IT Strategies For Transnational Organizations

IT Strategies for Transnational Organizations

(Internet World Stats, 2014)

It is no secret that advancements in information technology and the internet has greatly altered many aspects of our lives, including the way companies do business. According to data from internetworldstats.com, worldwide internet usage has increased by 741% between 2000 and 2014. (Internet World Stats, 2014) This rapid spread of the internet and other forms of information technology has opened up countless new opportunities for companies by providing organizations of all sizes the ability to take their business global. The chart below shows just how rapidly companies are beginning to make the push into globalization. One of the ways that companies operate in the global marketplace is by becoming a transnational company. Transnational companies are global enterprises that conduct business in more than one country. These companies operate many facilities and can provide local responsiveness to their markets. (Business Dictionary, n.d.)  In order to operate competitively in these international markets, organizations must use efficient global business and IT strategies to properly manage their worldwide business operations. The information technology strategy that a company selects will largely depend on their ability to address global business drivers combined with the company’s experience and current expertise in IT.  (O'Brien & Marakas, 2011)

(Chamot, 2010)

Global Business Drivers

Global business drivers are business requirements that are dependent upon the company’s industry and its environmental and competitive forces. The typical global business drivers that companies must consider when selecting their strategy include global customers, global products, global operations, global resources, and global collaboration. All of these drivers influence the type of IT strategies that companies pursue in the global market. (O'Brien & Marakas, 2011) The table below provides some examples of how selecting the proper IT strategy can help support these drivers in the global market.

(O'Brien & Marakas, 2011)

Past Global Strategies

There are two global strategies that businesses have commonly utilized over the years: international strategies and global strategies. An international strategy uses global subsidiaries that operate separately from the main organization; however, the subsidiaries receive new processes, products, and ideas from headquarters. In a global strategy, all of a company’s operations around the world are managed closely by a corporate headquarters. Each of these strategies open a business to a number of issues. International strategies present coordination issues within the company due to that amount of decentralization.  The opposite problem exists for global strategies.  Because subsidiaries are controlled by a corporate headquarters, the subsidiaries might not understand the varying needs of different regions where the company operates. It is because of these issues that companies have begun moving away from these two strategies. In recent years more and more businesses have been replacing these old strategies with a newer type of strategy that better utilizes information technology: the transnational strategy. (O'Brien & Marakas, 2011)

Transnational IT Strategy

A transnational strategy is a combination of international and global strategies.  A transnational strategy relies heavily on information systems and internet technologies to help integrate a company’s global business activities.  A transnational company’s  IT platform utilizes integrated worldwide software, hardware, and Internet-based architecture.  A few examples of transnational strategies include global alliances, global e-commerce, and global supply chain and logistics (O'Brien & Marakas, 2011)

Global Alliances

One of the major components of a transnational IT strategy is creating a virtual business through global alliances. A virtual business is one that utilizes business technology to connect people, organizations, assets, and ideas. When entering a new international market, companies often do not have the means to develop their own production and distribution infrastructure in that region. By forming a global alliance with manufacturers in the area, they can achieve their sales functions while limiting the amount of risk that they shoulder for that particular venture. An example of this can be seen in the alliances that existed between some of the top airlines back in 2002. These alliances allowed airlines to add to their flight coverage around the world without the added costs typically incurred through expansion.(Ireland, Hoskisson, & Hitt, 2006) Another benefit of global alliances is to help address cultural differences. When a business decides to enter into a new transnational venture, cultural differences in that region can create numerous challenges for the foreign company. Cultural barriers are particularly prominent in the infant stages of an international venture. Developing business alliances requires flexibility on the part of the incoming corporation to avoid cultural shock of their new target clients. Geert Hofstede defined "culture" as “the collective programming of the mind which distinguishes the members of one group or category of people from another.” (Peng, 2014, p. 65) Culture is more than just an individual’s nationality; culture is the subdivision within societies such as ethnicity, religion, or regional affiliations that compose who people inherently are and what characteristics they display in society. Michael E. Porter discussed the importance of clusters when selecting countries for transnational business. Clusters are geographical centers of collaborating and competing suppliers and service providers. Developing countries should encourage incoming transnational companies to build relationships with the clusters and become consumers of local goods and services. Additionally, transnational companies willing to invest in the development of skills within the cluster and in the emerging infrastructure provide an added bonus when trying to form alliances. (Basu, n.d.) When businesses draft alliances, money might not be the most important factor in determining what the new foreign partner deems important. In many societies, a business between partners built with respect will garner stronger and more trustful relationships than those built on financials alone.

