Whilst they still produce goods in foreign countries to gain access to markets in that region, they are also now investing in foreign countries to supply the whole global market. The global integration of production cuts costs and draws on new sources of skills and knowledge.
The changes go beyond what is happening in India and China. For instance, American radiologists send x-rays to Australia for interpretation, and back offices in Dublin process derivatives transactions for global investment banks.
Now that companies can choose to have work done outside the company, the old MNC model of country operations is breaking down. The spread of outsourcing is encouraging them to think of themselves as an "array of specialized components: procurement, manufacturing, research, sales, distribution, and so on".
The new collaborative, global model is changing the way innovation is done. It is not only about new products, it is also about "how services are delivered, how business processes are integrated, how companies and institutions are managed, how knowledge is transferred, how public policies are formulated".
The biggest challenge in moving to globally integrated enterprises will be the need to secure a supply of high-value skills. More investment in education and skills will be needed in all nations that wish to compete and management skills must move well beyond command and control to the more fluid and collaborative styles that are needed today.
Also, it is critical that a way is found to create intellectual property rights that encourage the sharing of ownership and investment across borders, as well as protecting the rights of individual inventors. Further, it is ever more important to ensure that there are systems for trust to be built and maintained in the new distributed business models.
"A company's standards of governance, transparency, privacy, security and quality need to be maintained even when its products and operations are handled by a dozen organizations in as many countries."
There will also need to be new forms of organisational culture comprising new types of "partnership among multiple enterprises and segments of society".
Source: "The Globally Integrated Enterprise"
Samuel J. Palmisano, Chair of the Board, President and CEO of IBM
Foreign Affairs, May-June 2006
Review by Morice Mendoza