WHo is able to complete this discussion?
Chapter 17
ope of a company’s activities. Using the mission statement or similar document as a reference and guide, members of each operating unit must address their immediate responsibilities and at the same time cooperate with functional, product, and country experts in different locations. Of course, it is one thing to spell out a vision, and another thing entirely to secure commitment to that vision throughout the organization. As noted in Chapter 1, global marketing also entails engaging in significant business activities outside the home country, which means exposure to different languages and cultures. In addition, global marketing involves the skillful application of specific concepts, insights, and strategies. Such endeavors may represent substantial change, especially in U.S. companies with a long tradition of a domestic focus. When the “go global” initiative is greeted with skepticism, the CEO must be a change agent who prepares and motivates employees.
Former Whirlpool CEO David Whitwam described his own efforts in this regard in the early 1990s after he had approved the acquisition of Royal Philips Electronics’ European home appliance division:
When we announced the Philips acquisition, I talked with our people, explained why it was so important. Most opposed the move. They thought, “We’re spending a billion dollars on a company that has been losing money for 10 years? We’re going to take resources we could use right here and ship them across the Atlantic because we think this is becoming a ‘global’ industry? What the hell does that mean?”2
Jack Welch encountered similar resistance when he was chief executive at GE: “The lower you are in the organization, the less clear it is that globalization is great,” he said. As Paolo Fresco, a former GE vice chairman, explained:
To certain people, globalization is a threat without rewards. You look at the engineer for X-ray in Milwaukee and there is no upside on this one for him. He runs the risk of losing his job, he runs the risk of losing authority—he might find his boss is a guy who does not even know how to speak his language.3
In addition to “selling” their visions, top management at Boeing, Coca-Cola, GE, Unilever, Whirlpool, Tata Group, and other companies face the formidable task of building and maintaining organizational cultures that emphasize good corporate governance and reward creativity and nimbleness. A new generation of CEOs are making their mark by upending the strategic decisions that their predecessors made.
For example, former Coca-Cola CEO Muhtar Kent was intent on putting more “fizz” into sales of Coke’s flagship cola. By contrast, James Quincey, the new CEO, is focusing on juices, teas, protein shakes, and other drinks with healthier ingredients. Some observers denounced Quincey’s decision to eliminate the position of chief marketing officer as “cretinous”; Quincey defended the move, noting that Coke’s advertising model had not adapted sufficiently rapidly to the digital age. In place of the CMO, Quincey established a new C-level post, chief growth officer.4
The Coca-Cola example underscores the fact that corporate leaders in all parts of the world face challenges that include dealing with fast-moving changes in consumer behavior. The rejection of mature brands in favor of more on-trend, exciting ones is just one example. Add to this the increased fragmentation of markets and the dismantling of previously defensible barriers to industry entry, and today’s corporate chiefs have plenty to keep them awake at night!
Top Management Nationality
Many globally minded companies realize that the best person for a top management job or board position is not necessarily someone born in the home country. Coca-Cola’s James Quincey is a case in point: He is British. Speaking of U.S. companies, Christopher Bartlett of the Harvard Business School has noted:
Companies are realizing that they have a portfolio of human resources worldwide, that their brightest technical person might come from Germany, or their best financial manager from England. They are starting to tap their worldwide human resources. And as they do, it will not be surprising to see non-Americans rise to the top.5
The ability to speak foreign languages is one difference between managers born and raised in the United States and those born and raised elsewhere. For example, the U.S. Department of Education has reported that 200 million Chinese children are studying English; by contrast, only 24,000 American children are studying Chinese! Fluency in English is a prerequisite for managerial success in many global organizations, irrespective of the language of the headquarters country. A decade ago, Yong Nam, CEO of LG Electronics, stipulated that English would be required throughout the company. He explained:
English is essential. The speed of innovation that is required to compete in the world mandates that we must have seamless communication. We cannot depend on a small group of people who are holding the key to all communication throughout the world. That really impedes information sharing and decision making. I want everybody’s wisdom instead of just a few.6
Sigismundus W. W. Lubsen, the former president and CEO of Quaker Chemical Corporation, is a good example of today’s cosmopolitan executive. Born in the Netherlands and educated in Rotterdam as well as New York, Lubsen speaks Dutch, English, French, and German. He recalled, “I was lucky to be born in a place where if you drove for an hour in any direction, you were in a different country, speaking a different language. It made me very comfortable traveling in different cultures.”7 PepsiCo’s Indra Nooyi is also bilingual (see Exhibit 17-2). Table 17-1 gives other examples of corporate leaders who are not native to the headquarters country.