Political stability also influences the success of transnational business ventures and alliances. Michael Peng defines "political risk" as the “risk associated with political changes that may negatively impact domestic and foreign firms.” (Peng, 2014, p. 41) For businesses, democracy governments are more favorable to business than totalitarian governments, but unfortunately, a democratic government does not necessarily promote a stable business atmosphere. Nearly every nation makes an attempt to attract international business in order to promote a better quality of life for their citizens; however, without the proper infrastructure, not every nation can provide the needed framework to invite a transnational organization to come in. Before a company enters a foreign market, they must first check the rules and regulations of that market with respect to IT. Many governments limit public internet access which could prevent transnational companies from having success in those areas.

    

Global e-commerce and resource management

Companies are constantly seeking different ways to expand their footprint and create a greater and more permanent presence in their respective industry. When revenues level out in existing markets, companies look to international developing markets to access new clients. Instead of creating a presence in the developing markets by using traditional brick and mortar approach, companies use global e-commerce. Global e-commerce is a low-risk venture that can be used to test the acceptance and viability of a new market.  While this venture is low-risk, it must still be approached with thorough research and business strategies that are focused on the target market’s e-commerce potential and their online market challenges. The true prospect for global e-commerce success in a developing country is directly tied to the number of people who have access to the internet and how many are comfortable with making online purchases. As infrastructure, laws, and consumer preference continue to progress in developing markets, added outside transnational companies must compete with domestic companies to gain market share in global. As the graph below shows, global online sales increased 13% each year between 2006 and 2011, the potential for global e-commerce has yet to reach its pinnacle.  (ATKearney, 2012)

(ATKearney, 2012)

There are several factors that companies who are seeking to expand operations through global e-commerce must take into account. First, the company must be willing to adapt to the local market by developing a customized value proposition. One-size does not fit all markets, and success depends on the ability of an organization to adjust the focus of its websites to the locals.  Companies must also accept local payment methods and provide reliable shipping to consumers. A second means of success is managing the customer experience. Being able to order items by simply clicking a button and having them delivered to your home is the main convenience of e-commerce. Constant communication with customers throughout the processes of purchasing, delivery, and returns is paramount to managing expectations and building trust. Success also cannot be obtained if a company underestimates the local competition. Domestic companies understand the local preferences of consumers and the challenges of e-commerce in these developing markets. Finally, a long-term focus centered on patience and continuing education about local markets and preferences is key to achieving a successful footprint in a developing market. (ATKearney, 2012) Companies must ensure that these factors are considered before selecting the global IT strategy they will utilize.

Global Supply Chain and Logistics

The first step in transnational production logistics is ensuring that a company has the means to secure and process the needed raw materials in the most timely and cost efficient manner. A business may also require the use of various types of transportation methods. The company must also consider the expenses associated with transportation and logistics when deciding where to locate factories. The final aspect of ensuring timely product delivery is getting internationally made products through customs. If products are not moved properly through customs, it could result in lengthy and costly delays. (Cross, 2012)

Benetton Group, a global fashion brand, uses the product life cycle management company Dassault Systèmes for the company’s global development and sourcing.  Dassault Systèmes’ provides Benetton with “domain specific apparel design and production capabilities and industry-leading global sourcing management” (Business Wire, 2011). This IT strategy allows Benetton to reduce lead times, optimize sourcing operations, and create a global, collaborative environment. Benetton has developed an advantage because they can differentiate their products and respond more quickly to changing fashion trends. The company has used its transnational approach to build production facilities in Europe, Africa, and Asia.  (Business Wire, 2011)

