- Written by Ronald van Haaften
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1.2.2 Preliminary analysis.
International competition is by default diverse, as well by local companies as by similar cross border enterprises. In the current economy, it twists more and more for profit growth and shareholder value – cash is king. Efficiency and economy of scale are important instruments to deliver success. To anticipate on the new economy international companies could benefit from well balanced growth strategies. Instead of following trusted and generic marketing strategies, where the business units only have a local (national) justification, international organization could benefit by choosing to do things differently.
Using the integration/responsiveness grid (IR-Grid), as introduced by Prahalad and Doz in 1987, we can examine the strategic change and positioning of international organizations. See figure 1.
Figure 1. The integration-responsiveness grid. (Prahalad and Doz, 1987)
The IR-Grid shows that the strategic choice for globally operating organizations lies in the proportion between integration and responsiveness (flexibility versus efficiency). The basis of the IR concept is formed by settling a strategic balance in internal efficiency and geographical decentralization. Central questions are: what is the correct balance?, which marketing strategy is appropriate?, is the organization ready on this to anticipate? and are the obtained resources presently available to create a competitive advantage? As a result, there are three key words applicable:
- The ability to act swift and decisive on local market developments. Flexibility is a typical characteristic of a multinational organization with a local responsiveness strategy and strong focus on portfolio management across the business units.
- The ability to get the best out of the economy of scale and synergy benefits. Efficiency is a typical characteristic of a global organization with dominant integrated product strategy and highly centralized structure.
- Knowledge diffusion,
- The ability to develop and diffuse knowledge and skills within the organization to be suitable for use based on the local market needs, wants and demands. Knowledge diffusion is a typical characteristic of an international organization with multi focal strategy.
Before further examination of the new corporate strategies, it is sensible to understand the factors and forces that are of influence on the need for integration and on the need for global integration.
- The drivers and strengths behind local responsiveness:
- Difference in customer needs
- Difference of distribution channels
- Threat of substitutes and the need for adoption
- Different market structures and competition model
- Different political environment
The drivers and strengths behind global integration:
- Severe multinational competition
- The strategic importance to gain and preserve multinational customers
- Efficiency driven, economy of scale, cost reduction
- Technology and R&D driven
- Homogeneous core rental product
- Centralization of resources or at least moderate global presence of resources like: purchase, materials, labour, energy, capital, marketing and production.
- The ability to follow the market.
A clear parallel can be drawn to the integration and differentiation theory of Lawrence & Lorsch (1967) where the determent is based on the degree of uncertainty in the direct internal and external environment. The degree of differentiation is directly dependent of the degree of uncertainty. The larger the degree of differentiation the higher the requirements are for integration of (the) business units.
Such to expect, the degree of differentiation and integration needs to be in balance. By stimulating and conditioning the organization in such a manner, organizational management should be able to anticipate and integrate all differentiated business units into one organizational structure. Strong organizational fragmentation can lead to an organizational disorder at which management is no longer capable to succeed in her objectives within the dynamic markets. The autonomy of the business units and (local) differentiated strategies exceeds in a certain way the integration power of the organization. Leverage competitive advantage under such circumstances is direct linked to the ability to gather and diffuse globally dispersed knowledge effectively among the local business units (Doz et al, 2001:5).
Having said that, we infer that a preferred corporate strategic movement is not diagonal through the IR-Grid but rather onto the direction of the right top section. This is caused by two strategic movements, firstly a horizontal movement where global organizations strive to develop a market responsiveness configuration. Secondly, vertical upward movements where multinationals strive to integration and get the benefits of the economy of scale. See figure 2.
Figure 2. The integration-responsiveness grid. (Prahalad and Doz, 1987) Completed with research of Goshal and Bartlett, the transnational strategy.
International organizations with a high level of local responsiveness should try to move in a vertical direction, with a transnational growth strategy based on its core competencies: knowledge and experience of local markets. Broader international divisional structures should leverage the economy of scale and internal efficiency. Thereby such organizations should be structured for a correct decisive responsiveness on local markets. A corporate transnational strategy is a synthesis of three basic strategies with three important characteristics:
- Local responsiveness:
- Important and a critical success factor for a swift and flexible anticipation on the dynamic local competitive markets, legal differences, marketing fine tuning, and purchase processes. Last but not least, local responsiveness bridges the cultural differences and perceptions. Hence, it built a platform for knowledge diffusion.
- Important and necessary, it concerns economy of scale, synergy between countries and efficiency that contributes a significant competitive advantage at global level.
- Knowledge diffusion:
- Important and critical, it can be seen in a much broader perspective of a learning organization across all lateral functions. Next to that it can accelerate the speed of innovation and shorten the time to market. Hence, it will have an impact on corporate efficiency and effectiveness.
Corporate position and communication needs to be consistent and recognizable for (international) customers. This is where brand management and corporate branding becomes a powerful marketing tool. Corporate branding needs to be built on a well-defined organization structure, processes and culture to build and maintain a sustainable international brand reputation. This is the interface where internal and external associations, such as acknowledgement and recognition of innovative orientated solutions and service, are built or even damaged.
Communicating and carrying out of the vision, mission and strategic intent, should take place within a common strategic framework, using a consistent and unambiguous message. It is necessary to centralize functions and decentralize organizational structures within a common framework. It is the ability to understand and to be understood. Corporate branding fulfils an internal and external key function for settling the right set of association, liaised with the organization - not only the identity and reputation of the corporation, but also corporate value drivers.