1. Using the framework developed in this chapter, how would you describe IBM’s strategy for competing internationally when it originally expanded into foreign markets in the 1970s? What were the strengths of this strategy? What were the limitations? Why was it important for IBM to establish “mini-IBMs”?
In 1970s, IBM used multinational strategy to expand markets. Multinational strategy is that a parent company has its business in more than one country. Multinational companies have additional considerations with separate business strategies in different mini-companies. Each mini-company is a self-sufficient entity. It manufactures its own inputs and provides all its own supporting services. Based on this strategy, a company can localize and customize its products to different regions so the company can increase the value of its products. The company also provides different marketing strategies to different national conditions. Therefore, they maximize local responsiveness and realize location economics. However, the company will increase costs because of this strategy. Since each mini-company is a self-sufficient entity, different mini-companies may duplicate their functions with each other, which mean operating cost increases. In addition, the size of mini-companies becomes smaller. In other words, they cannot enjoy the economies of scale and scope. This makes the costs increase as well. Although there are limitations, it is important for IBM to establish “mini-IBMs” because each mini-IBM tailored to local preferences. The industry is full of competition and this strategy helps IBM capture more revenues in each region based on customization and localization. 2. What factors prompted IBM to change its strategy? Why does IBM want its senior managers to view themselves as global citizens? What are the benefits of this type of perspective?
IBM changed its strategy based on three factors: the economy all over the world is becoming more globalized; IBM customers want to move towards global integration strategy and a hung competition from emerging markets like China and India. IBM wants its senior managers to view themselves as global citizens because those managers can travel all over the world and do business in an effective way within local cultures. If those senior managers can achieve this, IBM can manage its employees in an efficient way, as it said people is their important global asset in terms of countries, regions and business units.
3. What challenges do you see for IBM as it pursues its new globally integrated approach to markets? How might this strategy create economies of scale and scope for the firm?
When IBM pursues its new approach to markets, it wants to solve the large differences between standardization and localization. It is not easy to exploit market and production discrepancies, Furthermore, how IBM correctly and efficiently combines the outcomes of different regions is a challenge. -------------------------------------------------
Since the strategy emphasizes that IBM produces products in a global level, so they can cut costs. Also, IBM can find a cheapest way to produce such as seeking the cheapest materials and producing products in developing countries rather than developed countries. Moreover, specialization can be achieved through this strategy, so the costs can decrease. In short words, when they product more computers, the amount must be large so the average cost of each computer becomes lower. Besides, IBM produces same component (intermediary goods) together no matter it belongs to which kind of computer (final goods) as long as the computer needs the component. Under this case, producing a large amount of components can drop the average cost for all computers with this component. Therefore, this strategy creates economies of scale and scope for the firm....