Classic multinational enterprises are the organizations that operate in multiple foreign markets or regions but are managed from one host country. During the 1970s and 1980s, IBM operated as a multinational company by opening mini IBM branches in various international markets. However, the company’s headquarters made the major administrative and operational decisions at its headquarters in the United States. IBM’s decision to use the classic multinational strategic orientation was necessary during the 1970s due to the segmentation of the international markets. The market segmentation implied that IBM had to cope with different customer preferences and contrasting business practices in the foreign markets where the company had its operations.
One of the advantages of the classic multinational strategic orientation is that it enables companies to customize their products and services to their customers’ preferences in different markets. The strategic orientation also enables the multinational organization to reduce its cost structure burden and capitalize on the available products and services in the international markets. Additionally, the strategic orientation enables multinational companies such as IBM to receive more profits from the company’s research and development initiatives.
IBM’s classic multinational strategic orientation started to fail in the 1990s due to the changes that occurred in the international economy due to globalization. Communication infrastructures and interconnectedness increased significantly during the early 1990s, and this reduced the segmentation of international markets as the consumers started sharing similar preferences. Consequently, the advent globalization implied that IBM’s strategy of customizing its products and services to specific markets became redundant and the company’s profit margins reduced. The company also experienced reduced production runs and difficulty in capturing cost reductions that arise from producing large quantities of standardized products for the international consumers.
Additionally, India and China’s emergence as major international markets increased the competition experienced by IBM in various regions. During the 1990s, India and China invested heavily in domestic industries and companies that reduced IBM’s market share in the regions. For instance, Wipro, Infosys, and Tata Consulting Services reduced IBM’s market share in the information technology services sector in Asia. India and China also had a ready source of talented but inexpensive managerial and engineering labor that increased the competitiveness of the domestic companies in the two countries.
The first strategic advantage of using the globally integrated enterprise strategy is that it expands IBM’s supply chain by enabling the company to operate its business in multiple markets concurrently. The globally integrated enterprise strategy also enables the company to exploit its expertise in different regions and integrate its operations globally as well as horizontally. Additionally, the integrated enterprise strategy allows IBM to conduct Research and Development activities in different regions and to integrate the results for the production of innovative products and solutions. Consequently, the strategy enables the company to manage its globally distributed human resource more effectively and enhance the productivity of its employees.
One of the organizational changes that IBM had to initiate to guarantee the success of the globally integrated enterprise strategy is to change the decision-making structure. A company operating using this strategy must allow the managers located in different regions to make autonomous decisions depending on the nature of their markets. However, the managers must continue liaising with the company’s headquarters. Another important organizational change necessary for the success of the new strategy is changing the communication structure from the vertical orientation to a hybrid or horizontal orientation.
IBM’s current strategic choice framework is the leadership strategy because the company seeks to retain its dominance in domestic and international markets through acquisitions of other companies. For instance, IBM bought Daksh in 2004 to compete with companies such as Wipro, Infosys, and Tata Consulting Services in India.