TRANSNATIONAL CORPORTIONS STRATEGIES OF EXPANSION. A new look on the role of strategy in a development of an organization

Transcription

1 MAGDALENA ROSIŃSKA EWA KLIMA UNIWERSYTET ŁÓDZKI TRANSNATIONAL CORPORTIONS STRATEGIES OF EXPANSION The aim of this article is to show that in the conditions of dynamically progressing globalization, the applied strategy of expansion has a major significance for stable, long-term development of companies. In relation to transnational companies the rules of operation of international production systems hold particular significance. The study consists of three parts. First part of the article is an attempt to show the need for a new look on the role of the strategy in development of modern organizations. In the second part, the typology of international companies strategic orientation is described. The last part of the study describes the rules of creation of global production systems as an effective model of transnational corporations expansion in a modern economy. A new look on the role of strategy in a development of an organization It seems that in the conditions of globalization and liberalization of business rules in international trade, the issue of strategy of development of a company requires a new approach. Hitherto, not many authors mentioned in their definitions about the question of the significance of changes undergoing in external environment as important factors shaping the strategies, which can be confirmed by the analysis of some the accredited scientists definitions. G. Gierszewska treats the strategy of an organization only as a general program of defining and performing the goals of a company and fulfilling its mission statement 1. M. Romanowska sees the strategy as an operational 1 G. Gierszewska, Strategie przedsiębiorstw w dobie globalizacji, Warsaw: WSHiP, 2003, p. 19 1

2 Transnational Corporations Strategies of Expansion program defining main goals of an organization and means of achieving these goals 2. It is perceived in a similar way by A. Koźmiński, who defines strategy as a conscious and consequently implemented way of maintaining an advantage of a company over the competition in a long term period 3. A wider overview including the effect of changes in world economy on the rules of operation of companies at microeconomic level is presented by A. Zorska. There, we can find a similar description of the same strategy 4 but with the emphasis on the need for a proper integration and coordination of actions of organization depending on the requirements of the environment. The author believes that modifications of existing competences during the implementation of existing strategy (or even creating new competences) is essential for development of an organization in a long term in the relation to changes in environment. This concept seems to be particularly important in the times of need for considering global perspective for the business, because it allows the acceptance of internationalization of company s activity as a development stage of the organization, not as a separate strategic concept. In case analysis of international companies activity, this issue gains fundamental significance. It seems to be crucial to assume that strategy is an art of creation of values 5 with the right concept (determination of direction and scope of activity) of planning of company s development in a long term with respect for proper configuration of resources and changing environment 6. An impulse for the emphasis on the importance of strategy for organization s development was an observation of the fact that companies focused only on current results quickly lose their high market positions 7. It was essential, especially for international companies operating on global scale, to strategically remodel the chain of creating of values. The liberalization of rules of global economy resulted in revival of global markets and development of corporate system of production process. It seems that acceleration of creation of corporate systems of international production became possible thanks to decreasing barriers in international trade and investment flow (standardization of FDI). Use of modern technologies (internet) had a special 2 M. Romanowska, Strategie rozwoju i konkurencji, Warsaw: Wydawnictwo CIM, 2000, p. 6 3 A.K. Koźmiński, Zarządzanie międzynarodowe, Warsaw: PWE, 1999, p Zorska defines strategy as an integrated and coordinated set of activities (actions, moves) undertaken for the use of basic competences and gaining advantage over the competition. Compare A. Zorska, Ku globalizacji? Przemiany w korporacjach transnarodowych i w gospodarce światowej, Warsaw: PWN, 1998, p A. Zorska, Ku globalizacji?..., op. cit, p K. Olszanowska, Determinanty strategii internalizacji przedsiębiorstwa na etapie wyboru rynku zagranicznej ekspansji; (in:) Biznes międzynarodowy a internacjonalizacja gospodarki narodowej, Poznań: Najlepszy E, Wydawnictwo AE w Poznaniu, 2005, p K. Sowa, Strategie konkurencji korporacji ponadnarodowych, Warsaw: Difin, 2006, p. 79 2

