Developing MNEs' Global Strategy

How can leaders in today’s MNE formulate and implement effective global strategy?

• Mengdi LIU

Introduction

Multinational enterprises (MNE) are organizations that provide or control goods or services inside and outside the home country. For example, “when a company has operations in more than one country or is registered in more than one country, it may be assigned as MNE”[1]. Usually, a multinational enterprise is a great corporation which produces or sells goods and services in various countries.

Usually, companies are faced with different types of very important strategic decision, when they engage in international marketing operation. First of all, leaders need to make decisions in principle to submit the corporate to a certain extent of internationalization. More and more companies will realize that if they have a strong global logic requires, they must purse the global marketing for several competitive reasons. Once committed, the enterprise will have to determine where to go, and whether it is specific countries or geographic regions.

Global strategy defined in business terms is the plans designed and developed by a corporation or an organization to target its sales’ growth on a worldwide scale. In other words, it is the long-term strategy of multinational entreprises that aims to obtain development and its long-term survival in today’s changing international business environment.

Academic research on global strategy appeared in the age of 1980s, the work of Michael Porter and Christopher Bartlett & Sumantra Ghoshal are most significant. The forces that are perceived to bring the globalization of competition were convergences in technological change and economic systems, particularly in information technology. All of these factors have facilitated and demanded the coordination of an international firm’s strategy worldwide.

In this article, firstly, I will briefly introduce the goals of MNEs’ global strategy. Then why is global strategy important. Finally, I will apply the knowledge we learned in class to analyze how to formulate and implement an effective global strategy.

The goal of MNEs’ global strategy

The trend of world economy’s globalization has encouraged many organizations, especially these MNEs with abundant resources, to rethink the way they are competing in this ongoing expanding market. Products, markets, and interdependent financial work are growing at different paces towards a “globalized” system. The objective of the global strategy is to take the allocation of corporate resources into consideration in the increasingly complex global environment, to improve competitiveness, to enhance their competitive position and to maximize the overall benefits. Multinational enterprise will arrange its facilities in the most favorable countries, and will coordinate and link their activities in different countries. Global strategies help the MNEs to timely transfer achievements in technology development to management innovations, in order to enhance the company’s core competitiveness.

Why global strategy is important for MNEs

From a company perspective, international expansion can provide potential opportunities for new sales and profits. For example, because of low profitability in the Chinese domestic market, TCL – the Chinese consumer electronics company, decided on a strategy of going global. Lately, it implemented new offices abroad, new plants and acquisitions to expand its market position in United States and the European Union – the two main consumer electronics markets.

In addition to new sales opportunities, there are other reasons for expansion outside the home market. For instance, some companies going global in order to take advantage of low labor costs in some countries, which is called efficiency seeking. While sometimes the acquisition of foreign companies can be used to enhance the company’s market position versus competitors, which is called strategic asset seeking.

From a customer perspective, international trade should lead to lower prices for services and goods due to the economies of scale and scope, which can derive from a greater global base. In addition, some customers like to own products and services that represent a global image. For example, ‘Manchester United’ branded soccer shirts or Disney cartoon characters.

How MNEs formulate and implement the global strategy

First of all, multinational enterprises have to figure out what its role is in international arena, what their core competencies are, whether international talents are available, and where the target market is, so that it could avoid the detours in the process of formulating and implementing the global strategy. Enterprises must have a clear strategy plan, and then combine their own characteristics to international environment to choose the right way. As a beginning point, it’s better to some basic international data to analyze different countries. Before entering a new market, it’s necessary to collect adequate data about this market, and then choose the best path based on strategic priorities and their own ability.

New York Fries is a good example. “New York Fries Company was founded in 1983. And now in 2011, there were more than 190 NYF stores in six countries, with sales in excess of $64 million. Fifteen of the NYF stores were owned by the Company, the rest by franchisees. The biggest advantage of NYF is their product. NYF fries were made from real, not reconstituted, potatoes. They were hand-cut and fried in non-hydrogenated, trans fat-free, sunflower oil.”[2] Obviously, China could be a huge market for an American fast food restaurant, but NYF hesitate to expand into mainland China. So the company’s president, Jay Gould, chose Hong Kong to open their franchisees. At the time of the requests, Gould had never been to Hong Kong; his first visit was to select the new Hong Kong partners and scout locations for the franchise. Within five years, the pace of expansion in Hong Kong and Macau was slower than expected. Gould recognized that opening a location in China would probably take a great deal of time and effort from his head office staff. If NYF expand directly into mainland instead of locating in Hong Kong at first, maybe they would experience the failure as they did in South Korea.

