Wednesday, July 23, 2008

Global Business Operating Strategy: Trends, Issues, and Problems

Business Positioning

The growing trend towards globalization brings opportunities for companies to expand overseas and grow revenues. As many companies have experienced, expanding the geographic scope of the market can indeed offer rewarding growth opportunities (Knight, Dyer, 2005). However, expanding to new geographic market offers serious challenges to companies. In particular, attractive markets are hardest to penetrate, as incumbents or existing competition will fight back to defend their market position.

Bryce, and Dryer (2007) propose a low profile and indirect business positioning to penetrate attractive market, so as not to catch attention of existing competition until it’s too late for them to react. The authors propose three business positioning approach in pursuing attractive markets, which compose of leveraging existing strengths and resources, reconfiguring the value chains by changing activities or sequence of activities in delivering value to customers, establish niches attracting customers in the fringe segments. Given the need for a global perspective in business positioning, Gupta and Govindarajan (2004) recommend that companies consider the star framework of global competitive advantage. The star framework recommends that the companies select the business positioning that contributes in improving global competitive advantage of the company in terms of expanded global activity architecture, maximized location competencies, and improvement of global coordination.

Mergers and Acquisitions

Marzulli, and Haskamp (2007) mentioned that there has been an increase in mergers and acquisitions activities in Northern America and worldwide. In particular, there have been significant acquisition activities done by private equity firms through leveraged buyout. The strong leveraged buy-out activities were fueled by low interest rates during the past years. However, the recent trend of increasing interest rates is creating challenges to private equity firms, as this increases their cost to acquire companies. Another noted trend is the increase activity of hostile takeover in the U.S., with hostile bids doubled from 14 to 32 in the last two years (Marzulli, and Haskamp, 2007).

The intention of pursuing mergers and acquisitions is to attain synergies between companies. However, it is disturbing that only 20% of completed mergers and acquisitions are able to achieve the intended level of synergies (Atkinson, and Clarke, 2007). As the cultural difference between companies increase, the higher is the risk that such mergers and acquisitions will not yield the required results. This makes mergers and acquisition involving companies based in different countries to be more challenging. Atkinson, and Clarke (2007) point to the destructive effect of culture divide in hindering business integration post the merger and acquisition. In order for the merger and acquisition to work will require that a unified culture of the combined organization be shaped to deliver outstanding values to all stakeholders. This then requires companies to conduct pre-merger and pre-acquisition analysis that goes beyond the financial aspect to include the organizational culture perspective.
Best Practice in Global Acquisition:

Cisco Systems demonstrates successful formula for global acquisitions that is worthy of emulation. Global acquisition has been an integral part of the company’s operation and business model. Acquiring technology companies at a fast pace allows Cisco to absorb new technology, acquire top technical talents, increase the company’s product portfolio, and neutralize upcoming competitors. Cisco acquires companies in different parts of the world to capture not only new products, but the best engineering and entrepreneurial talents as well. Upon completion of the acquisition, Cisco gives the acquired organization autonomy to operate independently. The 2004 annual report of Cisco Systems mentioned that the company completed twelve acquisitions during that year, and expected to follow the same rate of acquisitions the next year.
Chang, Chatman, and O’Reilly (2005) mentioned that the two key factors instilled in Cisco’ culture serving as the foundation for its successful acquisitions are not adapting technology religion, and listening carefully to customer. Cisco did not rigidly impose one technology to the customer; instead, the organization listens to the needs and problems of the customer, and matches this with appropriate technology solution. Likewise, Chang, Chatman, and O’Reilly (2005) also mentioned that Cisco’s culture is based on the principles of open communication, empowerment, trust, and integrity. Such form of organizational culture is able to support Cisco’s acquisition efforts.

Strategic Partnership:

Companies seek to establish strategic partnership to look for synergies in cost, capital, revenue, and growth for mutual benefit ( Dobbs, Suoni, Tortorici, 2007). Strategic partnership can only exist by sustaining relationship that is mutually beneficial for both parties. Likewise, a key factor influencing partnership and collaboration is the desire to maintain such relationship between the involved companies (Gustafson, Johnson, and Roos, 2005). Partnership requires the highest level of relationship, needed for industries characterized as complicated, fast changing, and rapidly developing (Jacobs, 2005). Larzelere and Huston (1980) further emphasized that trust is the prerequisite for developing long-term commitments. Trust serves as the foundation for nurturing and sustaining strategic partnership that requires time to build, but can be quickly damage due to miscommunication, lack of business integrity, and conflicting objectives.

Global Alliances:

Colteryahn and Davis (2004) describe the evolving global environment as having increasing uncertainty, increasing global interdependence and competition, and increasing rate of change. The challenges from such an environment can be too much for an organization to face alone by itself. Such environmental trends point to the need for companies to collaborate with partners and even with competitors at a global scale. The ability of companies to build collaborative advantage will help those companies thrive in the ever increasingly complex environment (Hansen, Nohria, 2006).

Global alliance was popularly adapted by different industries, ranging from the high technology sector to the airline industry. Global companies form alliance with foreign partners, channel partners, or even with competitors to share risk, share assets, and eventually share the pie of the market. Gupta and Govindarajan (2004) mentioned that based on the theory of cross border scalability, the risk of success of global strategy increases as the level of local infrastructure and local adaptation increases.

The formation of global alliance is the recommended mode of entry when the level of local infrastructure and local adaptation increases. Alliance will be able to leverage the strengths and assets of local partners reducing the risk and capital investment by the company. However, the challenges for global alliance pertains to the complexity of managing the relationship with alliance members due to conflicting goals, and the company’s lack of control in dictating the pace of the global expansion.


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