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ABB Group’s Internationalization Challenges Case Study

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Updated: Mar 25th, 2021

Introduction

Growth is one of the core business goals. Russier, Hisrich, and Antoncic (477) emphasize that growth is no longer an option for businesses, but a necessity. The impetus for organizational growth is instigated by the need to maximize wealth and the level of profitability, which can only be achieved if viable strategies are adopted. Russier, Hisrich, and Antoncic (477) assert that internationalization involves the geographic expansion of business activities across the national boundaries. Considering the extensive economic opportunities available in the international market, business leaders need to adopt broad strategic management practices. Subsequently, they should focus on how to achieve market expansion and ensure that various components of internationalization are taken into account.

One of the core components that firms should consider entails effective human resource management. Schuler (239) argues that business success irrespective of the scope of operation is determined by how well managers run the human capital. Therefore, Schuler (239) proposes that firms intending to internationalize their operations should integrate their human resource management practices within the global context.

However, the complexity of managing human capital increases as firms expand into the international market. Failure to adopt effective international business management practices might affect a firm’s long-term competitiveness. This paper evaluates the major challenges facing international businesses by analyzing the case of ABB, which is a multinational firm. Moreover, the assessment is conducted within the broader context of internationalization by assessing international human resource management practices.

Historical development of internationalization

The concept of internationalization has undergone a remarkable evolution over the past decades. The term internationalization originated in the early 1920s as a replacement of the concept of imperialism (Ruzzier, Hisrich, and Antoncic 477). Internationalization gained dominance during the post-World War II era. Ruzzier, Hisrich, and Antoncic assert that internationalization “was unrivalled until the early 1970s, when a new phenomenon of globalisation started to emerge” (477).

Previous literature shows that internationalization was mainly available for mature multinational corporations. Nonetheless, the benefits associated with internationalization have motivated small and medium-sized enterprises to gain broader interests (Ruzzier, Hisrich, and Antoncic 476). Ruzzier, Hisrich, and Antoncic corroborate that countries characterized “by balance of payment deficits have increase their commitment to enhance their SMEs to invest in international activities so as to boost their economic growth” (476).

One of the factors that have stimulated the growth of internationalization entails increased awareness of economic opportunities in the international market. Secondly, the adoption of open economic systems through the elimination of trade barriers and increased financial deregulation has motivated firms to adopt internationalization as one of their growth strategies. Internationalization is thus considered as an evolutionary process in which businesses increase their commitment to international operations through integration, penetration, and extension (Ruzzier, Hisrich, and Antoncic 478).

Similarly, Edwards and Kuruvilla (3) are of the view that internationalization can be explained based on two main dimensions, which include international commitment and international orientation. Thus, firms must consider political, cultural, economic, social, and market-strategic dimensions to succeed in the international market.

Different authors have tried to define the concept of internationalization. Most authors have tried to define internationalization within the context of networks, relationships, firm’s operations, and the international environment (Ruzzier, Hisrich, and Antoncic 478). The evolution of internationalization has led to the development of multidimensional approaches within which the concept can be explained. These dimensions include cooperative, inward, and outward operations. However, the outward operations dimension has gained more significance as compared to inwards operations due to its effectiveness in enhancing firms’ competitiveness in the international market (Holmlund, Kock, and Vanyushyn 462).

Case analysis; ABB

To attain competitiveness in the engineering industry, ASEA and Brown Boveri merged in 1988 to a new entity known as ABB. The firm experienced remarkable growth during the first decade of the merger driven by extensive investment in the acquisition of other firms in the engineering industry. Subsequently, the firm expanded geographically by entering different regions such as North America, Asia, and Eastern Europe. Moreover, the firm diversified into other industries such as financial services. ABB intended to position itself optimally by adopting a hybrid operational format of being centralized and decentralized, big and small, and global and local.

This decision was driven by the need to tap local entrepreneurship by providing the firm’s [business units] discretion in making operational decisions. ABB adopted a hybrid organizational structure by appointing functional councils and a business steering committee to ensure that the various business units are well coordinated.

Challenges faced by ABB

ABBs failure can be explained by several issues as illustrated below.

Failure to balance the global-local pressures

Despite the efforts made to establish strong organizational management, ABB experienced diminishing returns due to conflicts between the national and local business units. The firm did not provide the local business units with flexibility in its operations. Subsequently, most local business unit leaders were of the view that the firm’s decision-making at the regional and global levels was not controlled effectively. The firm’s inability to achieve synergy amongst the various business units can be explained by the top management’s failure to balance between its globally standardized operational procedures and the prevailing local conditions. Subsequently, the firm was unable to attain operational efficiency. The global business units had extensive power, and thus it controlled the local business units.

