturing their products in India or China and exporting them to overseas market. Indian city Bangalore is famous for outsourcing business. Plenty of American and European IT companies are currently operating in Bangalore in order to exploit the cheap labor and IT skills of the Indians. Microsoft and IBM like companies have business units in Bangalore. It is illogical to ask these companies to establish business in Antarctica or Africa to achieve global status. Instead of globalization, modern companies are thinking about glocalization. “Glocalization encourages companies to “think global, act local”, and they could do so by using the global brand, while localizing certain elements of that brand in order to suit a particular country”(Luigi & Simona, n.d., p.1). It is not necessary that the business environment in India and America would be one and the same. Different factors control business environments. As a result of that an American company cannot operate in India just like they operate in America. Lot of customizations in business strategies is necessary for them to operate successfully India. For example, Walmart is one of the largest retailers in the world and it is easy for them to enter any country or continent without much trouble. They are using merger and acquisition as a business strategy to operate in most continents; however in India, they forced to establish a joint venture with Bharti group as a market entry strategy. This is because of the fact that India’s markets are extremely diverse and it is essential for Walmart to acquire local knowledge to operate successfully in India. At the same time it should be noted that Walmart is not operating in many of the Asian countries at present. For example, Nepal, Myanmar, and Sri Lanka are some Asian countries in which Wal-Mart is not operating at present. This is because of the fact that the markets in these countries are extremely small in size and business may not be profitable for Walmart in these countries. The primary motive of doing business is profit for organizations. Even though corporations talk too much about their social responsibilities, no organization would like to establish business units in unprofitable regions. It should be noted that international companies never tried to establish business units in India and China until a couple of decades before. India and China started to implement economic reformations in recent times. Efforts to attract foreign direct investments in these countries have started only in the 80’s. Before 1980’s, economic climates and political situations in these countries were not so good for investments by international companies. According to De Wit and Meyer (2010), “Strategizing is about perceiving strengths and weakness, envisioning opportunities and threats and creating the future for which imagination and judgement are more important than analysis and logic” (p.7). Business runs not only on resources but also on strategies at present. In the absence of carefully formulated strategies, no international company can operate successfully even if they have immense resources such as man, material, machine and money. “Strategy is the link between the firm and its environment. It is not a detailed plan or program of instructions; it is a unifying theme that gives coherence and directions to the actions and decisions of an organization”(Grant, 2010, p.4). If the environment is not suitable for doing business, no company would dare to invest in that environment. Even in China, some companies are currently facing political problems. For example, Google has recently withdrawn from China because of the censoring of information. It should be noted that China offers immense opportunities to international companies at present. However, Chinese politics is entirely different from the politics in other countries. Only those companies which are ready to work in line with Chinese politics are currently operating in China. In short, environment plays an important role in the decision making of companies as far as international expansion is concerned. Companies like to invest only in politically, socially and economically stable countries. To conclude, it is not necessary to invest in all the continents for a company to get a global image. Instead of the ability to invest in all the continents, the ability to invest in profitable regions or continents is providing a global image to companies. No company would like to invest in unprofitable regions, simply to get a global image. As profit making is the primary motto of doing business all companies irrespective of local or international, invest only in profitable regions. Normally when a firm first expands overseas, it may use an international division and later use a different organizational structure. Under what circumstances might such a firm wish to shift back to the use of an international division? Organizational structure refers to “the typically hierarchical arrangement of lines of authority, communications, rights and duties of an organization. It determines how the roles, power and responsibilities are assigned, controlled, and coordinated, and how information flows between the different levels of management” (Organizational structure, n.d.). Management of business under local and international conditions is extremely different. It should be noted that different countries may have different legal, economic, social and political climates and hence strategies successful in one country need not be successful in another country. As in the case of business strategies, different organizational structures are required for different countries as far as the management of international business by an organization is concerned. Four organizational structures that are appropriate for the four strategic choices are; International division or division structure Geographical area or area structure Global product division or product structure Global matrix or major structure In the division structure, even though national units have plenty of freedom in taking decisions based on the local requirements, critical decisions are taken normally after discussing with the international leader or divisional leader of the company. In other words, in the divisional structure, centralized control is more. Division leader controls all the operations coming under that particular division. This organizational structure helps companies to limit their costs, and improve the efficiency. At the same time divisional structure has plenty of problems also. Some of the problems associated with international division structure are given below Foreign subsidiary managers in the international division are not given sufficient voice relative to the heads of domestic divisions The “silo” effect: International division activities are not coordinated with the rest of the firm, which focuses on domestic activities Firms often phase out this structure after their initial overseas expansion It is not necessary that the divisional leader has adequate knowledge about the markets in all the countries under his division. Moreover, local leaders may not get freedom in taking critical business decisions without the knowledge of the divisional leader. Local leaders forced to convince