Chapter 18

Business globalization is the emergence of the worldwide market as the arena of corporate activities. Virtually all large firms, and many smaller ones, acquire labor where it is cost-effective, find intellectual and financial capital anywhere it is available, and pursue markets across the globe. The cost of developing and marketing many products have to be recouped by going far beyond the local market to sell them. Business partnerships among corporations headquarted in different countries are common. World trade grows much faster than the total of products and services produced around the world.

In the last forty years, business has become increasingly international. Political and economic developments have resulted in relatively free flows of goods, capital, equipment, and knowledge across borders. These changes have had a mutually reinforcing relationship with the development of a global infrastructure of transportation and of computer-enabled telecommunications. Thus, information technology is an enabler of globalization and this globalization, in turn, stimulates the use of emerging information technologies.

In the environment of business globalization, many products lose their nationality. The value chain for a product can be distributed to several countries, according to the comparative advantage the country enjoys. Skills and resources - such as product design and engineering, supplies, capital, manufacturing facilities, transportation - come from a country where they can be obtained at the best terms.

Business firms become involved in international business to a different degree. For example:

1. Exporting and importing

2. Selling and buying goods and services

3. Trading technical and managerial skills through licensing agreements and management contracts

4. Product goods or services abroad

Multinational corporation is a corporation that owns and operates companies located in more than one country. Multinational corporations have become a principal driving force of business globalization. These firms generally locate their headquarters in a parent country and their subsidiaries or other subunits in various host countries. As they grow some of the multinationals lose ties to a domestic market, and many host countries develop their own industrial base with companies that have the capability to compete with a foreign multinational. It is then that the relationships between multinational organizations and the nations where they are headquartered and where they do business become rather complicated.

Information systems have a vital role to play in a multinational corporation. To perform and innovate successfully in a global marketplace, organizations need to develop superior coordination skills. Organizational designs and the use of information systems should facilitate the processes of coordinating and innovating.

Three forces shape the competitive posture of multinational corporations. These include:

1. Global integration - in order to achieve efficiencies, such as economies of scale from a large-scale production of a given product, and economies of scope, from a large-scale production of several related products.

2. Local differentiation - among the units located in different countries in order to respond to the requirements of local markets.

3. Worldwide innovation - to develop and diffuse technological and organizational innovation on a global scale.

Strategies of Worldwide Corporations

There are three principal strategies and corresponding structures of worldwide organizations.

1. Multinational strategy - are primarily oriented toward building a strong presence in the host countries by responding to local needs. The units operating in different countries are almost independent, so long as they operate in a satisfactory manner. The central unit performs financial control of the entire enterprise.

2. Global strategy - the corporation treats the world as a single market and aims to realize efficiencies of scale and scope over its territory of operations.

3. Transnational strategy - Strategy of multinational corporations under which the overseas components are integrated into the overall corporate structure across several dimensions and each of the components is empowered to become a source of specialized innovation.

Characteristics of a transnational strategy include:

a. It offers the greatest promise and many corporations are moving to implement it. Under this strategy, joint innovation by headquarters and by some of the overseas units leads to the development of relatively standardized and yet flexible products that can capture a number of local markets.

b. Transnational strategy often leads the company to a flexible network organizational structure, in which each unit becomes a node contributing its own core competence, something it does best.

c. Transnational companies often enter into strategic alliances with their customers, suppliers, and other business partners. As long-term partnerships, these alliances may bring to the firm specialized competencies, relatively stable and sophisticated market outlets that help in honing its products and services, or stable and flexible supply sources. Forming an alliance saves time and capital. A virtual organization, consisting of several independent firms that collaborate to bring products or services to the market, may emerge as a result.

Using Information Systems to Pursue a Worldwide Strategy [Figure 18.2]

Use Figure 18.2 to generate a discussion on how information systems play different roles and have different structures in companies pursuing various strategies in global markets. Move down the table and the figure, to see the increasing role of information systems in coordinating the operations of the enterprise. The architecture of the company's information systems corresponds to this role. Multinational strategy, which treats the subsidiary units almost as a portfolio of independent companies, requires only periodic financial reporting to headquarters. Global strategy requires a centralized planning and control to support centralized decision making. The units of a transnational company create a network relying on everyday communication among many members of the organization. This communication has to be supported with an extensive distributed systems architecture relying on a global telecommunications network.

