The intrinsic Risks and Rewards of Globalization

Globalization References:
Beyond Offshoring: Assess your Company's Global Potential, Farrell.
New Practice of Global Product Development, Eppinger and Chitkara.
Is Your Innovation Process Global? Santos et al.
Making the Most of Foreign Factories, Ferdows.
Shifting Globalization, Yuva.
How Intel Got Inside, Vogelstein.
Shanghai Auto, Taylor.
Big Mac's Local Flavor, Gumbel.

The world is becoming smaller. Advances in technology, communication, and transportation are allowing businesses to expand into diverse markets across the globe. Outsourcing, Foreign Direct Investment, Partnerships, and Global Product Development have the potential to create incredible profits for corporations. However, there is also a large amount of risk inherent with increased globalization.
Through analysis of the articles presented on this subject, one fact became very clear. In order to gain the benefits of globalization, a corporation must be flexible. This flexibility may be represented in many forms depending on your given industry. However, regardless of your industry each business needs to ensure that their “supply chain strategy can support their business in the face of rising volatility.” (Yuva, 09) Several examples illustrate this point. For many years, McDonalds based supply chains around an ethnocentric business strategy. Each operation, across the globe, was standardized according to the successful American model. Menus had little or no variation, and restaurant design was uniform.
However, as McDonalds reached critical mass in its global operations, things had to change. The McDonalds brand was vilified for being the epitome of westernization and; therefore, was stuck in a losing image battle. To correct this, McDonalds began to decentralize management and create a flexible culture of openness throughout each market. This increased customization has provided great dividends for the company. For example, McDonalds has adapted menus to coincide with local cuisine. They have also allowed flexibility concerning the interior design of their restaurants. Today, this flexibility has led to increased brand loyalty as well as innovation across cultural boundaries.
Flexibility must be a prevailing factor in the formation of corporate business strategy. Previous class discussion has shown that adaptability and agility are critical to successful supply chain management. Adaptability and agility are the essence of flexibility. Therefore, integration of flexibility into the decision making process will create huge dividends for corporations in the future. This coincides with research done in the paper “Is Your Innovation Process Global?” The main premise of this paper was that in order for an organization to be truly successful it must allow for innovation. Corporations are now able to utilize knowledge and skills from around the world in their production processes. However, the sheer volume of information can lead corporations to an inadvertent overload, which results in stagnant ideas and change. Thus, corporations must maintain focus on the core competencies of the firm and process flexibility, while attempting to maximize innovation.
Corporations must take into considerations hemispheric locations of their subsidiaries and supply chains. Political climate, local economics, and transportation costs all contribute to supply chain volatility. In response to these risks, many manufacturers are “reworking their within-a-line strategy to have multiple categories run within the plant to allow for optimal flexibility.” (Yuva, 09) Such changes represent innovation of corporate strategy as well as production in response to global market requirements. Flexibility and innovation are complimentary principles. A corporation must be able to view the global market and identify opportunities. They must also possess the flexibility of management and processes to implement change for the betterment of the corporation.
Another key concept presented throughout the readings is that, in order to be effective, organizations must examine the total cost of globalization and its impact throughout the supply chain. In the past, many companies found that offshoring decreased their costs. Therefore, companies like Intel and GM began outsourcing production capacity to countries with relatively low labor and raw material costs. However, as the global business climate changes, these businesses are facing new challenges to their revenue streams. “Companies are learning that other costs, including transportation and supply chain costs, can quickly escalate. Volatile fuel costs, along with increased foreign wages, new laws and regulations, and increased costs of raw materials have all contributed to the new realized costs-thus lessening the appeal of offshoring.” (Rutgers, 09)
To further illustrate the evaluation of cost, three articles provided in-depth discussion stating that the current trend of offshoring is slowly being replaced with nearshoring. Because of the aforementioned reasons, organizations have realized that moving supply chains closer to home is more economical. Nearshoring provides the ability to gain greater control over your supply chain through increased visibility and understanding. Visibility and understanding stem from the fact that many neighboring countries share cultural and economic similarities. These similarities provide a sense of security for many organizations. Nearshoring also provides an increased level of flexibility. John Yuva states that nearshoring “results in a more regional network from which corporations can source product as well as deliver to local demand.” Microsoft’s recent shift to nearshoring brought great benefits to the company. By shifting production from Asia to Mexico, Microsoft was able to use pre-established IP infrastructure and decreased shipping to get their product, the X-Box, to market with incredible speed for the Christmas season. Through evaluation of global supply chain costs, Microsoft was able to increase flexibility and maximize the value of the firm.
To further illustrate this point, in the article “The Practice of Global Product Development”, Steven Eppinger warns that businesses must fully consider the cost of globalization in order to not fall into the “outsourcing trap”. This trap occurs when organizations lose the ability to produce core technical abilities internally; therefore, becoming reliant on their foreign supplier for this critical portion of their business. Corporations that lose sight of their core competencies will soon be at the mercy of market fluctuations. One corporation that has done a good job avoiding this lack of foresight is Intel.
Intel has entered into a joint venture with Chinese companies and the Chinese Government in order to enter the Chinese market. While Intel predicts that their future success relies heavily on the expansion of the Chinese market, they also understand that they cannot outsource their core capacities. For example, Intel has not built a “fabs” chipmaking plant in China because of the lack of IP protection available there. This provides a level of protection for the firm. In contrast, VW has fallen prey to the outsourcing trap by sharing some of its’ intellectual property with the Shanghai Auto Group. As a result, Shanghai Auto is now developing its own line of cars that one day may supplant VW from dominance in the Chinese market.
Several important lessons can be learned from the business interactions of Intel and VW with the Chinese Government. These lessons contain the core message of the readings on globalization. Namely, if organizations are not constantly vigilant in applying good corporate strategy to global expansion, they will fail. Organizations must: establish flexible supply chains, account for the total cost of globalization, and avoid falling prey to the dangers of outsourcing. By so doing, organizations can reap the benefits of globalization, while, at the same time, avoid the inherent risks.