The Global Remix
19 December 2006 Richard Scase
Companies are being forced to rethink and restructure their operations and become globally integrated enterprises. Richard Scase explains how this will affect workers and employers alike.
The 21st century, with increasing globalisation, is going to put added demands on the CEOs of leading-edge corporations if they are to be competitive and to survive against the challenges of companies operating from India and China.
It is likely that many Western companies will fundamentally restructure the operations and operate as globally integrated enterprises. This will be reinforced by the gathering of mergers and acquisitions being driven by the increasing standardisation of business practices across the world through the continuing widespread applications of information and communication technologies.
REINVENTING THE GLOBAL AND MULTINATIONAL CORPORATION
Historically companies have grown by saturating domestic markets and then moving overseas, or alternatively, developing international patterns of trading through importing raw materials, products and semi-finished components for final assembly, distribution and sale.
Either way, there has been the growth of global supply chains, arranged and integrated by corporate HQs that retain their nerve centres in their homelands.
The essential 'national character' of these multinational or global corporations is reflected in the composition of their boards of directors and senior executive teams. IBM and Microsoft have remained essentially American while Siemens is German; Philips, Dutch; Nokia, Finnish; and so on.
These corporate nerve centres retain control over strategic decision making, R&D, business planning, and merger and acquisition (M&A) strategies. What is distributed to other countries – particularly emerging markets – is low-skill, low-wage production activities.
In the 21st century, this is potentially a recipe for disaster with wide-ranging political consequences. The structuring of companies in this way leads to an awareness of cross-national exploitation and inequality both among employees and in their wider societies. It fuels the development of extreme political movements and the election of radical national governments that cultivate votes on the basis of anti-capitalist / US / West political tickets. The outcomes can range from selling oil to China instead of Western companies through to nationalisation and the imposition of high taxes and regulatory controls.
This is why wise multinational companies of the 21st century will evolve into globally integrated enterprises (GIEs). IBM, early in 2006, announced that it was to invest $10bn in developing R&D, designs and other 'brain' activities in India over the next few years.
It intends to break up its US-based knowledge operations and distribute these to other countries. Through the capabilities of information and communication technologies, these can be coordinated to develop and deliver products and services for both global and local markets. Through this approach, new career routes are opened up within the company that are truly international, offering opportunities for employees located in various countries who are presently 'excluded' from these 'core' corporate functions.
More companies will evolve their operating processes in this way, creating cultural diversity and making themselves genuinely international businesses. In this way, large global and multinational corporations will be more sustainable. In any case, it is likely that the burgeoning economies of India, China and Asia will compel them to shift their centres of corporate activity to these regions of the world.
What this means is that corporate executives of the future, together with their key operating colleagues – the 'celebrities' and the loyal 'lieutenants' – will be more mobile as either expatriates or inpatriates as well as being recruited from more diverse backgrounds.
It will be a challenge for HR directors to develop strong corporate cultures that genuinely incorporate and harmonise cultural practices rather than simply imposing US and European models of management upon their wealth-generating subsidiary companies.
MANAGING MERGERS AND ACQUISITIONS
An interconnected world has opened up more opportunities for corporate M&As. The continuing sophistication of information and communication technologies allows business processes to be integrated on a global basis and for supply chains, consisting of separate but coordinated operating units, to be managed as effectively as on a single site.
If your business has developed such expertise, why not continue to grow through even more acquisitions? There are, however, other factors encouraging global M&As, namely the increasing harmonisation of business practices and the adoption of global technology and quality standards. The culture of a 'global media village' facilitates the integration of corporate cultures brought about by M&A activity.
The continuing intensity of M&A activity creates greater uncertainties. The threat of being taken over puts added pressures on CEOs – the corporate celebrities – to hit or surpass performance targets. It leads to a focus on short-term gains – Q1, Q2, Q3, etc – to keep shareholders happy, such as financial institutions and private equity funds. The loyal lieutenants are only too aware of the possible outcome of being targeted as a takeover bid – job loss. It has happened to their friends, parents and former colleagues.
The result is that M&As create not only cultures of uncertainty but also cynical attitudes towards their employers. They may pay lip service to commitment, loyalty and dedication but, beneath this veneer, there lurks a darker psychology. It takes a strong corporate culture and a highly incentivised reward system to compensate for these activities and to preserve the degree of commitment necessary for high performance.
What this means is that M&As, driven for all kinds of reasons – many of which are often later proven to be unproductive, are forcing employees at all levels to be risk averse. They do not want to be among the first to be shown the door come the post-merger rationalisation.
In a lifetime of expensive home loans and family commitments, compliance with corporate values is the better way to behave. It is not advisable to be innovative, creative and to put forward 'out of the box' suggestions for changing things. To do so can be interpreted as being challenging, critical and, even, 'undermining'. Essentially, the risk of being taken over encourages colleagues to 'keep their heads down'.