3 significance for the development of connection network within international production chain. As a consequence, corporate strategies seeking new forms of management of their dispersed activity evolved 8. It is worth to underline that while national competitiveness strategies rely mainly on direct sources of competitive advantage (resulting from cost or quality advantage), international competitiveness strategies put emphasis on the role of corporate structures and diversity of production factors in different countries. It seems that studies on transnational corporations expansion strategies require consideration for modified schemes of thinking (different areas, problems and assumptions) in relation to traditional deliberations on sources of competitive advantage of companies 9. Typology of international companies strategic orientations Firstly, it is worth to notice that the foundation for the process of management of transnational corporations lies in the strategic orientation of the company which creates the surroundings for mutually dependant areas of multilevel and sequential planning process and eventually for implementation of corporation s international activity 10. The key element of this orientation is the approach to rules of management and designating authorizations within organizational structure as well as rules of adapting to client s requirements on international market. We are dealing here with the assumptions regarding the standards of behavior in international environment as a choice of certain type of international orientation: ethnocentric, polycentric, regioncentric or geocentric. In the ethnocentric approach, home market is treated as superior, that is why development usually progresses in the direction of similar areas on international market (foreign markets with similar structure). Company corrects functional strategies (focused on tasks performed inside the company) according to the change in long-term vision of the company (mission) as an effect of new look on the condition of its own resources and profit opportunity in specific market situation. This kind of strategic changes focus on increasing effectiveness through the improvement of quality, increase in innovations and growth of adaptive skills. In terms of introduction of new tasks, it is important how changes (technological, organizational and managerial, information 8 World Investment Report Transnational Corporations and Export Competitiveness; United Nations, New York and Geneva, 2002, p K. Sowa, Strategie konkurencji..., op. cit., p J. Rymarczyk, Internacjonalizacja przedsiębiorstwa, Warsaw: PWE, 1997, p. 71 3

4 Transnational Corporations Strategies of Expansion flow, cooperation within teams 11 ) are implemented. Corporation implements strategy conducted by the management board in its home country. All the changes are imposed centrally in this model (based on the best solutions derived from home market). Such corporation can be considered as ethnocentric. Second approach in the analysis of strategic orientation is based on the socalled base strategies 12 directed on direct interactions of a company with its closest environment (clients, suppliers, competition) in order to gain competitive advantage through cost leadership, differentiation (distinguishment) or concentration (on the socalled market recesses) 13. Considering the structure of an organization and the scope of authorization designation by the central object, we can observe much larger freedom of units within one corporation in terms of choice of actions on their areas while at the same time maintaining the specified strategic framework. In that case we are dealing with a polycentric organization, where organizational culture of the daughter companies reflects specific features of the local market (segment). The third type of strategic orientation is the diversification strategy enabling the risk reduction of activity through geographical or product diversification. It is a particularly important tool for competitive struggle on international markets. In that situation, a corporation functions as structures with big independence from both the mother company and remaining units belonging to mother corporation. This type of link puts emphasis on benefits from integrated strategy for similar regions (areas). They can be geographical areas or segments with similar product requirements. An organization implementing such strategy has a regioncentric feature, which means that for such designated region the corporation uses unified rules and norms of action. Different regions are characterized by large autonomy, but at the same time a strong centralism in terms of regional behavior standards. The abovementioned strategic orientations usually picture the evolution of organization and are typical methods of corporate expansion in the consecutive stages of development (organization s life cycle). In case of organization operating in global business space, in order to gain competitive advantage on the international market in the long term, it becomes necessary to be able to use all the three of the abovementioned pillars. When choosing development strategy, it is the corporation in its maturity stage that can decide on which branch and geographical markets, with what pace, using which ways, stages and instruments it will strengthen its competitive position. Therefore, transnational orientation is adequate for mature companies and is based on the constant improvement 11 A. Zorska, Ku globalizacji?..., op. cit., p and J. Rymarczyk, Internacjonalizacja i globalizacja przedsiębiorstwa, Warsaw: PWE, 2004, p Base strategy of a company is oriented on defining the type of product, typology of the used markets (in a geographical and segment-client type way), defining its position in relation to main competitors and rules of investment policy. Compare: G.S. Yip, Strategia globalna, Warsaw: PWE (second edition), 2004, p M. Nowakowski, Biznes międzynarodowy obszary decyzji strategicznych, Warsaw: Key Text, 2000, p

