1. Copyright 2004 John Wiley & Sons, Inc.5 - 1 Information Technology: Strategic Decision Making For Managers Henry C. Lucas Jr. John Wiley & Sons, Inc Dinesh Mirchandani University of Missouri – St. Louis

2. Copyright 2004 John Wiley & Sons, Inc.5 - 2 Copyright 2004 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

3. Copyright 2004 John Wiley & Sons, Inc.5 - 3 Chapter 5 Globalization and IT in International Business

4. Copyright 2004 John Wiley & Sons, Inc.5 - 4 IT’s Impact On Globalization IT can help a firm become global by –Enhancing global competitiveness –Reducing administrative and coordination costs for global firms –Improving efficiencies –Making performance in local markets more effective

5. Copyright 2004 John Wiley & Sons, Inc.5 - 5 Metrics of the contribution of IT to Global Business Local versus global market share of firms Market share in local countries Sales per employee per country Sales growth per country Administrative and communication costs Number of employees by country over time

6. Copyright 2004 John Wiley & Sons, Inc.5 - 6 The Impact of Globalization on Business Rationalized manufacturing Worldwide purchasing Integrated customer service Global economies of scale Global products Worldwide rollout of products and services Subsidizing markets Managing risk across currencies Growing irrelevance of national borders

7. Copyright 2004 John Wiley & Sons, Inc.5 - 7 International Business Strategies Multinational –Focuses on local responsiveness –Subsidiaries operate autonomously or in a loose federation –Firm can quickly respond to different local needs and opportunities –Reduces the need for communications –Heavy reporting requirements are necessary for monitoring purposes

8. Copyright 2004 John Wiley & Sons, Inc.5 - 8 International Business Strategies Global –Stresses efficiency based on strong central control from headquarters –Economies from standard product designs and global manufacturing –Requires an extensive communications system for management International –Much like the multinational with autonomous subsidiaries –Subsidiaries depend on headquarters for new processes and products

9. Copyright 2004 John Wiley & Sons, Inc.5 - 9 International Business Strategies Transnational –Seeks global efficiency while retaining local responsiveness –Integrates global activities through cooperation among headquarters and foreign subsidiaries –A difficult strategy to implement

10. Copyright 2004 John Wiley & Sons, Inc.5 - 10

11. Copyright 2004 John Wiley & Sons, Inc.5 - 11 The Globally Outsourced Firm A growing trend is the movement of service jobs to countries which have a well-educated, English- speaking workforce –Jobs affected include customer service, programming, and back-office functions (payroll and HR) among others Offshore outsourcing reduces labor costs and is efficient Outsourcing however comes with the risks of poor vendor performance and political instability in foreign countries Outsourcing creates a new kind of organizational structure along with challenges for management

12. Copyright 2004 John Wiley & Sons, Inc.5 - 12 Outsourcing cuts across all types of Global Business

13. Copyright 2004 John Wiley & Sons, Inc.5 - 13 Firms can outsource both Manufacturing and Business Services

14. Copyright 2004 John Wiley & Sons, Inc.5 - 14 Key Issues in an International Environment Information Needs –For coordination and control of diverse businesses –IT improves coordination and control with tools such as E-mail, Groupware and Videoconferencing –IT provides reporting and early warning systems to improve control

15. Copyright 2004 John Wiley & Sons, Inc.5 - 15 Key Issues in an International Environment Implementing International IT –Locally driven development may lead to duplicate efforts or poorly conceived and designed systems –Common systems take advantage of economies of scale but may be impossible to implement across countries with different laws and regulations –In designing applications, real and perceived unique features are important in each country

16. Copyright 2004 John Wiley & Sons, Inc.5 - 16 Key Issues in an International Environment Government regulations that can impede the development of global information systems –A requirement to purchase specific equipment in the foreign country that may not be compatible with the equipment in other places the global firm operates –A requirement to do certain kinds of processing in the host country before data can be sent electronically to another country –Restrictions on the use of satellites and special requirements for building private networks –Limited access to flat-rate leased lines or a requirement that all transmission be made on variable cost lines –Restrictions on Internet access and efforts to censor Web sites

17. Copyright 2004 John Wiley & Sons, Inc.5 - 17 Key Issues in an International Environment Barriers to transborder data flows –Restrictive regulations on the processing of data –Exorbitant pricing of communication services –Security issues Language, culture, and time differences

18. Copyright 2004 John Wiley & Sons, Inc.5 - 18 Strategies for Managing Global IT Concentrate on interorganizational linkages Establish global systems development skills Build an infrastructure Take advantage of liberalized telecommunications Strive for uniform data Develop guidelines for shared versus local systems

19. Copyright 2004 John Wiley & Sons, Inc.5 - 19 Two Examples of Businesses Standard Pharmaceuticals International –Dilemma of local system versus shared systems development –Did not want to provide more resources to IS but sought greater sales revenues Verifone –Decentralized network of “equal” locations –Virtual teams using many communication tools –Harnessed global resources to solve local problems

20. Copyright 2004 John Wiley & Sons, Inc.5 - 20 Business Models and IT Management Business ModelIT Management Approach MultinationalIndependent operations GlobalHeadquarters driven InternationalIntellectual synergy TransnationalIntegrated global IT

21. Copyright 2004 John Wiley & Sons, Inc.5 - 21 IT Management Approaches Independent operations –Little interaction with headquarters IT staff on applications or hardware and software acquisitions Headquarters driven –Implementation of worldwide applications to reduce development and operating costs Intellectual synergy –Subsidiaries control IT while headquarters tries to guide the choices of the subsidiaries –Reduces duplicate development efforts and encourages resource sharing Integrated global IT –Headquarters specify certain applications as common systems and allow limited customization –Systems design requires input from around the world

22. Copyright 2004 John Wiley & Sons, Inc.5 - 22 The Internet, Imperialism and Developing Countries Some governments may wish to control or limit publicly available information and are unable to do so with the advent of the Internet The Internet culture emphasizes the free flow and availability of information

23. Copyright 2004 John Wiley & Sons, Inc.5 - 23 Summary Four main international business strategies include the multinational, global, international, and transnational organizations Corresponding IT management approaches include independent operations, headquarters driven, intellectual synergy, and integrated global IT Implementing international applications of technology can be difficult IT challenges in an international environment include standards, uniform data, government regulations, and quality of telecommunications, among others