Developing Global Reach

Regent University

Ralph E. Johnson

November 18, 2011

Abstract Today’s management landscape is firmly focused on globalization. It appears as if every company’s wildest dream is to spread, service and market globally. It is, however, exceptionally difficult for all but the largest of organizations to follow the conventional wisdom concerning how to grow global. What then to do? How can less massive companies take advantage of the global marketplace? In this article, the author will explain why globalization is important, its benefits and pitfalls; uncover the typical strategy for globalization; develop leadership mindsets to prepare for global development; and offer a new strategy for the company that desires globalization.

Why Globalization?

Initially, one must discover why globalization is a desirable outcome for an organization. Globalization provides numerous advantages to an organization, to wit, increased customer base, lower manufacturing and worker costs, more favorable infrastructures and diversity of financial structures, and less governmental regulatory intrusion, to name but a few. “The greatest loss to a company, when diversity is not a priority, is loss of potential business in the form of new customers in growth markets, customers who are proving increasingly loyal to companies that understand their culture and their needs.”1 Clearly, diversity is an aspect of globalization and noticeably a means to higher profits and positive growth. “The Small Business Administration notes that 96 percent of the world’s customers live outside the U.S., and two-thirds of the world’s purchasing power resides in foreign countries.”2

In today’s world, globalization has so permeated the underpinnings of business operations that it cannot be escaped, whether a firm is operating in domestic markets or international markets. In fact, the reality of globalization is more than a business phenomenon – it has become a social, cultural and political factor …”3

Globalization further acts as a means by which organizations can deliver social impact. Capitalistic measures of organizational success only extend so far. After a time, the directors and management of corporations have a desire to be more than mere wealth-building machines. Corporations desire to share in the eradication of the world’s social ills. Developing a global presence and reach will enable the corporation to escape the masquerade of existing outside their own global culture. Instead, they will be imparters of social integrity. Most notable is the Bill & Melissa Gates Foundation which is well-known as a global partner in social endeavors on a global scale.

There are also pitfalls to be experienced in the push to global expansion. It has been suggested (Zimmerman, 2011) that global corporate expansion has played a not insignificant role in the increase of global terrorism. “A curvilinear relationship between globalization and (international) terrorism is not to be ruled out. As a polity opens up to globalization, the prevailing economy and political system comes under additional stress. Protestors gain access to better means of organizing themselves. In short, there is a high probability that the system weakens and protestors become stronger.”4 The question arises whether globalization by its

economic impact might endanger the “increased steering of social relations via (monetary) prices, might undermine the moral foundations necessary for the well-functioning market economic order ”5 Global corporations become more profitable in certain areas and for certain people groups, but also leave others in ever worsening financial position. Corporations seeking to advance their own social agenda may well be advised to consider the potentially negative impact that financial gain in places where it has never existed may have. There is no doubt that the pervasiveness of the Internet has invigorated communication to levels never before seen in many areas of the world and this has also facilitated terrorism’s expansion6.

It is wise for the corporation seeking to increase their global reach to consider both positive and negative impacts of such actions as well as the political and economic influence on indigenous workers. This is why the development of a globalization strategy is so important. “Once that transitional phase [system weakening and protestation strengthening] is passed (italics mine), the benefits of globalization become predominant and the opportunity-cost argument should predominate.”7 Focus on monetary advantages without any other consideration is likely to lead to failure and negative social impact.

The Typical Strategy for Globalization

It may be a misstatement to claim that there is a typical strategy for globalization. It is more accurate to state that there is an accepted strategy that most globalized organizations have utilized and that seems to be beneficial for them. Richard L. Daft in Organization Theory and Design (2010) identifies three different categories of the development of global companies with the second category having two sub-categories8. They are: domestic stage; international stage (subdivided into multidomestic and multinational stages); and the global stage. This is a representative, though simplistic, understanding of the typical strategy for globalization.