5 in competitiveness on international scale through the right balance of base components of the three base orientations (ethnocentric, polycentric and regioncentric). The rules of choice and configuration of elements of strategy in transnational orientation are determined by the mission of organization which has to consider both internal and external factors influencing the company. In case of largest companies we are dealing with complex international environment (with large number of factors influencing the process of creating strategy). While implementing a globally coherent, integrated strategy, a company has to wisely use the impulses coming from the closest environment of different branches of the corporation; therefore it is most adequate to call this an interactive approach. This article uses the term of transnational as the most developed orientation used by TNC, which also means interactive geocentrism. The development strategies of most dynamic TNCs feature the geocentric approach in the assumed pace of development in the corporate format but also include the need for quick tactical and operational level adaptive actions. The question of constant transfer of resources and abilities between an organization and environment, especially research and development investments, which determine elemental strategies 14 within one corporation becomes especially important in this orientation. Within geocentric interactive orientation of corporate structure, we can encounter the phenomenon of co-opetition, which is the combination of cooperation and competition. Co-opetition is based on the mutual cooperation between branches which creates an added value for a mother corporation, but at the same time they compete within the corporation for the allocation of resources and position within the system. The role of the mother corporation is to integrate the system by intensification of cooperation by including all the units (branches) in a general strategic concept. It is possible if the assets of all branches are recognized correctly (including their interactions with the closest environment). In the traditional look on rules of building company competitiveness strategies, it was assumed that internationalization of activities is just a path of development for organization. Thus, internationalization was an optional element of company s general strategy. However, in case of subjects operating within global business space (created by globalization) it seems that internationalization is the immanent feature of expansion strategy. Methods and forms of company s international engagement depend on the development stage of an organization (life cycle phase). Expansion concepts used by corporations have to be treated as conceptualization of development strategies in new conditions (in international environment), not as independent strategies. 14 M. Nowakowski, Biznes międzynarodowy..., op. cit., p

6 Transnational Corporations Strategies of Expansion Rules of creation of global production systems Effective implementation of the advanced development strategies requires the ability of international process integration and coordination of actions and decisions by the companies. It is also essential to have distinguished qualifications enabling the use of company s own organizational infrastructure for the exploitation maximal part of all types of resources and abilities in order to build a durable competitive advantage 15. When analyzing the issue of competitiveness of international companies, it is justified to refer to the rules of creation of global production systems as important elements of the concept of internationalization of companies activities. There are three decisive elements of international production system 16 in terms of strategies used by TNCs: global chain of value creation based on specialization, geographical diversification of activity and methods of management in a complex organizational structure. Only the correct matching of these elements enables the implementation of development concept of organization in a global business space which is the consequence of progressing globalization. Global chain of value creation based on specialization is the fundamental element of international production system. It is essential to plan all the aspects of the activity of a corporation within its global structure correctly. It is important, that ultimately the final product identified with the company (associated with the brand of the organization) is maximally tailored to the needs of global client and provides the status of leader in a specific field for the organization 17. The concept of value chain is based on the assumption that strategic abilities of an organization depend on the effectiveness of coactions of elements of the inside environment (depending largely on organizational abilities of a unit) and outside environment (including mainly the rating of the company among its clients). Value chain includes all the activities, starting with source of technology (research and development zone), through projects and production process (creation of final goods) to end with implementation of distribution concept and marketing in target client market. Every one of these activities is a link in the value chain and every phase and connection is an input for creating of final good 18. Creating the chain means the functional coordination of its links (through adequate management of their potential) to 15 K. Sowa, Strategie konkurencji..., op. cit., p World Investment Report , op. cit., p The term of global client needs to be explained in detail. In the assumed framework, tailoring to the needs of global buyer not always means the need for universalness of the product. It can also be a new strategy focused on conquering different markets (segments) through the application of different methods (modifications of the product). It is important that in the end it can be agreed that a company provides its products for the entire market, meaning global clients. 18 Z. Pierścionek, Strategie rozwoju firmy, Warsaw: PWN, 1998, p