the divisional leader before implementing any critical strategies in their market. All these things may take time and local leaders may fail to implement the business strategies in time. For example, at the beginning of globalization, Parker Pen Company divisional leader ordered that the marketing strategies of the company should be the same everywhere in the world since the company is selling the same product everywhere in the world. He failed to realize that even though the product is the same, utilize opportunities in global market properly. In short, divisional structure may cause lot of problems as far as international business is concerned. On the other hand, geographical area or area structure organizes the firm’s entire international operations into nations of geographic locations (Vorton, 2013). It should be noted that countries in the same geographical areas might have some similar characteristics. Therefore area structure can help companies to manage the business operations in a particular geographical area under one umbrella context. Moreover it helps organizations as a multidomestic strategy to control the business operations in a particular area. It should be noted that this strategy helps organizations to proactively respond to the needs of a particular geographical area. “This structure is best suited to firms that treat each regional or national market as being unique and succinct. It is mostly useful when there exists a wide array of political, cultural, and economic differences between the participating regions and nations” (Vorton, 2013). At the same time, area structure has some problems also. While being locally responsive can be a virtue, it may also encourage the fragmentation of the MNE into highly autonomous, hard-to-control “fiefdoms”. In other words, a company may get different corporate images while operating in different regions with the help of area structure. All the organizations like to have a unique corporate image all over the world. However, this structure presents fragments in the corporate image of a company. “Product structure works to separate worldwide operations in a way where it is in accordance with the firm’s products locations” (Vorton, 2013). For example, Samsung and Sony like companies have different products such as smartphones, tablets televisions, computers, camera etc. These companies have separate wings for the marketing of these products in different countries. In other words, Samsung’s television division market only television products whereas mobile phone division market smartphones and tablets. Matrix structure is the most common organizational structure followed by different international organizations. “Global matrix structure divides the chain of command between area and products locations. Each leader will report to two bosses, both the president of the products division, and the president of the geographical location. The main goal of global matrix structure is to unify both the geographic and product area managers when making decisions jointly” (Vorton, 2013). Even though matrix structure has many advantages, it has plenty of disadvantages also. Coordination of business activities is one of the major challenges in front of the matrix structure. Plenty of meetings and information exchanges are required for the execution of a business plan when a company follows matrix structure. “And, responsibility and accountability maybe foggy in the structure as there is often shared responsibility present” (Vorton, 2013). When matrix structure, area structure and product structure fails, companies switch back to divisional structure. It should be noted that only the divisional structure gives better centralized control compared to other organizational structures. It should be noted that divisional structure avoids fragmentation of corporate image in different regions. All the above four organizational structures have many merits as well as demerits. Organizations use these structures based on the necessities of their product ranges and the regions in which they operate. Even though an international organization have the freedom to opt for any of the above four organizational structure, some circumstances may force the organization to switch back to the divisional structure. For example, when an organization increases its product ranges divisional structure is the most suitable organizational structure for its international operation. Apple Inc. is one company which can be considered as an example in the above context. Apple Inc. had only computers and operating systems as the products until the end of the 1990’s. At the beginning of 2000, the company has introduced a series of innovative products such as iPhone, iPad, ipod, iTune, iTouch etc. In other words the product ranges of Apple have increased a lot in recent times. It will be difficult for Apple to stick with its old organizational structure and manage the marketing of all these products effectively in international market. Under such circumstances, it is better for Apple to use divisional structure to concentrate more on the marketing of each product. It should be noted that all the other organizational structures concentrate on the business strategies in general whereas divisional structure concentrates more on specific strategies. In other words divisional structure give more emphasize to individual products whereas all the other organizational structures give emphasize to the entire products of a company as far as business strategies are concerned. To conclude, an organization has the freedom to select any of the organizational structure suitable for its international operation. However on certain occasions, the organization may be forced to opt for divisional structure. When the number of product ranges increases, it is better for an organization to opt for divisional structure to give more emphasize to each product. It should be noted that none of the organizational structure provides the same centralized control of business provided by the divisional structure when the number of product ranges increases. When an organization fails to operate successfully with the help of matrix, area or product structure, it switches back to the divisional structure to give more attention to the marketing of each type of product in international market. References Czinkota, M.R., Ronkainen, I.A. and Moffett, M.H. 2004. Fundamentals of International Business. Mason: South-Western, 2004. De Wit, B. and Meyer, R. 2010. Strategy: Process, Content, Context. An International Perspective. Fourth Edition. Cengage learning. Grant, R. M. 2002. Contemporary Strategy Analysis. Publisher: Wiley-Blackwell; 4th edition (January 3, 2002) Luigi D & Simona, V. N.d. The Glocal Strategy Of Global Brands. [Online] Available at: ftp://ftp.repec.org/opt/ReDIF/RePEc/blg/journl/538dumitrescu%26vinerean.pdf[Accessed 1 June 2013] Organizational structure. N.d. [Online] Available at: http://www.businessdictionary.com/definition/organizational-structure.html [Accessed 1 June 2013] Vorton, J. 2013. The four types of organizational structure[Online] Available at: http://www.helium.com/items/2021290-global-international-business-business-structure-organization-asia-europe [Accessed 1 June 2013] Read More