In an organization that has entered the process of globalization, some traditional processes may remain, but governance and structural arrangements are different. There may be a lot of differences because top managers and their boards have different functions.
There are different structures and functions with respect to the roles of top managers and board of directors, the CEO or the Managing Director, and the composition of the Board of Directors. The changes may not be that tough but it is rather pronounced because the scope and the geographical considerations are big and therefore very different from the non-globalized organization.
The traditional multinational corporation is also different from the global firm. While both the traditional and the new global firm handle a large organization with respect to the geographic consideration, their structure is very much different.
Sussland says, “It is the characteristics of globalization rather than the territorial dimension that makes a difference” (2). This essay will talk on these characteristics in the global firm and the processes that take place as the organization enters a new phase in its existence.
The Process of Globalization
The term globalization has emerged as an offshoot of the high-technology tools that have sprung these past decades. We have become globalized means we can now connect and conduct business with the rest of the world so easily. With just a computer with internet connection, you can connect with anyone or wherever you want to in anyplace in the world that has an internet connection as well. Rules of business have changed. It’s an entirely different ball game, one commentator noted. There is the “death of distance” (Cairncross 5).
In the new global environment, patterns of complexity in organizations have changed tremendously because of the wider scope and the unpredictability of business activities. Technology and aggressive competition drive the wheel of time that spins faster and faster. The windows of opportunity are getting shorter and shorter while the time cycle to prepare for market-entry is getting longer and longer. (Sussland 6)
In analyzing how an organization prepares for globalization, it is fit to ask the following questions:
- How does the organization manage its subsidiaries in various countries?
- Through what internal mechanisms are resources such as labor and supplies distributed?
- Where are the decisions made?
- How does the organization integrate functions with products/services and nations?
“In virtual firms, authority is necessarily distributed – often horizontally. The top-down authoritarian manager has by no means disappeared, but in fostering diverse organizations, globalization has also fostered diverse leadership styles as well as diverse structures.” (Parker 355)
In globalization, some firms centralize control, meaning decisions are made at headquarters. But other firms delegate some important decisions to overseas managers.
Internal and External Environments
Governance and structural arrangements are different in global firms. The relationship between top managers and their boards differ in a global basis, resulting in different structural arrangements among firms.
Governance relationships among top managers and board of directors are managed in different ways. The CEO or Managing Director is monitored by a Board of Directors that numbers 10-15 people in the US but can be more in other countries. (Parker 352)
On the other hand, the Board of Directors usually answers to others such as shareholders or the government. The following are some of the Board’s responsibilities:
- Review strategic decisions.
- Assess the company’s current and future ability to meet shareholder and stakeholder expectations.
- Evaluate top-executive performance.
- Set executive pay and other forms of compensation.
- Hire or fire top managers.
- Select financial auditors; review the results.
- Oversee management, corporate strategy, and the company’s financial reports to shareholders.
Parker says that functions of the Board vary worldwide. China, for example, has a different set up in its national companies because they include “politicians among the Board members, but private Chinese companies would more likely be headed by founders. In Malaysia, a native Malay always heads the Board. In the wake of financial debacles in US and European firms such as Enron, Ahold, Parmalat, and Worldcom, many nations introduced new legislation mandating what and how boards were to monitor senior managers… Singapore requires that auditors be changed no less frequently than every two years. These kinds of governance changes are occurring worldwide.” (Parker 352)
Combined CEO and Chairman of the Board Roles
Parker adds, “In the US, three out of four companies in the Standard & Poor’s 500 combine the role of Chairman of the Board and CEO” (353). This is a common practice in the US where the Board reviews executive decisions and allocates CEO rewards which is itself headed by a CEO. Board members are often nominated by the CEO from other CEOs who are linked with the company or who have personal ties with the CEO. This creates a problem in the sense that the CEOs are directors for one another. This situation can also provide temptations for fraud. An accounting and fraud scandal emerged among large US firms in the early 2000s. If Board of Directors are often CEOs of other companies, they may not have time to look for other companies’ improvement and results.
Global firms operate globally, i.e. to many nations, and they offer a wide array of products and services. They also rely on functions such as marketing, finance, operations, human resource management, and accounting. With globalization, these functions have to be integrated, including products and services. In knowing how a firm prepares for globalization, the vertical and horizontal linkages within the organization are to be assessed. Global firms however use many different structural forms in preparing for globalization. But this question of centralization or decentralization of the firm mostly depends on the strategy the firm pursues and the type of structure it pursues.