7 trigger the synergy effect 19. Corporations, through the possibility of internationalization of some of the functions of their activity, are able to increase the value and effectiveness of specific actions. Global fragmentation of value creation chain enables the transfer of specific actions to the chosen organizational units of a company (such as branches located in different countries) in order to optimize conditions of development strategy implementation 20. Specifications of TNCs enable them to use the elimination strategy thanks to distinguishment of activities with different inputs, required production abilities and financial risk, even within the same industry or production process. It results in general trend of functional specialization of the global value chain which is the opposite of vertical integration of structures (observed until recently in strategies of many TNCs). The improvement in global effectiveness of a corporation is often benefited by the exclusion of some of the functions, which are outside of the core specialization of the organization (inclusion of independent outside companies: suppliers, subcontractors, middlemen, strategic alliance partners etc), from its own structure. Therefore, the key for gaining competitive advantage within international production systems in a long term is the ability to build a value of the brand and accumulate its capital with relation to changing tastes and styles in a dynamically developing global space (called the marketing drive) 21. The second element of international production system is the spatial diversification of activity. It is based on a geographically correct allocation of organizational units in order to gain the most valuable local resources to maximize competitive advantage of corporate system as a whole. At the turn of 20 th and 21 st centuries significant changes in the rating rules of TNC activity locations were visible. It refers to the locations of technological centers and production plants as well as units responsible for marketing activities. The changes in international production system are therefore related to the increase in quality of the offer. However, it seems that the difference in costs still remains the most important factor, while the costs are rated relatively with the consideration for efficiency and productivity of a specific location during specific time. It needs to be mentioned that economic account includes also funding for R&D as well as management processes such as: accounting, information technology and marketing. As a consequence, it is visible that as a result of search for 19 J. Penc, Zarządzanie w warunkach globalizacji, Warsaw: Difin, 2003, p Increase in effectiveness gains benefit from the fact, that some of the functions are often excluded from organization s own structure (independent outside companies: suppliers, subcontractors, middlemen, strategic alliance partners etc.). Compare A. Zorska, Korporacje Transnarodowe przemiany, oddziaływania, wyzwania, Warsaw: PWE, 2007, p World Investment Report 2002, p