Exhibit 17-2
Indra Nooyi, chair and chief executive of PepsiCo, is faced with rising commodity prices and weak demand for carbonated soft drinks in the United States. Despite these threats, Nooyi believes the snack-and-beverage giant’s current strategy is on track. In recent quarters, the strongest results have come from PepsiCo’s fast-growing international division. Snack sales are particularly strong in Mexico and Russia; international sales volume for beverage brands is also increasing, particularly in the Middle East, Argentina, China, and Brazil.
Source: Manish Swarup/Associated Press.
Generally speaking, Japanese companies have been reluctant to place non-Japanese nationals in top positions. For years, only Sony, Mazda, and Mitsubishi had foreigners on their boards. Recently, some Japanese companies have made hiring and promotion decisions aimed at increasing the diversity of their top-management ranks. For example, Didier Leroy recently became the most-senior non-Japanese executive at Toyota; an American, Julie Hamp, is the company’s first Western female senior executive.8
Similarly, after Renault SA bought a 36.8 percent stake in Nissan Motor in 1999, the French company installed Carlos Ghosn as Nissan’s president. Born in Brazil, raised in Lebanon, and educated in France, Ghosn’s outsider status at the Japanese company enabled him to move aggressively to cut costs and make drastic changes in the organizational structure. He also introduced two new words into Nissan’s lexicon: speed and commitment. Ghosn’s turnaround efforts have been so successful that his life story and exploits are featured in Big Comic Story, a comic that is popular with Japan’s salarymen. Today, Ghosn is chairman and CEO of Groupe Renault as well as chairman of both Nissan Motor and Mitsubishi Motors.9 Taken together, these companies form a global strategic partnership known as the Renault–Nissan–Mitsubishi Alliance.
Leadership and Core Competence
In the 1980s, many business executives were assessed on their ability to reorganize their corporations. In the 1990s, global strategy experts C. K. Prahalad and Gary suggested that executives would be better judged on their abilities to identify, nurture, and exploit the core competencies that make growth possible. Simply put, a core competence is something that an organization can do better than its competitors. According to Prahalad and Hamel, a core competence has three characteristics:
It provides potential access to a wide variety of markets.
It makes a significant contribution to perceived customer benefits.
It is difficult for competitors to imitate.
Few companies are likely to build world leadership in more than five or six fundamental competencies. In the long run, an organization derives its global competitiveness from its ability to bring high-quality, low-cost products to market faster than its competitors do. To achieve this goal, an organization must be viewed as a portfolio of competencies rather than as a portfolio of businesses. In some instances, a company has the technical resources to build competencies, but key executives lack the vision to do so. Sometimes the vision is present, but is rigidly focused on existing competencies even as market conditions are changing rapidly.
For example, in the early 2000s, Jorma Ollila, then chairman of Finland’s Nokia, noted, “Design is a fundamental building block of the [Nokia] brand. It is central to our product creation and is a core competence integrated into the entire company.”10 The chairman was right— 10 years ago. Design did help Nokia secure its position as the worldwide leader in handset sales. But Apple’s introduction of the game-changing iPhone in 2007 caught Nokia off guard. Nokia clung to its proprietary Symbian operating system even as smartphones running Google’s Android operating system exploded in popularity. Nokia responded by launching new, mid-priced smartphone models; in addition, new CEO Steven Elop announced an alliance with Microsoft to develop new phones using Windows OS. Despite these moves, by early 2011 Nokia was issuing profit warnings. In 2014, Microsoft acquired Nokia’s handset business and Elop was named executive vice president of the newly formed Devices Group. In 2016, the Nokia brand reverted back to Finnish ownership when Microsoft sold it to a new venture called HMD.
Nokia’s reversal of fortune in the wake of innovations introduced by Apple and Google underscores the fact that today’s executives must rethink the concept of the corporation if they wish to operationalize the concept of core competencies. In addition, the task of management must be viewed as building both competencies and the administrative means for assembling resources spread across multiple businesses.11 Table 17-2 lists some of the individuals currently responsible for global marketing at selected companies.
17-2 Organizing For Global Marketing
17-2 Describe the different organizational structures that companies can adopt as they grow and expand globally.
