How Differences in National Development Have Affected Corporate Strategy
The course of any one countries development is a route which would have involved a huge and diverse number of factors. These have ranged from the most basic and unchangeable, such as global position, through to complex factors such as the implementation of political ideologies that have resulted a particular type of regime or government in a country. These factors, and more, have weighed heavily on a countries developmental road, and meant that there have been many inherent differences between countries, politically, economically and socially to name but a few.
Until relatively recently, a company’s goals and strategies have been hugely dominated by the particular national development route of a country, and the differences between country’s this has created. One of the results of the interactions between the differing factors that created different national development paths was that companies from different countries followed different practises and strategies, most of which were in some way strongly entwined with the development of the home country.
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For example, the Japanese culture of collective spirit and commitment led to an implementation of these aspects in business methods, shown by the so called ‘life time employment’ ideals, and the strong relationships companies have with suppliers (Abe & Fitzgerald, xxxx). This essay will provide more examples of this relationship between company and country, and its affect on national development and corporate strategy.
For the sake of this analysis, the essay will concentrate mostly on Japan and the US, highlighting the effects of factors such as culture and location, and analysing how these factors have affected the goals and strategies of companies from those countries, providing proof that national development has had a massive role to play in corporate strategy.
However, this essay will also show that there has been a progressive movement away from dependence on the national development of a country for the formulation of a company’s goals and strategies, and that the impact and importance of the particular home country that a company starts off in has waned . Indeed, it will show that the combination of globalisation and trade liberalization has led to a huge decline in the importance of national development in corporate strategy.
Internationalisation, globalization and increased competition have meant that the traditional barriers to global growth have fallen, and with them have gone the old reliance on national development and identity to formulate strategy. Companies now base their strategies not on national development, but global development. True market leaders are aware that markets are now international, and corporate strategy must be adjusted to take this into account.
As Schmidt said in his 1995 paper, multinational corporations are tied less and less to nations and national interest, thereby insinuating that national development is no longer a major factor in corporate strategy. However, let’s first look at examples of how differences in national development have affected a company’s corporate strategy and goals. The first area to look at is global position, and the resources that a country has access to because of it. The difference between the US and Japan in this respect could hardly be any bigger.
The US, the third largest country in the world, has access to a vast array of natural resources that it could harness. Japan, on the other hand, being smaller than that state of California (CIA, 2003) and with practically no natural resources is completely different. How have these differences affected corporate strategy? America has an abundance of natural resources, including huge arable lands, abundant forests, and resources of minerals such as iron ore, coal and oil. This meant that in the early stages of national development, America could look to itself to provide most of its energy needs (this has of course changed).
Of course, the vast size of America did originally cause problems, in respect to travel and communication (Chandler, 1992). This problem led to the development of railroads, which had a huge impact on growth, and the telegraph. The railroads meant production could now be sped up as supplies were received quickly and efficiently, and it was easier for directors to keep in touch with subsidiaries. However, the railroads also had many other effects. They caused the creation of one of the most important aspects of American success – their fluid capital markets.
The formation of these markets, at such an early stage, helped provide capital that other companies could use to grow and expand. The railroad companies were also the biggest companies of their time, and led to the formation of multi-layered managerial hierarchies (M-Form), and forced the managers to develop new forms of cost determination and new techniques of control (Chandler,1992). The role of the M-Form was massive, because it allowed growth and expansion to take place at an unprecedented rate. The fact that the M-Form was originally designed in and implemented in the US was no coincidence.
One of the major differences about the US and other industrialized countries at this point was the fact that growing companies were prepared to accept the M-Form, and use it to help tem expand, which led to very high growth levels. So, the demand fro railroads, which was born from the sheer challenge of travel across the US, caused not just the emergence of capital markets through which capital could be obtained, but also a revolution in corporate structure, which meant that strategy could be altered to take advantage of this much wider market.
For Japan, the situation was very different. The country has little to offer in the way of natural resources, apart from an abundance of ports. This has meant that Japan has become a country that imports in raw materials, adds value and exports them back out. Lack of resources has meant Japan’s businesses became focused on manufacturing. Looking at the top 50 Japanese markets by world export share (Porter, 1990), it is immediately evident that Japan has had to turn to the production of these types of goods to expand their economy.
