New horizons: Impact on global industry restructuring & implications for companies

By Martin Baily, Richard Cooper, Dani Rodrik
New horizons: Impact on global industry restructuring & implications for companies

There is no one correct approach to managing global optimization. Companies that understand where the potential restructuring opportunities lie and are able to remove any existing barriers to globalization can succeed.

Several powerful factors, from liberalized foreign investment policies to a drop in the costs associated with global operations, are making a convincing case for building truly worldwide businesses. Multinational companies in the auto sector, for example, can find greater profits through savings and revenues that represent roughly 27 percent of the US $ 1.2 billion industry.

Thanks to an increasingly mobile and connected world, global corporations stand to simultaneously increase efficiency and lower costs by taking full advantage of the growing expertise and specialization in emerging economies.

Five horizons for global success

With the lifting of restrictions and regulations, a number of nations have seen thriving sectors as a result of MNC entry, and building particular skills and expertise that continue to make them competitive in the global marketplace.

For MNCs to take advantage of these opportunities, they need to recognize what aspects of their industry best lend themselves to globalization. As a result, five horizons of industry structuring have emerged:

  • Market entry: The predominant form of global expansion allows companies to mine new markets for their products in much the same way they do at home.
  • Product specialization: Certain countries or regions take over the entire production process of a particular product.
  • Value chain disaggregation: Each portion of the supply chain is located in a separate area with relevant expertise within a region. Parts are then assembled in yet another location.
  • Value chain reengineering: After relocating an activity to a new location, production process can be tweaked by adjusting capital/labor ratio to capture further savings.
  • New market creation: Successful global value chain management leads to the creation of better products at lower prices, which in turn can be introduced to whole new markets.

No blueprints

While the opportunities and the benefits are significant, there is no one correct approach to managing global optimization. Global expansion alone does not ensure success. Just as high-performing companies in developed countries exhibit a broad range of successful management approaches, so do large developing economies.

Companies must balance global resources with local knowledge. That includes aligning management incentives globally but tailoring them to local conditions. In Mexico's retail banking, for example, successful approaches ranged from BBV's top-down direction to Citigroup's management coaching of the executives.

And companies must recognize that there is no single blueprint that works for every sector in every country. Each situation is different and those managers that can recognize them and build performance around them will be the ones who succeed.

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