The goal in organizing for global marketing is to find a structure that enables the company to respond to relevant market environment differences while ensuring that corporate knowledge and experience from national markets becomes diffused throughout the entire corporate system. The struggle between the value of centralized knowledge and coordination and the need for individualized response to the local situation creates a constant tension in the global marketing organization. A key issue in any global organization is how to achieve a balance between autonomy and integration. Subsidiaries need autonomy to adapt to their local environments, but the business as a whole needs to be integrated to implement global strategy.12
When management at a domestic company decides to pursue international expansion, the issue of how to organize arises immediately. Who should be responsible for this expansion? Should product divisions operate independently or should an international division be established? Should individual countries’ subsidiaries report directly to the company president or should a special corporate officer be appointed to take full-time responsibility for international activities?
After the firm reaches a decision about how it will organize the initial international operations, a growing company is faced with a number of reappraisal points during the development of its international business activities. Should the company abandon its international division, and, if so, which alternative structure should be adopted? Should it form an area or regional headquarters? What should be the relationships among staff executives at the corporate, regional, and subsidiary offices? Specifically, how should the company organize the marketing function? To what extent should regional and corporate marketing executives become involved in subsidiary marketing management?
Even companies with years of experience competing around the globe find it necessary to adjust their organizational designs in response to environmental changes. It is perhaps not surprising that, during his tenure at Quaker Chemical, Sigismundus Lubsen favored a global approach to organizational design over a domestic/international approach. He advised Peter A. Benoliel, his predecessor CEO, to have units in the Netherlands, France, Italy, Spain, and England report to a regional vice president in Europe. “I saw that it would not be a big deal to put all of the European units under one common denominator,” Lubsen recalled.13
As markets globalize and as Japan opens its own market to more competition from overseas, more Japanese companies are likely to break from their traditional organization patterns. Many of the Japanese companies discussed in this text qualify as global or transnational companies because they serve world markets, source globally, or do both. Typically, knowledge is created at these companies’ headquarters in Japan and then transferred to other country units.
For example, Canon enjoys a strong reputation for world-class, innovative imaging products such as bubble-jet printers and laser printers. In the past two decades, Canon’s management has shifted more control to subsidiaries, hired more non-Japanese staff and management personnel, and assimilated more innovations that were not developed in Japan. In 1996, for example, research and development (R&D) responsibility for software was shifted from Tokyo to the United States, responsibility for telecommunication products to France, and computer-language translation to Great Britain. As Canon president Fujio Mitarai explained, “The Tokyo headquarters cannot know everything. Its job should be to provide low-cost capital, to move top management between regions, and come up with investment initiatives. Beyond that, the local subsidiaries must assume total responsibility for management. We are not there yet, but we are moving step by step in that direction.” Toru Takahashi, director of R&D, shared this view: “We used to think that we should keep research and development in Japan, but that has changed,” he said. Despite these changes, Canon’s board of directors includes only Japanese nationals.14
No single correct organizational structure exists for global marketing. Even within a particular industry, worldwide companies have developed different strategic and organizational responses to changes in their environments.15 Even so, it is possible to make some generalizations. Leading-edge global competitors share one key organizational design characteristic: Their corporate structure is flat and simple, rather than tall and complex. The message is clear: The world is complicated enough, so there is no need to add to the confusion with complex internal structure. Simple structures increase the speed and clarity of communication and allow organizational energy and valuable resources to concentrate on learning, rather than on controlling, monitoring, and reporting.16 According to David Whitwam, former CEO of Whirlpool, “You must create an organization whose people are adept at exchanging ideas, processes, and systems across borders, people who are absolutely free of the ‘not-invented-here’ syndrome, people who are constantly working together to identify the best global opportunities and the biggest global problems facing the organization.”17
A geographically dispersed company cannot limit its knowledge to product, function, and the home territory. Instead, company personnel must acquire knowledge of the complex set of social, political, economic, and institutional arrangements that exist within each international market. Many companies start with ad hoc arrangements, such as having all foreign subsidiaries report to a designated vice president or to the company president. Eventually, such companies establish an international division to manage their geographically dispersed new businesses. It is clear, however, that the international division in the multiproduct company is an unstable organizational arrangement. As a company grows, this initial organizational structure frequently gives way to various alternative structures.
In the fast-changing, competitive global environment of the twenty-first century, corporations will have to find new, more creative ways to organize. New forms of flexibility, efficiency, and responsiveness are required to meet the demands of globalizing markets. In particular, today’s global realities include the need to be cost-effective, to be customer driven, to deliver the best quality, and to deliver that quality quickly.