The next step is then to discover and identify the company’s resources and advantages for international expansion. For example, the company may have unique brand or some special patents that can be made use of in international expansion. A company could set its international and global objectives after this.

Some people may feel surprising of this point of view, while they believe a company should begin by setting out what it really needs to achieve internationally. Why we leave the objective-setting until now? The reason is that our objectives need to be set in the realistic environment of what resources the company has for its international expansion and what opportunities exist in the market place. A simple example: in the year of 2009, the time of US economy recession, the US car market was under heavy pressure, so there would be little point for a car company in setting a target for major expansion. Equally, a small computer services company may not have enough resources for a global product launch. It is better to set its objectives more realistically.

How to build an international talents team is a big problem. In a survey conducted by McKinsey, the three-quarters of respondents believe that the talent shortage is the biggest obstacle to its global expansion plans. To respond to this problem, at first, MNEs should make the enterprise localization, and develop a clear strategy to attract international talent with the multiple resources. And leaders should have an awareness of the cross-cultural issue and enhance communication with international talents.

Huawei, for instance, has more than 10,000 overseas employees, and is still in a rapid growth. Huawei Technologies Co. Ltd, is a Chinese telecommunications equipment and multinational networking and services company, whose headquarter is located in Shenzhen, Guangdong. Huawei is the largest telecommunications equipment maker all over the world. It has overtaken Ericsson in 2012. Huawei uses a localized business strategy on a global scale. In order to be more closely adapted to the customer’s needs, listening to customer’s needs and respond quickly; Huawei has established 20 regional overseas departments, more than 100 branches. Huawei set up 12 R&D centers in the US, India, Sweden, Russia and other places. Each R & D centers not only focus on different research direction, but also gathers the advanced technologies, experience and talent to carry out product research. So when Huawei’s products enter into the market, its technology is up to date. Huawei also set up 28 overseas regional training centers for local technical personnel.

Another example is Trend Micro Inc., a global security software company, was founded in 1988 in Los Angeles. Headquarters were moved to Taipei by its founders, shortly after establishing the company, Now Trend Micro is already the world’s leading anti-virus software company, with 30 branch offices all over the world. It adopts a multi-mode operation headquarters — financial centers in Japan, marketing centers in the US, R & D camp in Taiwan, global customer service centers in the Philippines and the administrative center in Ireland. It has an excellent international management team. The core management team is made up of only 13 people, from China, Japan, India, the United States, Germany, and Argentina. There exist simultaneously diversity and a strong cohesion in its corporate culture. All branches around the world share the same corporate culture and values.

There is another important aspect we shouldn’t ignore — innovation and learning. In the era of globalization, enterprise innovation cycles are getting shorter. Essentially, globalization is a new form of competing. The one who consistently stand at the forefront of innovators in this game is the ultimate winner. So in my opinion, MNEs ought to build an environment which is conducive to innovation, knowledge creation and sharing. For example, by changing the design of office space, make the office a place for the staff to exchange information and knowledge, a place where different ideas stir. Meanwhile, let employees and customers become an important source of product ideas.

A typical case is 3M Company. The 3M Company is an American multinational conglomerate corporation, being known as the Minnesota Mining and Manufacturing Company at the first stage. 3M headquarters are in the St. Paul suburb of Maplewood, Minnesota. This company is known for providing innovative environment. It regards the innovation as a way of business growth and the products as its enterprise life. 3M Company develop more than 200 kinds of new products a year. The goal is to obtain 30% of annual sales from the new products which were developed in the past four years. One of the secrets of 3M innovation management is to create an enabling innovative internal environment. For example, “technical forums provided opportunities to share technology, best practices and procedures; the European Management Action Team (EMATs) Forum regularly brought together relevant personnel from the United States and European subsidiaries to share information and make decisions. Lecture and problem-solving discussions were also held during the forum. These meetings enabled subsidiaries to present their thoughts and facilitated cooperation and accelerated pace in markets in which there were significant growth opportunities.”[3]

The company allows all employees put up to 15% of the time on their professional interest, and failures are accepted. Its slogan is: you only kissed a lot of frogs before they can find a prince.

