Cost reduction are imperative to ensure the ongoing viability of corporations. The sharing of costs globally for items such as R & D and mass production both provide examples of significant cost reductions, while enhancing learning and knowledge. By increasing the availability of information across the group you are more likely to also encounter a higher quality product as the innovation and knowledge is shared for the corporations greater good. Often companies forget that knowledge does not just reside in just the home country.
Important information such as the local consumer market are often best to be determined by local managers so as to respond to local needs. In relation to local responsiveness Theodore Levitt (1983) provides a somewhat extreme view of the global market. His philosophy is that technological, social and economic developments over the last two decades have combined to create a unified world marketplace in which companies must capture global-scale economies to remain competitive.
As we have discussed, the need to become competitive through reduction in costs is imperative for every business. However Levitt's concept of a unified marketplace with homogenous needs has still some way to go. As researched by Procter and Gamble even how we wash our clothes differs throughout the world, sometimes even within each country. The provision of a standardized product to suit all in this industry would be a failure due to not meeting the needs of local consumers (Bartlett 1983).
When we review these three elements of cost reduction, leverage of knowledge and local responsiveness we are aware that these terms are somewhat contradictory. History tells us that to provide local responsiveness you need to increase costs to increase the number of products which meet a specific consumer groups needs. The alternative is to standardize products to achieve economies of scale during production and marketing. Caterpillar has somewhat successfully implemented such a strategy. They redesigned their products around the use of standardized components.
These are produced on mass through large production facilities to reduce the component costs and provide economies of scale. Machines are then transported to foreign markets where localized knowledge and components adapt the machines to the needs of local consumers (Srinivasa 1985). The overall approach is that they are able to combine all three elements of the transnational approach. Corporations also need to be aware of the increasingly complex nature of undertaking business in an international market.
Social, cultural, and political environments, as well as currency fluctuations, and geographic diversity need to be considered carefully in any decision to undertake a foreign operation. It is best to research thoroughly and constantly review any strategy for overseas ventures as situations can change as in any business venture quite quickly. An example of this would be the increased use of Indonesia as a low cost production base for Australian corporations.
With the increased political instability and also terrorism most corporations would be considering the ongoing viability of continuing in this market. Finally corporations need to be aware that to make any significant changes to an corporation strategy or structure it is both extremely complex, time consuming and challenging. As Ford has discovered, by constantly changing strategies to seek higher profitability, all they have been able to achieve has been another announcement of huge losses in 2001 from failed global ventures (Hill, Jones 2004 p276).
The move to a transnational approach for most corporations would need to be a slow progression, while for some it is even perhaps out of reach. By focusing on the main elements of cost reduction, knowledge leveraging and local differentiation perhaps this will provide an avenue in the future for continued competitive advantage in an environment which is slowly moving towards Levitt's concept of the 'global village' (1983). Perhaps the key lies with Bartlett and Ghoshal when they tell us that companies "must now respond simultaneously to diverse and often conflicting strategic needs.
Today, no firm can succeed with a relatively unidimensional strategic capability that emphasizes only efficiency, or responsiveness, or leveraging of parent company knowledge and competencies. To win, a company must now achieve all three goals at the same time" (1989 p 25).
Bartlett, Christopher A. 1983 "Case 6-1 Proctor and Gamble Europe: Vizir Launch", taken from Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore, pp 632 – 647.
Bartlett, Christopher A. & Ghoshal, Sumantra 1989 Managing Across Borders: The Transnational Solution, Harvard Business School Press, Boston Massachusetts. Barlett, Christopher A. 1999 "Case 2 -4 Phillips and Matsushita 1998: Growth of 2 Companies", taken from Bartlett, Christopher A. & Ghoshal, Sumantra 2000 Text, Cases, and Readings in Cross-Border Management, 3rd Edn, McGraw-Hill International Editions, Singapore, pp 164 -180