International Expansion and Globalization\'s Effects

International Expansion and Globalization's Effects On Corporate Strategy

Globalization and international expansion are the catalysts responsible for the redefining of business models, supply chains, value chains, and the nature of production and service in many industries today. Driven by the ubiquity of the Internet and its integration capabilities to further accelerate business models and also the shifting centers of low-cost labor globally for manufacturing or services, international expansion and globalization are reordering even the most conservative and slow moving industries. The intent of this analysis is to evaluate the many facets of international expansion and globalization from the standpoint of their effects on corporate strategy. No longer can organizations afford to be ethnocentric and ignore the implications of globalization on their strategies, Wal-Mart discovered in their failed attempts to launch into Germany for example (Christopherson, 2007).

The Many Facets of International Expansion and Globalization

The eventuality for any organization is that their growth will be predicated on their ability to successfully enter new international markets. The success or failure of their efforts will in large part be determined by how effective they are in managing the aspects of international expansion and globalization discussed in this section. Each of these factors has a reciprocal effect on globalization in that they are promote and act as a catalyst for international expansion as well. Each is having a significant impact on corporate strategy at tactical and strategic levels.

Compliance

The many facets of compliance within specific regions and nations are having a strongly reciprocal effect on global strategy. Consider how the United States' Sarbanes-Oxley Act of 2002, requiring each publically traded company any of the three American stock exchanges to disclose material financial events, put in place compliance processes and procedures, and adhere to audit requirements from the U.S. Securities and Exchange Commission force their operating expenses exceptionally high. In effect this compliance opened up one of the most significant revenue opportunities for Indian and European business process and it outsourcers as many American companies did not have the staff or the funds to develop their own systems to comply (Hall, Liedtka, 2007). Sarbanes-Oxley paradoxically forced American publicly-held companies to quickly enter into global partnerships and alliances to stay in compliance to the new U.S. laws they had to obey or be fined. This is just one example of many that illustrate how companies who may not want to necessarily become more globally focused are forced to in order to gain the necessary expertise to stay in compliance to new laws.

Compliance initiatives globally are forcing organizations to re-evaluate how they manage intercultural, intersystem and interprocess initiatives on a daily basis, as the costs of not being in compliance can result in lack of access to key markets (Hussain, 2006). In essence compliance is forcing companies to become more cognizant of and plan for their own international expansion carefully and thoughtfully, as this aspect of strategic planning is the primary catalyst of succeeding or failing on foreign markets. In conjunction with this aspect of compliance to government regulators there is also the issue of staying knowledgeable about and being able to define internal strategies for dealing with tariffs, taxes and fees. Often this aspect of compliance is what costs companies seeking to expand globally the most expense and also the most confusion.

Cultural Considerations

Another significant factor affecting corporate strategy from an international expansion and globalization context is the need to plan for cultural variations within organizations and with suppliers, buyers, and partners. One of the most commonly used frameworks for accomplishing this is the Cultural Dimensions Model (Hofstede, 1993). Dr. Geert Hofstede developed the Cultural Dimensions Model while at IBM to assist its managers in better acclimating to foreign regions and nations. The Cultural Dimensions Model provides insights into how sociological variations between nations influence communication, transparency, transactions and trust. International expansion and globalization has made the Hofstede Cultural Dimensions Model all the more relevant. No longer can organizations afford to be ethnocentric or myopic in their views of how to operate their companies in foreign regions or nations. International expansion and globalization is forcing the issue of cultural fit as a consideration into corporate strategies. It is also redefining the foreign market entry strategies as well, from acquisition of an existing company, to joint ventures to merging with another company in the region or nation of interest. These decisions of business model structure are predicated in part on the cultural variations of the foreign country to an organizations' home nation as well. Cultural variations between regions also lead more to distrust than trust and this is especially true when work is accelerated, assuming no cultural differences exist (Yeung, Selen, Zhang, Huo, 2009). While globalization is often seen as flattening the world from a common set of business processes, cultural variations, and within these cultural differences, deeply held religious values in Muslim nations for example, are far from as homogenous as the flat world mentality would have one believe. Instead there are significant gaps culturally that are actually catalysts of greater, albeit more attuned and focused, efforts at strategic growth globally.

Manufacturing

The misconception that manufacturing is outsourced purely for cost reduction can be seen in the many uses and roles of factories within global manufacturing networks (Fedrows, 2006). International expansion and globalization in this context is more concerned with the context of how factories and production centers are used as a means to stay better aligned with the unique needs of foreign markets. The fact that market leaders in the high tech industry are using global factories as innovation centers, as Hewlett-Packard is doing today illustrates this point (Fedrows, 1997). This aspect of globalization is also significantly changing the role of competitive strategy in local and global markets, as value chains are being significantly changed as a result (Porter, 1986). In a broader context the value chains of entire industries are changing rapidly due to the augmented roles of factories globally as well (Fedrows, 2006). This fundamental redefinition of what was once seen as a cost center alone in companies is also leading to critical reassessments of strategic planning form a manufacturing value-add standpoint (Fedrows, 2006).