Quality control can also be considered a means of logistic management in transnational business. Overseas factory and environmental standards may be lower, thus causing problems once products are imported. For instance, in recent years Chinese based products were finished with lead-based paint, and it was not discovered until the products had already been sold to consumers in foreign markets. In 2007, the toy company Mattel had to recall over ten million products manufactured in China due to concerns over lead-based paints and tiny magnets. (Associated Press, 2007) Quality control, if implemented properly, will provide consumers with a consistent product or service that meets all regulations and improve user satisfaction through continual improvement. Acceptable quality control can be reached by implementing goals for achieving customer satisfaction, designating responsibilities to determine what processes need to be developed that are essential for improving product quality, and incorporating the processes into a value beneficial to the customer. “Quality Control, when used in conjunction with monitoring and evaluation, leads to a formalization of the quality process.” (LOG, 1994, p.2) Improving logistics and quality can be achieved by addressing cross-cultural differences. Basing support structures, such as call and service centers, located within the transnational organization’s target market, and staffing the support structures by the local culture can help bridge the gap between logistic and quality barriers.

   

Pros & Cons of Transnational Organizations

One of the most obvious benefits that a business can experience from establishing a transnational IT strategy are the added economic opportunities. Not only are these companies able to access entirely new markets, but IT allows them to do this at a fraction of the cost of traditional international expansion. (Ahmed, 2015) Another advantage is the ability to successfully manage subsidiaries across the globe while still providing them with the flexibility to function in the way that their particular region dictates. This flexibility provides a middle ground between the two extremes associated with global and international strategies. A third benefit of a transnational IT strategy is the level of continuity it provides a business. The business is no longer reliant on one central location for all of its data storage and processing. This separation is beneficial because it limits the damage to the company if a fire or natural disaster occurs at a location.  A catastrophe that occurs at one location will not incapacitate the IT network for the entire organization. The company can restore the data from a backup at another location.

Transnational IT strategies also have their drawbacks. The main disadvantage is its complexity. It is extremely difficult to design a system that meets the requirements of stakeholders across the globe, especially since each of these stakeholders needs can differ greatly. Top management may not even understand the specific needs of certain regions, which just adds to the complexity of the decision-making process. (Davoren, n.d.) Another disadvantage comes from the limitations in the technological infrastructures of certain areas. A company may see value in a specific region, but this does not necessarily mean they have the capabilities required to operate on the company’s specific IT system.

Sources

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Associated Press. (2007, August 14). Mattel Issues New Massive China Toy Recall. Retrieved from NBC News: http://www.nbcnews.com/id/20254745/ns/business-consumer_news/t/mattel-issues-new-massive-china-toy-recall/#.VD8xOhb0WT4

ATKearney. (2012, June). E-Commerce Is the Next Frontier in Global Expansion. Retrieved from ATKearney: http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/e-commerce-is-the-next-frontier-in-global-expansion/10192

Basu, C. (n.d.). What Is a Transnational Business Strategy? Retrieved from Chron: http://smallbusiness.chron.com/transnational-business-strategy-20950.html

Businesswire. (2011, May 2010).  Global Fashion Brand Benetton Group Selects Dassault Systèmes to Increase Efficiency of Product Development and Sourcing.  Retrieved from Businesswire http://www.businesswire.com/news/home/20110509007326/en/Global-Fashion-Brand-Benetton-Group-Selects-Dassault#.VSmp6JM8VGZ

Business Dictionary (n.d.). Transnational Company. Retrieved from Business Dictionary http://www.businessdictionary.com/definition/transnational-company.html

Chamot, M. (2010, October 9). Jobs Won't Be Back. Retrieved from http://marcchamot.blogspot.com/2010/10/jobs-wont-be-back-wall-street.html

Cross, V. (2012, September 16). Importance of International Logistics. Retrieved from az central: http://yourbusiness.azcentral.com/importance-international-logistics-12916.html

Davoren, J. (n.d.). Transnational Organization Structure. Retrieved from http://smallbusiness.chron.com/transnational-organization-structure-60691.html

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