Personnel management challenges

Managing people is a fundamental element in organizations’ pursuit of sustainable operations in the local and the international market. Organizational leaders must ensure that the various organizational elements are incorporated optimally in the firms’ operations. One of these elements involves personnel management (Schuler 241). The concept of people management has undergone dramatic changes over the past century. Initially, personnel management focused on improving the performance of entry-level employees. Later, personnel management focused on employee appraisal to determine how best to improve their productivity. However, developments in personnel management led to an increased appreciation for the need to improve group performance through incentives and good working conditions. In the early 1950s and 1960s, personnel management emphasized satisfying the employees’ individual needs and motivation (Schuler 241)

In its effort to position itself as a multinational firm, ABB largely ignored the personal employees’ needs. The firm did not appreciate the importance of effective people management by allowing them to progress through their desired career path. This assertion is evidenced by the view that ABB’s local business unit leaders did not get optimal support from the top managers on how to integrate their innovative ideas into the global platform.

Edwards and Kuruvilla (2) suggest that multinational firms must integrate a global approach on how they manage their workforces to control and integrate the various business units optimally. Moreover, Edwards and Kuruvilla (2) emphasize that multinational businesses should integrate a certain degree of standardization into their internationalization efforts to increase the likelihood of succeeding in implementing a global business strategy.

ABB’s failure to standardize its operations led to operational inefficiency due to the adoption of divergent standards by the respective business units and product overlap. Consequently, ABB did not appreciate the importance of vertical integration, which proposes that the firms should establish a link between their external context and human resource practices and policies.

Internal communication failure

To achieve efficiency in its management process, ABB developed a management information system referred to as ABACUS that aimed at improving the firm’s management efficiency. Edwards and Kuruvilla assert that a home “management system can be a distinctive organizational resource in that it can increase knowledge transfer from the home to the overseas venture, hence duplicating competitive advantage” (2).

However, to promote the transfer of best practices across the various business units, organizational leaders must nurture effective communication. The local business units did not exploit the management information systems optimally due to poor internal communication. Consequently, the firm was not in a position to tap the economic opportunities presented by the local business units’ entrepreneurial, innovative, and creative capabilities.

Communication is indispensable in nurturing a learning and knowledge-based organization. The poor communication between the firm’s global business leaders and the local business unit leaders hindered knowledge sharing and the firm’s ability to exploit the knowledge repositories amongst its local managers. Failure to integrate effective internal communication hindered ABB from gaining the benefits associated with vertical integration as illustrated by the theory of internationalization.

According to Russier, Hisrich, and Antoncic, “Internalisation is a form of vertical integration that brings new operations and activities, formerly carried out by intermediate markets, under the ownership and governance of the firm especially when natural markets are imperfect or missing” (481). The internalization theory argues that firms operating beyond their national borders should focus on establishing a multinational enterprise by developing an effective information gathering and assessment method. This approach will increase the organizational leaders’ intelligence on the best approach to adopt to succeed in the international market.

Conclusion

The concept of internationalization has gained great significance amongst large, small, and medium-sized enterprises over the past decades due to its effectiveness in enhancing firms’ competitive advantage and sustainability. However, managing cross-border enterprises is challenging due to variations in market dynamics between the local and the international market. One of the areas that present major challenges relates to determining whether to standardize business operations across the markets or to adapt to the international market. Secondly, people management is a complex aspect of international business management.

In a bid to deal with this challenge, multinational business leaders should ensure that the firms operate as a network. This goal can be achieved by integrating effective internal communication to increase the likelihood of achieving synergy between the local and global business units. To succeed in the international market, it is imperative for organizational leaders to establish a balance between the global and local market conditions.

Works Cited

Edwards, Tony, and Sarosh Kuruvilla. “International HRM: national business systems, organisational politics and the international division of labour in MNCs.” International Journal of Human Resource Management 16.1 (2005): 1-21. Print.

Holmlund, Maria, Soren Kock, and Vladimir Vanyushyn. “Small and medium sized enterprises’ internationalisation and the influence of importing on exporting.” International Small Business Journal 25.5 (2007): 459-475. Print.

Ruzzier, Mitja, Robert Hisrich, and Bostjan Antoncic. “SME internationalisation research: past, present and future.” Journal of Small Business and Enterprise Development 13.4 (2006): 476-497. Print.

Schuler, Randall. The internationalisation of human resource management, New Jersey: The Fox School of Business Management, 2000. Print.

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