Global Strategyand The Debate over

Centralization vs. Decentralization

S. Tamer Cavusgil

Michigan State University

• What is Global Strategy?• Which company best illustrates

pursuance of global strategy?– General Motors?– Wal-Mart?– Steelcase?– Cardinal Health?– Dell? – IKEA?...

Pressures for Local Responsiveness

• Unique industry and product standards

• Local market requirements: customer need, competitive environment, distribution structure

• Cultural differences• Geographic separation• Nation states and protectionism• Tariffs and Non-Tariff trade

barriers

Pressures for Global Integration

• Economic efficiency imperative

• Promoting cross-fertilization

• Converging demand patterns

• Acceptance of global brands

• Harmonizing product standards

• Diffusion of uniform technology

• eBusiness integration• Availability of pan-

regional media• Integration of markets

through economic blocs• Spread of international

collaborative ventures• Need to monitor

competitors on a global basis

Shifting Focus

Synergistic, coordinatedEnhanced cross-

fertilization and learning

Minimum guidance from HQLittle cross-fertilizationAutonomous units

The New Regime:Tightly coupled

networks, integrated units

The Outdated Regime:Loose federation of country subsidiaries with great autonomy

Trend Towards Global Strategy

Worldwide strategic integration

Coordination and controlOptimal configuration of

VA activities

Piecemeal approach to strategy Country-specific practices and systems

Global orGeocentric

Strategy

National or Multi-LocalStrategy

National orMulti-localCompanies

Global orTransnationalCompanies

IKEA, Nestle, Unilever,Citibank, Sony, Coca-Cola

• 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

• Dependence on global markets

• Worldwide manufacturing capability

• Standardized products• Coordinated planning and

resource allocation

• Globally integrated strategy

• Centralized structure and decision-making

• Uniform operational policies and routines

• Global organization and culture

• …

IKEA’s Global Marketing Strategy

Product Standardization

PromotionStandardization

Channel Standardization

PriceStandardization

Concentration of Marketing

Activities

Coordination of Mktg Activities

Market Participation

Integration of Competitive Moves

Source: Zou and Cavusgil 2002 – Journal of Marketing

www.ikea.com

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 •…

GM’s Global Brand Hierarchy

Global

International

Local

Europe, Middle East, Asia

North America, Middle East, Europe North America, Asia

North America North America

United Kingdom Australia Korea

•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...

Companies are Pursuing Global Integration with Greater Determination

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?

A

An MNC Network

H

B

C

D

E

F

SD

BD

CD

RD

A : Home plantH: HeadquartersB … F: Subsidiaries

Subsidiary Level NetworkS: Suppliers R: Regulatory institutionsB: Buyers C: Customers

SEBE

CE RE

SB

BB

CB

RB

SA BA

CA RA

SF BF

CF

RF

SC

BC

CC

RC

Global Company Network17-7

Exhibit 17.6

Large flows of components, products, resources, people and information among interdependent units

Distributed specialized resources and capabilities

Complex process of coordination and cooperation in an environment of shared decision making

Source: Reprinted From Managing Across Borders: The Transnational Solution by Christopher A. Bartlett and Sumatra Ghoshal, Boston, MA, p.89.

Global BusinessManagement

Commercial OperationsWestern Hemisphere

Commercial OperationsEastern Hemisphere

Responsible for alltrade marketing and

sales in North Americaand Latin America

Responsible for alltrade marketing andsales in Europe, Asia,

Africa, Oceania

Responsible worldwidefor all product lines:•Manufacturing•R&D•Strategic Marketing

A Simplified View of Distributing Autonomy

Corporate Headquarters

Regional Centers

National Units

World Product

Regionally based or Adapted product

Nation based or adapted product

• Product characteristics

• Strategic positioning vs. operational implementation

GlobalStrategy

Regional Strategy

National Strategy

Considerations

• Strength of globalization drivers

“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 MorganRetired 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 sub-

optimization 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

•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, design-engineering, 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, strategically- valuable 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

CORPORATECONTRIBUTIONS

• Broad Leadership

• Resource for Experience

• Source of Encouragement

GEOGRAPHIC AREA CONTRIBUTIONS

• Customers• Action• Employees

Bottom line:Participative decision makingEach 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

Additional Resources1. “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.

2. “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.

3. “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.

4. “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.

5. “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.