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IT and the Future of the MNE

IT and the Future of the MNE. 5th Annual International Business Research Forum Information Technology and International Business: Theory and Strategy Development Temple University, Philadelphia March 27, 2004. Rakesh B. Sambharya Arun Kumaraswamy Snehamy Banerjee

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IT and the Future of the MNE

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  1. IT and the Future of the MNE 5th Annual International Business Research Forum Information Technology and International Business: Theory and Strategy Development Temple University, Philadelphia March 27, 2004 Rakesh B. Sambharya Arun Kumaraswamy Snehamy Banerjee Rutgers University - Camden

  2. During 1980s and early 1990s • Increasing globalization and competition • Advent of Information Technology • Telecom networks • Consequences for MNEs • Global dispersion of value chain activities for responsiveness • Coordination and re-integration for global efficiency

  3. Since the mid 1990s • Rapid diffusion of smart IT • Flexible manufacturing • Computer networks, Internet, WWW • New Rules of the game • Nimbleness • Being glocal • Empowering managers and employees • Knowledge management • Consequence for MNEs • Diminishing distance and response time • Changes in strategies/structures, emerging challenges

  4. Typology of MNE strategies Level of Global Efficiency Level of Local Responsiveness Source: Adapted from Bartlett and Ghoshal (1989) and Guillen (2002)

  5. International strategy: Key features • Functional structure, with international division • Core assets and competencies centralized in HQ • Adaptation, leveraging of parent competencies by subsidiaries • Knowledge and information transferred from HQ to subsidiary

  6. Multidomestic strategy: Key features • Self-sufficient, worldwide area or geographic structure • Core assets and competencies decentralized in subsidiaries • Independent sensing and exploitation of local needs by subsidiaries • Knowledge and information transferred from subsidiary to HQ

  7. Global strategy: Key features • Worldwide product structure • Core assets and competencies centralized and globally scaled • Implementation, leveraging of parent competencies by subsidiaries • Knowledge and information mostly transferred from HQ to subsidiary

  8. Transnational strategy: Key features • Worldwide matrix structure • Core assets and competencies specialized, dispersed, but interdependent • Differential contributions by subsidiaries to integrated worldwide operations • Knowledge developed jointly and shared worldwide

  9. IT and Diminishing Geographic Distance • Democratization of technology • Further separation of value creation & value realization activities • Outsourcing, BPO, Off-shoring • Less need for local presence to capture value • Distributed R&D • Results in greater global efficiency • Lower transaction, coordination costs • Exclusive focus on core competencies • Network of alliances, partnerships

  10. IT and Diminishing Response Time • Wider scope for remote manipulation of resources • Rapid prototyping and feedback • Mass customization • Central repositories, data warehouses • Distributed competency centers • Customized marketing, by country/region • Results in greater local responsiveness • Faster innovation • Better sensing of local market needs • Easier data/knowledge sharing, transfer

  11. Consequences for MNE Strategies • Minimize investments in problem areas of value chain; focus on core competencies • Resources-seeking MNEs • Access to new labor markets • Alliances and partnerships to improve market positioning • Market-seeking MNEs – news distribution channels, precision in global reach • Efficiency-seeking MNEs – lower costs

  12. Effect on MNE strategies? Level of Global Efficiency • In general, trend towards higher global efficiency AND higher local responsiveness Level of Local Responsiveness

  13. Effect on MNE Structures? • More organic and flat structures • decentralization • reciprocal interdependence • flexibility • team-orientation • employee empowerment • In general, trend towards matrix, network structures

  14. Emerging challenges for MNE • IT reduces geographic distance • Whose laws, regulations, taxes apply? • Who is responsible for violations? • Encryption vs. Access for law enforcement • Privacy issues vs. Capability for efficiency, local responsiveness from a distance • IT compresses time • Level playing field for big and small • Continual innovation and more intense competition • De-skilling, continual retraining of workforce

  15. Conclusions • What are the new requirements? • Ability to adapt to a continuously changing technological and competitive environment • Managing a federation of alliances and partners • Trust and transparency in relationships • Effective strategy implementation

  16. QUESTIONS? COMMENTS? Thank you!

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