Over the past quarter century, several authors have described new organizational designs that represent responses to today’s competitive environment. These designs acknowledge the need to find more responsive and flexible structures, to flatten the organization, and to employ teams. There is also recognition of the need to develop networks, to develop stronger relationships among participants, and to exploit technology. The new designs reflect an evolution in approaches to organizational effectiveness. Early in the twentieth century, Frederick Taylor claimed that all managers had to see the world the same way. Then came the contingency theorists, who said that effective organizations design themselves to match their conditions. These two basic theories are reflected in today’s popular management writings. As Henry Mintzberg observed, “To Michael Porter, effectiveness resides in strategy, while to Tom Peters it is the operations that count—executing any strategy with excellence.”18
The Cultural Context
Can New Leaders Reinvent Sony, the “Apple of the 1980s,” in the Twenty-First Century?
Sony Corporation is a legend in the global consumer electronics industry whose reputation for innovation and engineering has made it the envy of rivals. For decades, quality-conscious consumers paid premium prices for the company’s Trinitron color televisions. In 1979, Sony created the personal stereo category with its iconic Walkman.
By the early 2000s, however, Sony’s vaunted innovation and marketing machine was faltering. The company had not anticipated the rapid consumer acceptance of flat-panel, wide-screen TV sets, and the Sony Walkman was eclipsed by Apple’s iPod and iTunes Store. In 2005, tumbling stock prices resulted in the resignation of chairman and CEO Nobuyuki Idei. Sir Howard Stringer, a Welsh-born American who had been knighted in 2000, was named as Idei’s replacement.
One of Stringer’s first priorities was to bridge the divide between Sony’s media businesses, which included music, games, and motion pictures, and its hardware businesses. As Stringer himself declared, “We’ve got to get the relationship between content and devices seamlessly managed.”
Management writers often use terms like silos, stovepipes, or chimneys to describe an organization in which autonomous business units operate with their own agendas and a minimum of horizontal interdependence. This was the situation at Sony, where the internal rivalries between different engineering units—the PC and Walkman groups, for example—were ingrained in the corporate culture and regarded as healthy. As Osamu Katayama, author of several books about Sony, notes, “Instead of working together, the managers of the different businesses fought to keep their independence.”
Because Sony’s consumer products businesses have historically accounted for a significant proportion of the company’s worldwide sales, breathing new life into the home entertainment and mobile products units was important. To do this, Stringer developed a restructuring plan: He cut 28,000 jobs, reduced the number of manufacturing sites, and eliminated some unprofitable products.
Cost cutting was only part of the story. Boosting revenues with new products was also crucial to Sony’s recovery. Stringer was convinced that Sony’s TV business would recover, thanks in part to the new Bravia line of HDTVs. As it turned out, the television business continued to lose money. The company also launched an e-book reader and, in 2006, the PlayStation 3 (PS3) game console.
After seven years, it was clear Stringer’s turnaround effort was still a work in progress. He had successfully negotiated Sony’s withdrawal from a smartphone partnership with Sweden’s Ericsson. He had restructured the TV business and ended an expensive LCD screen partnership with Samsung. Sony’s Blu-ray DVD format had gained widespread acceptance, but Sony, Sharp, Panasonic, and other Japanese manufacturers were all experiencing declining sales of traditional electronics products. Meanwhile, Apple and Samsung had risen to prominence in the competitive landscape once dominated by the Japanese.
In 2012, Stringer relinquished the chief executive role to Kazuo Hirai (see Exhibit 17-3). One problem facing the company going forward is that Sony has lost its lead in flat-panel television technology to Samsung. In addition, the one–two punch of Apple’s iPod/iTunes combination has upstaged Sony’s Walkman personal stereo brand. Contributing to its status as a laggard in these markets was the reality that Sony’s various divisions—for example, Home Entertainment and Sound; Mobile Products and Communication; and Entertainment—did not work well together.
Patterns of International Organizational Development
Organizations vary in terms of the size and potential of targeted global markets and local management competence in different country markets. Conflicting pressures may arise from the need for product and technical knowledge; functional expertise in marketing, finance, and operations; and area and country knowledge. Because the constellation of pressures that shape organizations is never exactly the same, no two organizations pass through organizational stages in exactly the same way, nor do they arrive at precisely the same organizational pattern. Nevertheless, some general patterns hold.
A company engaging in limited export activities often has a small in-house export department as a separate functional area. Most domestically oriented companies undertake initial foreign expansion by means of foreign sales offices or subsidiaries that report directly to the company president or other designated company officer. This person carries out his or her responsibilities without assistance from a headquarters staff group. Many other design options are available to companies that seek to extend their reach internationally without creating separate divisions. For example, Des Moines, Iowa–based Meredith Corporation participates in international markets by means of licensing agreements developed and managed by the Corporate Development group, and further supported by various operating departments within the company (see Exhibit 17-4).