Globalization's Effects on International Corporate Strategy

Introduction

Globalization and international expansion are the catalysts responsible for redefining business models, supply chains, value chains, and the nature of production and service delivery across many industries today. Driven by the ubiquity of the Internet and its capacity to accelerate business model integration, as well as the shifting centers of low-cost labor globally for manufacturing and services, international expansion and globalization are reordering even the most conservative and slow-moving industries.

The intent of this analysis is to evaluate the many facets of international expansion and globalization from the standpoint of their effects on corporate strategy. No longer can organizations afford to be ethnocentric and ignore the implications of globalization on their strategies — as Wal-Mart discovered in its failed attempt to enter Germany (Christopherson, 2007). The eventuality for any organization is that its growth will be predicated on the ability to successfully enter new international markets. Success or failure will largely be determined by how effectively companies manage the aspects of international expansion and globalization discussed in this paper. Each of these factors has a reciprocal effect on globalization in that they simultaneously promote and act as catalysts for further international expansion, and each is having a significant impact on corporate strategy at both the tactical and strategic levels.

Compliance and Regulatory Pressures

The many facets of compliance within specific regions and nations are having a strongly reciprocal effect on global strategy. Consider how the Sarbanes-Oxley Act of 2002, which requires each publicly traded company on any of the three American stock exchanges to disclose material financial events, implement compliance processes and procedures, and adhere to audit requirements from the U.S. Securities and Exchange Commission, drove operating expenses exceptionally high for affected firms. In effect, this compliance requirement opened up one of the most significant revenue opportunities for Indian and European business process outsourcers, as many American companies did not have the staff or funds to develop their own systems to comply (Hall & Liedtka, 2007).

Sarbanes-Oxley paradoxically forced American publicly held companies to quickly enter into global partnerships and alliances in order to stay compliant with U.S. law or face substantial fines. This is just one example of many illustrating how companies that may not necessarily wish to become more globally focused are compelled to do so in order to gain the expertise required to remain in compliance with new legislation.

Compliance initiatives globally are forcing organizations to re-evaluate how they manage intercultural, intersystem, and interprocess initiatives on a daily basis, as the costs of non-compliance can result in loss of access to key markets (Hussain, 2006). In essence, compliance is forcing companies to become more cognizant of — and carefully plan for — their own international expansion, since this aspect of strategic planning is a primary catalyst for succeeding or failing in foreign markets. Alongside regulatory compliance, organizations must also remain knowledgeable about and develop internal strategies for dealing with tariffs, taxes, and fees. This dimension of compliance is frequently the most costly and confusing for companies seeking to expand globally.

Cultural Considerations in Global Strategy

Another significant factor affecting corporate strategy in the context of international expansion and globalization is the need to plan for cultural variations within organizations and in relationships with suppliers, buyers, and partners. One of the most commonly used frameworks for accomplishing this is the Cultural Dimensions Model (Hofstede, 1993). Dr. Geert Hofstede developed the Cultural Dimensions Model while at IBM to assist its managers in better acclimating to foreign regions and nations. The model provides insights into how sociological variations between nations influence communication, transparency, transactions, and trust.

International expansion and globalization have made Hofstede's Cultural Dimensions Model all the more relevant. No longer can organizations afford to be ethnocentric or myopic in their approaches to operating in foreign regions or nations. Globalization is forcing cultural fit as a genuine strategic consideration, and it is also redefining foreign market entry strategies — ranging from the acquisition of an existing company, to joint ventures, to full mergers with companies in the target region or nation. These structural decisions are predicated in part on the degree of cultural variation between the foreign country and the organization's home nation.

Cultural variations between regions tend to generate distrust rather than trust, and this is especially true when work is accelerated under the assumption that no meaningful cultural differences exist (Yeung, Selen, Zhang, & Huo, 2009). While globalization is often characterized as "flattening" the world around a common set of business processes, cultural variations — including deeply held religious values in Muslim nations, for example — are far from homogenous. Rather than eliminating cultural distance, globalization has created significant gaps that serve as catalysts for more attuned and focused efforts at strategic international growth.

Conclusion

International expansion and globalization's impacts on corporate strategy can be seen most clearly through the aspects of compliance, cultural considerations, manufacturing, and supply chain and logistics. The reciprocal effect each of these areas has on influencing corporate strategy has been examined throughout this paper, with the key point being that the assumption of a single, flat world can at times be erroneous. Considering the cultural distances between nations alone — as illustrated by the Cultural Dimensions Model — confirms this, as do the other dimensions explored here. Organizations that recognize the complexity and interdependence of these factors will be far better positioned to develop robust, adaptive, and globally competitive strategies.