A company we’ll call Mindbending Metalworx (M2) develops a new product called a metalythic swirlixer. The product goes through research and design, testing and marketing, advertising and finally, sales. Eureka! M2 has a hit on its hands! Orders continue to pour in, technical and innovative staff are added and “Swirlixer 2.0, 2.1, and 2.2” experience equal or greater market share. About this time, the executive staff prepares a proposal for the Board of Directors’ annual meeting and presents their ideas for globalization of the entire Swirlixer™ line. “Swirlixers are all the rage everywhere in the United States. We can make a fortune if we take this company global!” they say. So manufacturers in the chosen foreign countries are contracted, some research is done into the local customs and culture, and the plans are made to introduce Swirlixers into a new country every two months for the first year resulting in a company presence in six different foreign fields by the end of the first year. Market analysis indicates that Swirlixer is too easily confused with a famous brand of coffee stirrers in England called Swurlators, so the English version of the Swirlixer is called a Turflemizer. The Australasian markets have trouble with the logo and design of the packaging (a multi-colored contemporizing of the clockwise swirling of water down a drain) since the swirling action is opposite in the Southern Hemisphere from the Northern. This requires a redesign of the product logo and subsequent packaging. It turns out that it is much easier to have six new domestic organizations than it is to have a truly global organization and plans for globalization stall.

Or, perhaps these multidomestic issues are not encountered or are easily dispatched and the company finds remarkable success as a multidomestic entity, but realizes that there is much

more benefit in somehow linking these independents into interdependent organizations. By taking advantage of lower worker costs, lower material costs, lowered transportation expenses and such, multinational organizations are developed under the banner of the international arm of the parent organization.

Finally, provided success is found in all these previous endeavors, a company may choose to move to the definitive last step: the global stage. Daft says, “Truly global companies no longer think of themselves as having a single home country, and, indeed, have been called stateless corporations. (quoting William J. Holstein, “The Stateless Corporation,” Business Week (May 14, 1990), 98-115)”9

Unfortunately, not many organizations have the force of will to take advantage of this final, global step. Surprisingly, some of the world’s largest and most successful corporations have chosen to stay at the multinational level, usually from having ventured onto the global stage with less than favorable results. There must be a way to take advantage of the benefits of true globalization without the damaging organizational and corporeal effects experienced by these organizations. This new concept begins with a redeveloped leadership mindset.

Creating a Redeveloped Leadership Mindset

The viability of globalization is dependent upon the adaptability of the leader(s) and the willingness of the leader to emerge as a potent manager, creative visionary and dynamic problem solver.

Leading globally is extremely complex. The differences between the requirements of leadership at a local level and of leadership at the global level are exponential. In Success for the New Global Manager: How to Work Across Distances, Countries, and Cultures (Jossey-Bass, 2002), Maxine Dalton, Chris Ernst, Jennifer Deal, and Jean Leslie refer to research that found that all managers whose responsibilities are limited to a single country must be able to manage action, information, and people; must have business knowledge; and must be able to cope with pressure. The authors go on to explain how each of these managerial requirements mushrooms in complexity at the global scale. The basic leadership processes of setting direction, generating alignment, and maintaining commitment are all harder to do across cultures, distance, and time. In other words, it’s the same, but different.10

Clearly the global leader has the same duties, but must perform them in different ways. There are so many variables to consider, so many different cultural, contextual, temporal and societal models to be considered that for each decision made at the local level, globalization requires increasingly greater choices. Given this mandate, the leader needs to evaluate her capabilities, essentially performing a SWOT analysis on oneself. The possibility exists that the leader is not qualified to be a global CEO, in which case she better serves her organization, her directors, stakeholders and herself by realizing this and assisting in hiring the best candidate possible who is qualified. Just the same, whether a newly hired CEO or the entrepreneur who has chaperoned his idea from its startup, the leader must redevelop the mindset that has served well in a local enterprise. The cultural, societal, financial and managerial functions remain albeit in a new, metamorphosed state.