In the era of globalization, cooperating with competitors is an important strategy of multinational companies. A delicate relationship that competitions and cooperation are often maintained between enterprises. Business leaders need to think about not only competition and profitability, but also how to embrace a more open business environment. For example, the consumer product giant P&G has launched a program called Connect & Developed, spending nearly $ 2 billion to look for its scientists, so that the company can get new technologies from outside suppliers. If R&D can be solved through collaboration and outsourcing, what areas cannot? Another example, Japanese multinational enterprise — Sony formed several strategic alliances with smaller firms who have complementary competences, which would help it to penetrate new markets.

So leaders should increase the openness of the enterprise, in order to attract more dynamic ideas and human resource outside the enterprise. Using strategic cooperative manner to deal with the non-core business allows enterprises to quickly grasp the opportunities during the process of globalization.

Haier Group is a Chinese multinational home appliances and consumer electronics company, whose headquarter is located in Qingdao, China. It designs, develops, produces and sells home appliance, such as air conditioners, mobile phones, refrigerators, computers, washing machines, and televisions. In 2002, Haier cooperated with the largest appliance manufacturer in Taiwan — Taiwan’s Sampo Group. Their cooperation covers selling each other’s home appliances, and expanding parts procurement and technology sharing. Alliance with Sampo paves the way for Haier to enter the Taiwan market.

This strategy, based on trust between partners, requires leaders of MNEs to focus on the long-term benefits, rather than short-term gains.

Conclusion

In this paper, we discuss how can leaders in today’s MNE formulate and implement effective global strategy. Before entering a new market, it’s necessary to collect adequate data about this market, so that leaders can choose the best path for their companies. The next step is to identify the company’s resources and advantages for international expansion. During this process, an essential element is the use of talents. In addition, both innovation and cooperation are often used by leaders in today’s MNEs.

Today’s MNEs use a great diversity of global strategies. In order to acquire the competitive position on today’s global market over a long term, companies have to continually adapt to market conditions, to identify the resources and advantages, and then thus use them efficiently. Therefore they have to come up with the best strategy and redirect it depending on the economic backdrop at the time. A successful strategy is based on the way it makes a difference, on the added value it brings, on the attractiveness of the industry and on the market maturity stage, so that it helps the enterprise achieve a competitive and profitable position.

Reference

[1] Chya-Yi Liaw, 3M Taiwan: product innovation in the subsidiary. (2012)

[2] Ruth Mortimer, “Customer Innovation: Inspirational Customers,” Brand Strategy, London, July 12, 2005, p.24.

[3] Palich, L. E., & Gomez-Mejia, L. R. (1999). A theory of global strategy and firm efficiencies: Considering the effects of cultural diversity. Journal of management, 25(4), 587-606.

[4] Sharda Prashad, Developing an international growth strategy at New York Fries. (2011 )

[5] Corina Dumitrescu, Francesco Scalera. Strategies of Multinational Enterprises. International Journal of Business and Commerce, Mar 2012(12-26)

[6] Sassen, S. (1998). Globalization and its discontents. New York: New Press.

[7] How do you build a global strategy? http://www.global-strategy.net/how-do-you-build-a-global-strategy/

[8] Wikipedia — 3M http://en.wikipedia.org/wiki/3M

[9] History of the Cellular (Cell/Mobile) Phone – Companies – Huawei Technologies Co. Ltd. http://www.historyofthecellphone.com/companies/huawei-technologies.php

[10] Wikipedia — Trend Micro http://en.wikipedia.org/wiki/Trend_Micro_Incorporated

[12] Wikipedia — Haier http://en.wikipedia.org/wiki/Haier

[13] Wikipedia — Multination Corporation http://en.wikipedia.org/wiki/Multinational_corporation

[14] Wikipedia — Global Strategy http://en.wikipedia.org/wiki/Global_strategy

[15] What is global strategy? And why is it important? http://www.global-strategy.net/what-is-global-strategy/

[16] Beck, U. (2000). What is globalization?.

[17] 丛松，浅析海尔集团国际åŒ-战略及其深åŒ-. 吉æž-省经济干部管理学院学报. April,2002, p.66-68

[18] 项冰，华为的全球åŒ-战略. 长江Online. http://cn.ckgsb.com/Article/Detail.aspx?ColumnId=404&ArticleId=5853

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[1] From Wikipedia – Multinational Corporation http://en.wikipedia.org/wiki/Multinational_corporation

[2] Sharda Prashad, Developing an international growth strategy at New York Fries. (2011 )

[3] Chya-Yi Liaw, 3M Taiwan: product innovation in the subsidiary. (2012)