8 Transnational Corporations Strategies of Expansion cost optimization, the range of TNC activity increased, but operational integration of geographically remote locations through the creation of integrated business connections structures remains currently a clear trend. Corporations focus on geographical allocation of links of their global value chain so that entire international production system of organization could reach the level of maximum effectiveness 22. The third element of international production system is the methodology of management in a complex organizational structure. Global value creation chain with geographically dispersed organizational units requires new look on the rules of organization management. The nature of methodology of management of this complex structure seems to lie in two elements: coordination tools and control mechanisms. In traditional (hierarchical) structures the instruments of management (coordination and control) are a direct result of established organizational structure, therefore it is a system relatively easy to analyze. However, in the situation where geographical and functional diversification of company s activity imposes the use of flexible organizational structures, often diverse for particular areas of activity of the same object, effective coordination of the system and establishing mechanisms of self-control become key issues. Getting the grip of all types of connections in organization and giving a company the sense of objective unity becomes the challenge for people managing international production system. However, the links of organization functioning in many forms within its structure demand a different approach. Coownership enables the use of direct managerial supervision while different informal connections (where independent middlemen, suppliers, manufacturers, marketing specialists are connected with the company by different relations: franchising, licensing, subcontracting, marketing contracts, mutual technical standards, business relations based on trust 23 ) completely eliminate this possibility. Additionally, there is a necessity for softening the effects of co-opetition. Wrong approach to management of complex structure organization can deepen internal competition and weaken the cooperation. Modern companies (especially transnational corporations) were forced to revise their strategies of development and adjusting them to the changing environment of conditions. It seems that the success of TNCs can be explained by their right approach to three aspects: quality of resources and processes, meaning of time as strategic parameter and interaction with the environment. Accepting the first challenge, corporations concentrate on perfecting processes and resources of organization in order to improve the quality of performed activities and at the same time to increase the standards. In these actions, specific features and advantages of a corporation can be seen, which favors the indication of potential specialization areas. In the first stage of internationalization they mainly use 22 Ibidem, ps World Investment Report , op. cit., p. 122; Toyota is an example of combination of both approaches, where we can observe close connection of assembly plants completely owned by the company with multilayer networks of formally independent subcontractors. 8

9 international strategies based on property advantage and in the second stage they engage multinational strategies using location advantages. Next stage is the perception of time as strategic parameter of organization s development. Corporations attempt to gain the medal of leadership and consequently superior profits as way of creating added value to the commonly accepted standards. By gaining the leadership position they try to suck out maximum benefit from global market. Using global strategy enables them to engulf the knowledge (including innovative applications) created in branches located in different parts of the world. The base for building the advantage is usually internalization of key advantages, which enables not only time savings but also gaining benefits resulting from avoiding market distortions. Third aspect of adjusting the structure to the development strategy of a corporation is based on use of interactive orientation. By implementing full scope of internationalization (global strategy) a corporation must be able to emphasize spheres of perfect unison of the organization and needs of the client, perceived through the prism of individual needs of particular individuals and specific groups. The ability of adjusting the organization to client s demand specifics enables the assimilation with the specific environment and at the same time creating brand based on the concept of common responsibility of the organization for quality of life and welfare of their clients. It is the highest level of adjusting organizational structures to developmental challenges of the 21 st century. The organization implements transnational strategy, which means sinking of the company into system of global economy, with simultaneous integration with different local communities in a global economic space. To sum up, it is noticeable that while until recently companies paid most of their attention to low costs and efficiency, they are currently forced to concentrate on: quality, race against time or environmental protection and the costs, while still important, are not decisive part of the efficiency of expansion strategy. Development and even survival of the company depend on building a durable competitive advantage based on unique resources and skills on which the organization sets proper strategy with the consideration of the need of functioning within global economic space. When analyzing the operations of TNCs and strategies used by them, you need to consider the exocentric factors (hitherto underestimated) causing changes in internal structures and systems of the companies. The choice of strategy made by the corporation depends on relations between competitive pressure on lowering the costs of products and pressure on tailoring the products to the needs of national (local) sales markets. While operating in different countries TNCs have large possibilities for lowering the costs due to allocation of functions/actions which create values in optimal economic conditions and 9