Effective global leaders must recognize the various governmental, legal, historical, and economic factors that can influence how the organization operates. Even though leaders usually have little if any control over these factors, they must be taken into consideration when setting global and regional strategy so that appropriate tactics can be applied and executed according to local conditions.11

Problems occur, however, when leadership retains its ownership-is-power mindset, preventing the development of internal successors to the positions of power. Though this approach arises out of the “we’ve always done it this way” tradition, its ill effect on the viability of globalization is inevitable nonetheless. “Leadership development suffers from this … when executives approach it with control, ownership and power-oriented mind-sets rather than with an understanding of the need for shared accountability.12 Consequently, numerous regional managers try to develop leadership in vastly different models across a global organization then attempt to promote from within. Unfortunately in this scenario, the leader developed by VP Smith in Ecuador is not qualified to take over the newly vacated position of VP Jones in Norway. A worse case still is when there is a need to replace the CEO. In the current state of development, no leader so developed will be qualified. The directors will look outside the organization for a capable global CEO, and, upon finding one, will realize that the economic impact of the lag time necessary to bring an outsider up to date will result in increased CEO turnover.

Competition within leadership is a good thing. What the free market does for prices and service, competition among leaders does for the overall health of the organization. Good leaders will challenge one another, will seek means of quantifying each other’s results and strive for the betterment of their peers which will benefit the organization. The competitive urge is fueled by a desire to prove one’s value. The better means of channeling this competitiveness is found in collaboration. The individual leader gains the opportunity to maximize her skills when leading a team. Authors Herminia Ibarra and Morten T. Hansen offer the following table in the July/August 2011 issue of Harvard Business Review13 :

Globalization is best served by this collaborative form of leadership. Various responsible parties positioned in many different cultural locations have the advantages of shared knowledge of goals through team membership yet their intelligence assets can gain specific cultural and societal perceptions by being allocated to multiple national regions. This recreated leadership mindset; collaborative, legacy minded and creative; is best suited for determining the entry methods that will be most effective for the globalization of a particular organization. Küster and Vila (following Nieto and Llamazares, 1998) posit the following four entry modes with associated levels of commitment and international risks:

1. Indirect exportation (low commitment, low risk): the organization starts internationalizing accidentally. Utilizing current intermediaries in foreign countries, the organization begins developing an international presence.

2. Direct export (low commitment, higher risk): the organization is pleased with the aspects of the earlier arrangement, but cuts out the intermediary and directs its international presence in earnest

3. Export agreements and arrangements (higher commitment, higher risk): In this step, the organization collaborates with other organizations (or entities within the organization) in order to experience a wider global reach, and,

4. Direct manufacturing (highest commitment, highest risk): Here, the organization develops physical properties and moves operational services to the international locale.14

If globalization is so easily contextualized and theorized, why doesn’t every organization go global? Perhaps there exists a better way.

A better way

In an effort to reduce globalization energies to accomplish corporate global reach, we have examined the current methods being utilized by the largest organizations in order to “go global.” The previous arguments have revealed that the method and practice currently in use are too complex, too multifaceted and too difficult to manage without the financial heft found in only the strongest companies. Indeed, even the world’s largest company, Wal-Mart, has chosen to avoid globalization and to remain multinational in their scope15. If an organization is to develop global reach without the accompanying complexities, a better way is required. To find this better way, we must examine economies of scope and scale. “Economies of scope and scale allow for greater efficiency in current operations ([6] Alfred D. Chandler, “The Enduring Logic of Industrial Success” Harvard Business Review March/April 1990, 130-140). Economies of scale provide not only lower unit costs but also potentially greater bargaining power over all elements in the company's value chain. Economies of scope can call for the sharing of resources across products, markets, and businesses. Such resources may be either tangible, such as buildings, technology, or sales forces, or intangible, such as expert knowledge or team-working skills.”16

