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

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

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

Typology of MNE strategies High Global (global commodities) Transnational (cultural, regulated goods & services) Low International (local commodities) Multidomestic (look’n’feel goods & services) LowHigh Level of Local Responsiveness Level of Global Efficiency Source: Adapted from Bartlett and Ghoshal (1989) and Guillen (2002)

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

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

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 structure Core assets and competencies specialized, dispersed, but interdependent Differential contributions by subsidiaries to integrated worldwide operations Knowledge developed jointly and shared worldwide

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

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 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

Effect on MNE strategies? High GlobalTrans-national Low InternationalMulti-domestic LowHigh In general, trend towards higher global efficiency AND higher local responsiveness Level of Local Responsiveness Level of Global Efficiency

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

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

QUESTIONS? COMMENTS? Thank you!