There is almost a complete absence of natural-resource intensive industries, which is a complete opposite to the US. Japanese companies have succeeded in industries such as electrical components, office components and optical-related products. It is interesting to note that these industries require little or no natural resources. Japanese firms have managed to get around the disadvantages their nation inherently suffers by targeting product development towards areas that are not affected by their lack of resources.
This is interesting because it shows that one of the factors of the country, its global position and composition, has meant that firms have had to adopt different production strategies from firms in the US, who have had the luxury of a wide range of natural resources. The availability of resources is only part of the reason why Japan has become dominant in the above industries. The language of the country, another inherent property of its global location, has also played apart. For example, in the case of office supplies, there was a huge demand for photocopiers, word processors and fax machines. Porter, 1990). This is because prior to the invention of these, most documents were handwritten due to the fact that there are a huge number of symbols in Japanese, making it impossible to use typewriters. Because of the early investment in these areas to attempt to overcome this problem, Japan became a world leader in these markets. This is another example of how a particular factor that has affected national development, the language of the country, has affected companies’ strategies and production techniques.
The next area to consider is the particular culture of a country, and its impact on corporate strategy. The particular culture of a country, and the ideologies and mind sets that this culture creates, has a massive role to play in both national development and corporate strategy. It is easy to say that American culture is different from Japanese, but how have these differences expressed themselves in corporate strategy? In America, there is commonly considered to be a ‘can do’ attitude to business, a facet of the much vaunted, and it has to be said heavily criticised, ‘American Dream’ idea.
Porter (1990) informs us of how open American society is, and of how people are prepared to take risks to better themselves. He describes this attitude of risk taking, and a social acceptance of failure, as a product of the huge level of diversification of peoples in the US, and the fact that so many people travel there in an attempt to start a new life and improve their position. There is a culture of ‘try your hardest, no matter what the result, and we will support you’, and that ideology has meant that there were, and still are, a huge number of outsiders, immigrants, that were ready to try and set up businesses in America.
This culture has led to a huge number of new businesses and spin off’s being launched every year, meaning that competition was always strong, pushing both quality and value up. It has also meant that American companies have been prepared to take, when compared to more cautious British companies for example, many more risks in the formulation of corporate strategy. An example of this could be the early acceptance of the M-Form by US firms when compared to British firms.
There is also a culture in America of mass consumption – it was the world’s first mass consumer market. A conveinant orientated life style, coupled with a consumer willingness to accept self-service and less personal attention, has meant that services in the US could easily accept standardization and systemisation (Porter, 1990). This meant firms could cut costs by dispensing with things such as a high level of after sales service and target strategy towards taking advantage of the economies of scale that this acceptance would provide.
It has also meant that firms can replicate goods and services from New York to Los Angeles, and be confident there will be practically no difference between the wants and needs of consumers in these two cities. This fact has meant growth has been extremely fast. This disposition to accept products that are standard and convenient is perhaps best demonstrated by the fact that the US was the birthplace of fast food – perhaps the ultimate example of the acceptance of this standardization and systemization of services and products.
This acceptance of failure, risk taking and standardization could not be more different from the ideas that help form culture of Japan. In service industries, the Japanese way of involving vast numbers of people in personal service means that these industries cannot easily confirm to standardization, as would the American companies and services (Porter, 1990). Failure in Japan is not tolerated, and competition to be the best is intensely fierce. In fact, Japanese domestic competition is arguably the fiercest in the world.
Rivalries between firms are incredibly personal, and face-saving and honour are still considered to be of the up most importance. There’s is an intense loyalty between employees and employers, a product of the Japanese culture of group working and cooperation, but this culture does not mean that the huge number of firms in any one industry (there were 112 rivals in the machine tools industry in 1990 according to Porter) are happy to concede market share or position.
It cannot be emphasised enough how the culture of being the best and a failure to accept failure, so different from the US, has effected Japanese companies. These ideals, which have led to intense competition, have meant that product innovation is extremely high, as Japanese companies strive to out do one another. The huge spending of the Japanese on R & D is an example of this, with Japanese companies traditionally being amongst the highest spenders in the world on research and development.