The first step in this streamlined means of increasing global reach is found in brand identification. Many firms “over-research” their market when it comes to developing brand recognition in a foreign land. Often a similar product or service is branded differently in different countries. This is beneficial as the product develops a following of its own in the new market, developing its own momentum to accompany its own staff and marketing. The desire for globalization necessitates remarketing the brand to the identification that is desired in all areas of

the world. “An increasing number of multinationals are standardizing their brands to send a consistent, worldwide message and to take greater advantage of media opportunities by promoting one brand, one packaging, and uniform positioning across markets.17 When organizations cross the boundary of their original country, it is wise to retain original brand name and marketing, choosing to adjust strategy and presentation to the local culture while maintaining name recognition. “Branding is a useful illustration of economies of scope available from global strategies.”18

Our “better way” skips Daft’s multidomestic stage entirely. In its place we insert regionalization to handle local, domestic markets. Regionalization incorporates the many advantages and privileges to be realized through global reach.

In 1998 there were 53,000 MNCs with 450,000 foreign subsidiaries. The 100 biggest companies in the world may now account for as much as 7% of total world economic activity. The multinational company's role in the world today is an astounding development considering that they accounted for little more than 3% of world economic activity in the early 1950s. In the space of half a century, multi- national corporations have come from nowhere to achieve global dominance of the world economic order. Less than 100 such companies represent half the value of world stock market capitalisation [sic].19

The primary difference between multidomestic or multi-local companies and global ones is one of strategy. The multidomestic operates several stand-alone campaigns while the global firm “takes an integrated approach across countries and regions.”20 Indeed, the best way to realize the desired global reach is through regional representation established with intent from the first inklings of global desire within the company’s soul. Regionalization offers similar advantages to multinational corporations, but it is accomplished through intentional leadership toward desired goals.

Once a company has decided to globalize, the leadership will have to establish between two and five regional centers from which all local or domestic interaction will be directed. This permits cultural integration in the same manner that multidomestic companies accomplish but inaugurates the next step toward globalization. These first steps toward globalization must recognize “the important assumptions concerning the conditions for successful global strategies: that global market segments exist, that global economies of scale exist, and that a distribution infrastructure is available to realize these potential economies of scale worldwide.”21 This is where the regional concept of global reach exhibits its strength. Without becoming embroiled in the traditional infighting observed in multidomestic enterprises, the regional enterprise incorporates the cultural and social nuance of local representation while firmly establishing a network for the integration of globalization. This way of thinking, sometimes referred to as “glocalization,” (think global, act local) (Bartlett and Ghoshal, Harvard Business School Press, 1989), argues “in favor of global standardization, as initially stated by Levitt, [and] contain[ing] three assumptions:

Consumers’ needs and interests are becoming increasingly homogenous worldwide.

People around the world are willing to sacrifice product features, functions, and design, for high quality at low prices.

Substantial economies of scale in production and marketing can be achieved through supplying global markets.”22

Regional directors will be charged with determining commonalities between regions. They will establish lines of communication and management that will integrate the various regional concentrations into a working global enterprise. Here is where the intentional development of leadership will pay its greatest dividends. Ibarra and Hansen23

offer the following table of leadership qualities (identified as an “idea in brief” in Harvard Business Review):

At this point, the development of a consensus of regional directors into what shall be called Joint Operating Committees (JOCs) (borrowed from the disaster response teams formed for government response to tragedies or terrorist activities). These JOCs (consisting of from two to five regional directors) would meet in order to investigate commonalities between their regions. These investigations would ideally lead to recognition of an overlap of common ideas, beliefs, desires, markets and goals. The JOCs fulfill the role formerly manifested through the lengthy development of multidomestic entities. The compilation of these efforts will provide the strategic material necessary to formulating globalization plans.

