Taj Whitesell, CIDM
In his article The Globally Integrated Enterprise†, Samuel Palmisano, Chairman of the Board and CEO of IBM, talks about how the idea of the multinational corporation is no longer compatible with the realities of 21st-century global business. We should not apply today’s ideas about the corporation to the future but rather look at the emergence of what Palmisano calls the Globally Integrated Enterprise.
In the past, a multinational corporation would produce goods in local markets but perform other tasks globally. The globally integrated enterprise will be “a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production and value delivery worldwide.”
Palmisano claims that changes occurred towards the end of the 20th century that are integral to the shift from the multinational to the globally integrated corporation:
• the liberalization of trade and investment flows
• the combination of shared technologies and business standards, all built on top of a global IT and communications infrastructure
With these changes, corporations have the ability not only to outsource production but to integrate globally other business operations, such as research, sales, manufacturing, procurement, and distribution. They can do so by hiring and training outside partners located in foreign countries to run these operations for their global markets.
This change is the embodiment of the shift from multinational corporation to globally integrated enterprise. Companies are changing the way they supply the global market, and, in doing so, they lower production costs and have access to new sources of skills and knowledge.
Palmisano insists that this change is not simply a matter of passing on non-core activities to cheaper labor markets but about carefully deciding which operations the company wishes to hold on to and which operations it is able to pass on to partners in foreign firms. It’s about “actively managing different operations, expertise, and capabilities so as to open the enterprise up in multiple ways, allowing it to connect more intimately with partners, suppliers, and customers.”
He stresses innovation not just in creating new products but in all aspects of business operations. The focus of this innovation should not only benefit the company but should benefit the communities of which the companies are a part. The multinational corporation cannot achieve this kind of innovation, which is why global integration is so important.
Palmisano believes global integration will create jobs and raise living standards in developing countries. It will allow smaller businesses the chance to afford opportunities once only available to large corporations. But, he also recognizes that the new competition will create disruption and fear.
The first response should be to secure high-value skills by investing in education and training programs. The second response is to regulate intellectual property. We must strike a balance between piracy and collaboration that is enforced consistently and globally.
The third response will be maintaining trust in the enterprise, especially since the old hierarchies of the multinational will not work in the globally integrated enterprise. Palmisano states they must be supplemented with new forms of trust “based on shared values that cross borders and formal organizations.”
Finally, he says that major changes need to occur in organizational culture, forms of partnership, and managing standards. Most importantly, all of these changes and challenges must be faced with the knowledge that they will take time and money. The shift to globally integrated enterprise is not about quick returns but about “real earnings that generate capital for growth and innovation.”
A huge threat to global integration is economic and political instability that discourages investment in foreign markets. It is in the best interests of governments to improve security and stability to secure investments from companies. These companies, according to Palmisano, will in turn work on reforms to improve the quality of health and education and generally increase the resources available in the markets they are part of.
To affect the globally integrated enterprise and avoid the possible negative outcomes of globalization, such as nationalism and protectionism, business leaders, governments, and experts in social programs must work together to make sure that global integration will help, not hinder, all facets of society, economy, and business.
† Samuel J. Palmisano. “The Globally Integrated Enterprise.” Foreign Affairs vol. 85, no. 3.