Hey Chegg, I need help with this case analysis. Case Analysis: The Evolving Stra
ID: 361206 • Letter: H
Question
Hey Chegg, I need help with this case analysis.
Case Analysis: The Evolving Strategy at IBM
IBM’s CEO, Sam Palmisano, likes to talk about the evolution of global strategy at one of the world’s largest computer enterprises. According to Palmisano, when IBM first started to expand internationally, it did so in the classic “international” pattern of many enterprises, undertaking most of its activities at home, and selling its products internationally through overseas offices. By the time Palmisano joined IBM in 1972, however, it had already moved away from this model, and was by then a classic “multinational” enterprise, with mini IBM’s in major national markets around the world. This structure made sense for IBM in the 1970s, given that many markets were still segmented from each other by high barriers to cross-border trade and national differences in business practices often required considerable localization.
In recent decades, however, IBM has been moving away from this model and toward one that Palmisano characterizes as a “globally integrated enterprise.” In his words: “We are locating work and operations anywhere in the world based on economics, expertise, and the right business environment. We are integrating those operations horizontally and globally. We used to have separate supply chains in different markets. Now we have one supply chain, a global one. Our R&D has been global for many years, with research and software development carried out in labs around the world. But in our professional services businesses, where we used to think about our human capital-our people-in term of countries, and regions, and business units, we now manage and deploy them as one global asset.”
Thus today’s IBM locates its semiconductor R&D and manufacturing operation in upstate New York and Vermont, its global procurement center is in China, global services delivery is in India, while many of the services that support IBM’s external and internal Web sites are in places such as Ireland and Brazil. The people at each of these centers are not focused on their national markets; they are leading integrated global operations.
This strategic shift was a response to three things; the globalization of the world economy; the global nature of many of IBM’s customers, who were themselves shifting towards a global integration strategy; and the emergence of fierce competition from enterprises in emerging markets such as China and India. Take India as an example; in the 1990’s a trio of Indian outsourcing firms, Tata Consulting Services, Infosys, and Wipro, started to take share away from IBM in its core information technology services business. The Indians enjoyed an advantage based on a large supply of highly educated but relative inexpensive engineering and managerial talent. IBM believed that to compete, it had to adopt the low- cost model being pioneered in India. So in 2004, it bought Daksh, an Indian firm that was a smaller version of India’s big three information technology services firms. IBM has invested heavily in its Indian unit, building it into large global business with leading market share that now competes effectively on cost and quality against its Indian rivals. While Palmisano notes that the original motivation for expanding in India was to gain access to low-cost labor, he now argues that the skill base in India is just as important, if not more so. IBM can find a large supply of highly skilled people in India who can staff its global services operations and move seamlessly around the world. It doesn’t hurt that most Indians have a good command of the English language, which has become the de facto language of business in much of the world. Looking forward, Palmisano stresses that IBM is still fairly early in its journey to become a fully integrated global enterprise. The big thrust going forward will be on developing the human capital of the enterprise—helping to produce managers and engineers who see themselves as global professionals and global citizens, who are able to move effortlessly around the world and do business effectively in wide range of national contexts.
After reading this case analysis, is IBM pursuing a global standardization strategy, localization strategy, international strategy, or a transnational strategy? Which strategy is it and why? Please explain because I keep trying to figure it out and keep getting confused. I don't know how to explain it.
Also, based on my readings:
global standardization strategy is plotted in high pressures for cost reduction and in low pressures for low local responsiveness
localization strategy is plotted in low pressures for cost reduction and in high pressures for low local responsiveness
international strategy is plotted in low pressures for cost reduction and in low pressures for low local responsiveness
transnational strategy is plotted in high pressures for cost reduction and in high pressures for low local responsiveness
Is it true that whatever strategy a company pursues, it is plotted in those pressures?
Explanation / Answer
IBM had adopted the integrated globalisation staregy in expanding its operations to every corner of world. Through globalisation it had created its operations by assuming total world populations as single global village. The process of doing different business functions at different locations of world reflects low cost and maximum benefit analysis. WIth this it not only had become local to different countries in its operations but an important agent in capturing human capital as low cost asset to the organisation. With local business people it had effectively delivered the services at every nook and corner of the world.
The globalisation aspect of its business ,IBM decided to engage in this competitive battle on two fronts. First, it would reduce the cost and improve the quality of its service delivery. Second, it would position itself in world, not as a low-cost provider, but instead as a company that could draw on its capacity to create breakthrough technology and deeper client solutions. IBM rapidly expanded its presence in India and other emerging markets, attracting talent and building up its local presence through the promise of long-term, transformational work.
IBM was clear on its strategy; making it a reality took a lot of work. The transformation took place in phases that often overlapped. IBM expanded its presence in Asia, Latin America and Eastern Europe, and today nearly half of its employees are in emerging markets. The company set up a network of global delivery centers in India, China, Brazil and other countries. By standardizing processes and outputs across its large, diverse client base, IBM could deliver quality services to its IT and business process outsourcing clients consistently, with the right skills, in the right place—wherever that would be. Projects could be staffed more quickly, delivering greater value to clients sooner.
So, the strategy of integrated globalisation had helped a lot to IBM in making its presence to every client of the world.