Global business drivers are the aspects of the firm's business that can benefit from the global economies of scale or scope. By analyzing whether a specific driver is important to your business, you can identify the data and information that need to be shared globally. This leads, in turn, to the definition of the shared databases, shared information systems, and the telecommunications infrastructure necessary to provide access to them.

Global business drivers include:

1. Shared human resources are the most important asset of an enterprise.

- this is particularly so as many products acquire high information intensity, that is, these products are the result of specialized and varied knowledge work.

- Much of the work on a product can be electronically moved to the knowledge workers as opposed to the traditional way of moving people to the work.

- employee skills can be drawn upon on the global corporate scale and international teams can be organized.

- important categories of information systems that enable this driver are teleconferencing, electronic meeting systems, intranets, and electronic mail.

- as more and more knowledge work takes place in teams, groupware that makes collaboration possible becomes particularly important.

- human resource information systems need to include detailed skills and experience inventories for the members of the organization so that task-oriented teams can be formed.

2. Distributed Operations

3. Global Products - that are the same (or nearly the same) anywhere in the world where they are sold become more common. Consumers are demanding similar products. Business customers demand similar products anywhere they do business.

- firms strive to supply a global product, or a product that requires only minor modifications for a local market, since this leads to increased economies of scale.

- IS should help you identify opportunities for global products and help launch such products in several countries.

- marketing research departments should be supported by access to several external information sources and your own databases that support information systems for scanning the business environment.

- IS should enable marketing plans to be coordinated across multiple countries or even regions.

4. Quality - is a required attribute of products sold in the world markets. TQM is practised by an increasing number of firms.

- IS are necessary to establish the attributes of quality that international customers demand.

- to achieve the highest levels of these attributes of quality, you have to be able to benchmark all aspects of your operations against those of the top performers in the world and within your own firm.

5. Risk Management - extensive environmental scanning is necessary in order to be apprised of country risks - the exposure to a political or economic downturn in a given country where you do business.

- you need to do business in several currencies, therefore you need to manage your foreign exchange exposure.

6. Suppliers - increasingly large companies find that they are able to deal in several countries with the worldwide entities of the same supplier.

- it is of great advantage to you if you can determine the overall global volume of your purchases from a given supplier. As a large customer, you can negotiate volume discounts and influence the attributes of the future products supplied to you.

7. Customers - the most important subsystem in your global information system architecture should be your customer information system that will enable you to integrate all the information about your deals with each customer.

- as your customers do more business around the world, they will expect you to provide a consistent level of service anywhere.

- IS are required to support worldwide transaction processing for transactions originating anywhere you wish to do business. Globally accessible customer and order databases are necessary.

Significant and deeply rooted differences of culture and value systems exist among the world's regions and nations. Many nations around the world are committed to maintaining these differences rather than see them disappear. The uneven economic development throughout the world has produced deep differentials between the economic endowments and technological capabilities of its nations. These differences in some cases offer business opportunities that can be reached for with information technology. However, to exploit one must overcome various challenges to the implementation of global information systems.

Table 18.4 summarizes the challenges to globalization of information systems. They include:

1. Nationalism

2. Language barriers

3. Cultural traditions

4. Political risks

5. Uneven economic development and skills shortages

6. Differences in tax laws and accounting procedures

7. Legal differences

8. Different technology standards

9. Differences in telecommunications capabilities

Cultural Differences

Cultural differences go to the very root of the national identity. At their worst, these differences express themselves as nationalism, the belief that one's own nation would benefit from acting autonomously, rather than by harmonizing its initiatives with other members of a global community. Only be understanding the long-term incentives of the global division of labor can the nations and their decision makers overcome the tendency toward self-sufficiency and opportunism.

Language Barriers

Language barriers are often absent at the management level, but they manifest themselves acutely when information workers are expected to use systems with foreign language interfaces. Internationalization of software, with interfaces in local languages, is beginning to catch up with the needs. More difficult to overcome are the culture-based differences, such as perceptions of how absolute are time commitments, or the loyalty one owes the community versus loyalty to the employer. Personal exchanges and multicultural teamwork create better understanding and the ability to work around the differences. This understanding can be maintained by collaboration using various forms of teleconferencing and electronic meeting systems.

Political Risks

Multinational operations create by their very nature additional risks. Some of these political risks include legislation, punitive tax codes, and the instability of authority. Labor unrest or a threat to data centers can emerge in a given host country and it should be possible to move operations elsewhere rapidly.

One of the many adverse effects of uneven economic development of the countries in which multinational companies operate is inability to implement a strategic information system in a country unprepared for such development.