The Joint Operations Centers that are actually utilized by governmental agencies function in very similar ways to our use of this analogous concept. This organizational form is preferred for “responding to dynamic, high-magnitude, time-critical situations of high uncertainty, which require personnel with varied knowledge backgrounds from multiple organizations to be rapidly combined (USDHS, 2004).”24 The “rapid response” JOCs for global reach also come from varied backgrounds (regional cultural intuitions) and multiple organizations (regions of the multinational corporation). If the organization is to act quickly to respond to the corporate desire

for global expansion, it is necessary to combine the commonalities developed with the direct use of the significant benefits of globalization.

Conclusions

In order to take advantage of the considerable benefits to be realized in moving from a strong local operation to a multinational corporation and finally, to a global corporation; those being a more favorable tax structure, more liberal governmental regulations, lower cost in raw materials and labor, and many more; a corporation must develop leadership that collaborates rather than controls; must plan strategically and with intent and integrity; and must balance risk with reward without fear.

We have shown that it is possible to skip Daft’s multidomestic stage of global expansion and arrive at the global stage of corporate entity in a shorter period of time with comparable results. Further research and study will be necessary to fine tune the procedures, to develop suggested strategies for the JOCs and to propose criteria for the development of leadership that is multicultural in origin and scope.

Endnotes

1. McCuiston, Velma E., Barbara Ross Wooldridge, Chris K. Pierce, “Leading the Diverse Workforce: Profit, Prospects and Progress”, Leadership & Organization Development Journal Volume 25 Issue 1, pp. 73-92 doi: 10.1108/01437730410512787

2. Ciccone, Robert. “What You Need to Know about Expanding Internationally,” Financial Executive Jul/Aug 2011, p. 64.

3. Gabrielsson, Mika, John Darling, Hannu Seristö, “Transformational Team-Building Across Cultural Boundaries: A Case Focusing on the Key Paradigm of Leadership Styles.” Team Performance Management, Volume 15, Number 5/6, p. 236

4. Zimmerman, E., "Globalization and Terrorism" European Journal of Political Economy (2011), doi: 10.1016/j.ejpoleco.2011.09.003, p. 3

5. Ibid., p. 3

6. Ibid., p. 4

7. Ibid., p. 3

8. Daft, Richard L. Organization Theory and Design, Mason, OH: South-Western Cengage Learning, 2010. pp. 214-215

9. Ibid., p. 215

10. Cranford, Shannon and Sarah Glover, “The Stakes Grow Higher for Global Leaders.” Leadership In Action, Volume 27, Number 3, July/August 2007, pp. 9-14.

11. Ibid., p11.

12. Ready, Douglas A. and Jay A. Conger, “Why Leadership-Development Efforts Fail,” MIT Sloan Management Review, Spring 2003, pp. 83-88.

13. Ibarra, Herminia and Morten T. Hansen, “Are You a Collaborative Leader? How Great CEOs Keep Their Teams Connected,” Harvard Business Review July/August 2011, pp. 69-74.

14. Küster, Inés and Natalia Vila, “The Market-Innovation-Success Relationship: The Role of Internationalization Strategy.” Innovation: Management, Policy & Practice Volume 13, 2011, p. 37.

15. Op Cit, Daft, 215

16. Op Cit, Ibarra 74

17. Segal-Horn, Susan. “The Limits of Global Strategy,” Strategy and Leadership, Nov/Dec 1996; 24, 6; ABI/INFORM Complete pp. 12-17.

18. Ibid., p. 15

19. Maguire, Frances. “Multinationals: The New Masters of the Universe.” The Banker Volume 1, Number 1, 2006.

20. Op. Cit. Segal-Horn, p.11.

21. Ibid., p. 13.

22. Ibid., pp. 13-14.

23. Op Cit, Ibarra, p. 71.

24. Drnevich, Paul, Rangaraj Ramanujam, Shailendra Mehta, and Alok Chaturvedi. “Affiliation or Situation: What Drives Strategic Decision-making in Crisis Response?” Journal of Managerial Issues, Volume 21, Number 2, Summer 2009, pp.216-231.

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