Ways of Structuring
Some firms new to globalization trend first often participate in group organizations conducting export business. This is known as the export office structure. It organizes international activities under a single role, the export manager. “This export manager may report to the CEO … but alternatively s/he can report to an intermediary, for example a vice president, who then reports to the CEO.” (Parker 356)
A disadvantage of this set up is that it tends to separate international and organizational activities. It’s not the same as when one is an organic part of the organization where he/she can identify opportunities for the organization.
The Global Firm
An example of a global firm going about its daily operations but which has gone wrong is this one about Exide Technologies. Exide has been one of the world’s largest producers and recyclers of the lead-acid batteries, the ones used in automobiles. Exide supplies DaimlerChrysler, Fiat, For, Motorola and the navies of Norway, Spain, Sweden, and the US. Its brands include Champion, Prestolite, Sonnak, Pacific Choloride, Exide, PCA, and Emisa. Something went wrong when in 1988 it was accused of selling used and defective batteries as if they were new. The company pleaded guilty, but it also sued its own executives responsible for the fraud. The cost for Exide was $50 million, prompting it to file a bankruptcy to protect itself from creditors. These led to internal adjustment within the company, adjustments on people, processes, and structures. The company hired CEO Arthur Hawkins to rebuild Exide. His efforts mainly revolved around acquisitions from around the globe that put Exide into 89 countries, with each new acquisition requiring a structural adjustment to coordinate among existing and new companies. Exide’s structure changed with geographic divisions for markets it supplied with batteries. This meant there were country managers for each nation or region served. (Parker 347)
The advantages for the globalized structure of Exide were that there was a streamlining of local decision-making, increase pricing flexibility, and access information to tailor products to specific countries or regions. The disadvantage was that managers had to build unnecessary plants in Asia.
One disadvantage for a set up like this in a globalized firm is that some country managers who are compensated based on their own sales, undercut one another’s prices. For example, the manager of Country A reduced prices to sell more products in Country B. Because of this dilemma, Exide resigned 50 executives, replaced the entire board, filed suits, and revised the structure. The restructuring among country managers took sometime and costs for the company.
We also have to take note that in globalization firms keep on growing.
“In a global market tied together by the Internet, corporate partnerships and alliances are proving a more productive way to keep companies growing.” (Partner or Perish,” FORBES.COM. Best of the Web, May 21, 2001, quoted in Mariotti 2)
There are advantages and disadvantage in a firm operating globally. Our example of the global firm can tell us the lessons when something goes wrong. We can note here the scope of the operations. Managers tend to become too independent, or “too far” to handle that things seem to go beyond the control of top management.
Firth says, “In the United States, industries such as airlines, electric utilities and telecommunications have been deregulated. The competitors can appear from anywhere, and they do. Size and place do not have a constraining hold on success” (36).
Marketing has never been the same – it is changing and re-changing. “Mega-competition, mega-mergers, and mega-risks are some of the logical outcomes” (Sussland 6).
“… A more global mindset calls for generalized and broad expertise rather than a narrow specialty, a less definitive set of decision rules, and an emphasis on processes. Global mindset also calls for teamwork and diversity” (Parker 11).
It seems teamwork is very difficult in a global firm. More training, orientation, and global expertise are needed for the managers in this new time of globalization
Cairncross, Frances. The Death of Distance 2.0. London: Texere Publishing Ltd, 2001.
Cray, David and G. Mallory. Making Sense of Managing Culture. London: International Thomson Business Press, 1998.
Lipsey, Richard G. Globalization and National Government Policies: An Economist’s View. Governments, Globalization, and International Business. Ed. John H. Dunning. United Kingdom: Oxford University Press, 1999.
Mariotti, John L. Making Partnerships Work. United Kingdom: Capstone Publishing, 2002.
Parker, Barbara. Introduction to Globalization and Business: Relationships and Responsibilities. London: Sage Publications, 2005.
Sussland, Willy A. Connected: A Global Approach to Managing Complexity. London: Business Press, 2000.
Firth, David. Life and Work Express. United Kingdom: Capstone Publishing, 2002.