Profit margins in Japan are historically much lower than abroad, with firms competing for long term market share, regarding this to be more important than the US view of increasing shareholder profitability. What you have is an intrinsic difference between the US culture of optimisation, standardization, risk taking, willingness to accept a ‘fast buck’ when offered and an admission that the shareholder is the most important stakeholder, and the Japanese culture of loyalty, a long and hard work ethic and a huge pressure to succeed in the long term (Porter, 1990).
These differences have resulted in a difference of corporate goals – Japanese firms are more dedicated towards long term growth and being the leader in a particular market over a long period of time, whereas US firms have much higher profit expectations, with much more emphasis on increasing shareholder value at any cost, and a much shorter time period through which US executives are expected to achieve these goals. The differences in these goals are due to the particular culture of these countries, which is an inherent part of national development.
The evidence provided here goes some way to showing how two factors that influence national development have affected corporate strategy in the past. However, since the end of the 60’s and the beginning of the 70’s, the importance of the home country of a company on corporate strategy has begun to decrease. Companies are now more willing than ever to accept different working processes if they believe they will help them grow. Globalization has changed the traditional goals of companies, and meant that a new strategy is needed, one less dependent on national development and more focused to global goals.
Ohmae (1989) believes managers are now running companies in a borderless world, and that customers have become globalized. This globalization of customers means there is a unique opportunity for managers to exploit, as their market place grows bigger and bigger. This opportunity cannot be exploited by basing strategy around the home country of a company – it must be based on the needs and the wants of the global market. It can only be exploited by using a global strategy, one that is far sighted enough not to be based solely on one countries path of development.
Global managers need to be able to identify the best parts of companies, regardless of the nations that they came from, and adopt these practises as there own, in an attempt to gain a share of this global market. This is the only way that Ohmae believes companies will succeed. Greater trade liberalization, which has helped lead to globalization, has meant that the goals of a French company are now more similar to the goals of a Japanese company that at any time in history.
Globalization has meant that the role of a country, and the particular national developmental route that it has followed, has decreased in terms of deciding corporate strategy. Many foreign managers now run companies, bringing with them different ideas and practises, some which have been adopted, some which have not. At any rate, this greater internationalization of the top level of managers has meant that there is now less importance attached to the home country of a company than before.
Schmidt (1995) carries on this idea, arguing that multi-nationals are now becoming as powerful as nation-states, and in some cases more powerful. He believes that countries are now reduced to merely trying to attract companies to come to their country, and provide investment and jobs. The amount of power and influence that Schmidt believes that companies now have makes a huge impact on corporate strategy. To exploit this position, regardless of whether Schmidt believes it to be in the benefit of society, is what companies will be trying to do.
This cannot be done by basing strategy on the home country of the company alone – the view taken has to much more far sighted than that. To truly exercise their position of power, companies must use strategies that promote global growth, and strategies based on national development will only go a short way towards achieving that. Overall, the role of national development in corporate strategy has been an important one, but globalization means its importance is decreasing.
The ‘goal posts’ of a companies markets are changing, and a flexible strategy based on global experience and development is needed to take advantage of this. Looking back through the last century, it is clear that national development has played a large part in the determinant of corporate strategy. Japanese shortcomings in terms of natural resources have meant they have become market leaders in other areas, American culture helped create the first mass market and created huge demand.
But as we go in to the new millennium, companies have to be aware they are no longer competing for domestic markets – true market leaders need to view their markets as global. Foreign firms are not basing their strategy on national development – they are basing it on the goals of global growth and expansion. At the beginning of this essay I talked about how each country has followed a different route, a different path, on the road of national development, withy the differences in this route meaning that companies have different goals and strategies.
However, with progressing globalization, and companies competing all over the world, it seems that the only way a company will succeed is by globalizing not just its operations, but also its corporate strategy. The globalization of corporate strategy and customers, fuelled by the rise of the borderless society, means that the different routes that countries have travelled, which have resulted in differences in corporate strategy, may have the same destination after all.