IT and the Future of the MNE

Rakesh B. SambharyaArun KumaraswamySnehamy Banerjee

Rutgers University - Camden

5th Annual International Business Research ForumInformation Technology and International Business: Theory and

Strategy Development

Temple University, PhiladelphiaMarch 27, 2004

During 1980s and early 1990s

Increasing globalization and competition

Advent of Information TechnologyTelecom networks

Consequences for MNEsGlobal dispersion of value chain activities for

responsivenessCoordination and re-integration for global

efficiency

Since the mid 1990sRapid 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

Typology of MNE strategies

HighGlobal(global commodities)

Transnational(cultural, regulated goods & services)

Low

International(local commodities)

Multidomestic(look’n’feel goods & services)

Low High

Level of Local Responsiveness

Lev

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Source: Adapted from Bartlett and Ghoshal (1989) and Guillen (2002)

International strategy: Key features

Functional structure, with international divisionCore assets and competencies centralized in HQAdaptation, leveraging of parent competencies by subsidiariesKnowledge and information transferred from HQ to subsidiary

Multidomestic strategy: Key features

Self-sufficient, worldwide area or geographic structure Core assets and competencies decentralized in subsidiariesIndependent sensing and exploitation of local needs by subsidiaries Knowledge and information transferred from subsidiary to HQ

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

Transnational strategy: Key features

Worldwide matrix structureCore assets and competencies specialized, dispersed, but interdependentDifferential contributions by subsidiaries to integrated worldwide operationsKnowledge developed jointly and shared worldwide

IT and Diminishing Geographic Distance

Democratization of technologyFurther 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

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

Consequences for MNE Strategies

Minimize investments in problem areas of value chain; focus on core competenciesResources-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

Effect on MNE strategies?

HighGlobal Trans-national

Low

International Multi-domestic

Low High

In general, trend towards higher global efficiency AND higher local responsiveness

Level of Local Responsiveness

Lev

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f G

lob

al

Eff

icie

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Effect on MNE Structures?

More organic and flat structures decentralization reciprocal interdependence flexibility team-orientation employee empowerment

In general, trend towards matrix, network structures

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

ConclusionsWhat are the new requirements?Ability to adapt to a continuously changing

technological and competitive environmentManaging a federation of alliances and

partnersTrust and transparency in relationshipsEffective strategy implementation

QUESTIONS? COMMENTS?

Thank you!