Differences in tax laws and accounting procedures

Differences in tax reporting and accounting procedures among countries of the world may be expected to become narrower, but not disappear. In order to produce uniform consolidated results necessary for global coordination, it is necessary to deploy specialized information systems that perform such translation.

Legal differences

National laws and regulations differ widely. Particularly pertinent are the distinctions with respect to the labor laws and the protectionist laws trying to shield local information industry from the international competition. Legal differences discussed include the issue of laws limiting transborder data flows - the ability to bring data and information in and out of a country. Also discussed is the technological obstacle to global networking - the widely differing national telecommunications capabilities and regulations. In some countries of operation it may be necessary to deviate from the corporate hardware and software standards and acquire products of local vendors in order to accommodate expectations of good corporate citizenship.

18.5 Global Business Process Innovation with Information Technology [Figure 18.3]

As multinational corporations attempt to extend their global reach in pursuit of new markets or a deeper penetration of the existing ones, they turn to information systems as a principal tool in this pursuit.

Use Figure 18.3 to show students that only some of the corporate information systems, - those dealing with the core global business processes, have to be designed on the global scale. The nature of these processes corresponds to the global business drivers. Other systems serve a limited geographical region rather than spanning the globe. At the same time, either due to the specific local conditions, or due to external limitations (such as those on data export), some systems do not need to go beyond the confines of a specific country and remain local.

18.6 Building Global Information System Architecture [Figure 18.4]

Business processes that have to respond to the demands of the global business environment have to be supported with a global information system architecture. Such an architecture is largely defined in terms of the backbone telecommunications networks. Use Figure 18.4 to discuss the components of a global information system architecture. Aside from telecommunications, architectural plans need to include the processing hardware and software, as well as the design and siting of databases. In addition, global information systems development projects are more difficult because of greater variability of circumstances as the projects are carried out, the need to work in environments unfamiliar to some of the developers, and the complexity arising from these different environments.

Special Considerations of a Global Information System Architecture

To operate on a global scale, realizing its strategy and responding to the specific business drivers, a corporation needs to develop a global information system architecture. The principal factors are the selection of appropriate hardware and software, the design of a corporate database (responding to the limitations on transborder data flow), and most important, the development of a global telecommunications network.

1. Hardware and Software in Global Architecture

The barriers to a global information technology platform that are presented by the variety of computer equipment, and by the variety of systems and applications software, are not that different from the barriers encountered in a distributed system that is local to a single nation. There are the existing legacy systems to contend with and there are parochial interests of local management. A hardware or software selection for a given country may be limited by the following considerations:

the resource of choice may not be locally supported by its vendor or a service company.

the host country government actively encourages, or even legislates, the use of locally produced information systems resources, of resources with a partial local content, or of resources available for a local distributor.

- in the case of software, many governments mandate that products sold locally have local language capability.

- the local price of a desired resource, after the import duties and other costs, makes its deployment not cost-effective.

- unavailability of qualified staff may restrict the available options.

- the climate, the quality of the electric power, and other limitations call for equipment that can withstand these inclemencies.

As business globalization progresses, localized software packages that have user interfaces in the local language and conform to the local cultural tradition are increasingly produced by vendors.

2. Databases

The challenge of defining a uniform structure of data for all business units across multiple national boundaries is more daunting than in a national case because of a greater variance among local business practices. The considerations of country risk, such as a potential threat to data centers, may necessitate other than the technologically optimal choice for the database sites, more stringent backup and disaster recovery policies, and a replication of databases.

A specific additional challenge is that of restrictions some countries impose on the transborder data flow - the transmission of data across their boundaries. In general, such nations consider the data created in their country to be a resource that should be protected or exploited by the country. The restrictions take different form and have different sources in various countries.

3. Telecommunications Networks

A global telecommunications network is the principal platform of the corporate information system architecture of a multinational corporation. It is also the component that presents the toughest challenges. The most frequently encountered obstacles include:

- countries and regions differ widely in the quality of their telecommunications infrastructure.

telecommunications services in many countries are dominated by a PTT (postal, telegraph, and telephone) monopoly run by the country's government. This leads to very high telecommunications costs, limited availability of telecommunications services, and limited flexibility, since acquisition of leased lines may take months or even years.

conflicting standards on various protocol levels - from the electric connections to the electronic data interchange (EDI) - make it necessary to deploy hardware and software for protocol conversions.

- the great variety of cost tariffs and supplier offerings call for a thorough evaluation of options.