10 Transnational Corporations Strategies of Expansion thanks to increase in their scale, specialization and standardization. It also requires increase of integration and coordination of functions within corporate system 24. To conclude, the applied strategy of expansion surely has a key significance for the perspectives of development of every company. Transnational corporations, however, are specific types of companies because as objects of global economy (with their economic position equal to that of many countries) they do not always comply with the rules of microeconomics. As a consequence, it is necessary to remodel traditional schematics (for example: rules of construction of development strategies) to analyze their activities. A thorough look on their path of development emphasizes the role of outside factors in shaping expansion strategies. For international companies internationalization is not a choice, but an immanent feature of every phase of life cycle. The stage of development of corporation can be perceived through the prism of its strategic orientation (from ethnocentrism to interactive geocentism). The measure of KTN s maturity seems to be the ability of creating effective production systems of global range, providing a stable long-term development for the organization. References: Gierszewska G, Strategie przedsiębiorstw w dobie globalizacji, Wyd. WSHiP w Warszawie, Warszawa 2003 Koźmiński A.K, Zarządzanie międzynarodowe, PWE, Warszawa 1999 Nowakowski M, Biznes międzynarodowy obszary decyzji strategicznych, Key Text, Warszawa 2000 Olszanowska K, Determinanty strategii internalizacji przedsiębiorstwa na etapie wyboru rynku zagranicznej ekspansji; (in:) Biznes międzynarodowy a internacjonalizacja gospodarki narodowej, ed. Najlepszy E, Wydawnictwo AE w Poznaniu, Poznań 2005 Penc J, Zarządzanie w warunkach globalizacji, Difin, Warszawa 2003 Pierścionek Z, Strategie rozwoju firmy, PWN, Warszawa 1998 Romanowska M, Strategie rozwoju i konkurencji; Wydawnictwo CIM, Warszawa 2000 Rymarczyk J, Internacjonalizacja i globalizacja przedsiębiorstwa, PWE, Warszawa 2004 Rymarczyk J, Internacjonalizacja przedsiębiorstwa, PWE, Warszawa 1997 Sowa K, Strategie konkurencji korporacji ponadnarodowych, Difin, Warszawa 2006 World Investment Report Transnational Corporations and Export Competitiveness; United Nations, New York and Geneva 2002 Yip G.S, Strategia globalna, PWE (wydanie II), Warszawa 2004 Zorska A, Ku globalizacji? Przemiany w korporacjach transnarodowych i w gospodarce światowej, PWN, Warszawa 1998 Zorska A, Korporacje Transnarodowe przemiany, oddziaływania, wyzwania, PWE, Warszawa A. Zorska, Ku globalizacji?..., op. cit., p

11 Streszczenie Celem artykułu jest wykazanie, iż w warunkach postępującej dynamicznie globalizacji kluczowe znaczenie dla długookresowego rozwoju ma zastosowana strategia ekspansji, co nabiera szczególnego znaczenia w przypadku przedsiębiorstw międzynarodowych. Opracowanie składa się z trzech części. Część pierwsza artykułu stanowi próbę wykazania konieczności nowego spojrzenia na rolę strategii w rozwoju współczesnych organizacji. W drugiej części przedstawiono typologię strategicznych orientacji przedsiębiorstw międzynarodowych. Ostatnia część opracowania omawia zasady kreowania globalnych systemów produkcyjnych jako skutecznego modelu ekspansji korporacji transnarodowych we współczesnej gospodarce. Rozważania prowadzą do stwierdzenia, iż dla korporacji transnarodowych internacjonalizacja stanowi immanentną cechę strategii a jej zakres wyznacza kolejne fazy cyklu tych życia podmiotów. Stopień rozwoju korporacji można postrzegać przez pryzmat jej orientacji strategicznej a miarą dojrzałości KTN wydaje się być umiejętność kreowania efektywnych systemów produkcyjnych o zasięgu globalnym. Summary The aim of the article is to show that in the conditions of dynamically progressing globalization, the applied expansion strategy has crucial meaning for longterm development, particularly in case of international companies. The article consists of three parts. First part of the article attempts to show the need for a new look on the role of strategy in the development of modern organizations. In the second part, the typology of strategic orientations of multinational companies was described. The last part relates to the rules of creating global production systems as an effective model of transnational corporations expansion in modern economy. The studies lead to the conclusion that for transnational corporations, internationalization is an immanent feature of strategy and its scope is determined by subsequent phases of their life cycles. The stage of development of a corporation can be perceived through the prism of its strategic orientation and the measure of maturity of TNC is the ability of creating effective production systems of global range. 11