In the auto supply sector, the mantra of becoming a “global” supplier is repeated so frequently that few question it as a core element of world-class strategy. It is quite common for even small suppliers in the <$100 million sales range to have manufacturing and engineering operations on several continents producing products for many different regional markets.
Given that so many companies are engaged in developing global business designs, we have been struck by the lack of good frameworks for making decisions about how to execute the “globalization imperative.” This is in contrast to some other dimensions of world-class manufacturing, (such as business strategy; lean manufacturing; and supply chain management), where there are well-developed frameworks and decision-making criteria. So here are some straight-forward frameworks for making these choices, with a focus on how to design global innovation systems.
Like most strategic choices, a globalization strategy needs to be rooted in the practical context of your company—in other words, your overall business strategy, your customers, your markets, your products and technology, and your company culture. Appropriate attention to this mix of factors will lead to a customized, nuanced globalization strategy that will be different for every company. Your globalization plan will be driven by your answers to the following questions:
Reason for Being in the Market—Why do you want to be in a global market:
Customers—Do your customers require that you have a presence in these markets? How are they organized globally?
Competitors—Are there key competitors in these regions? Do they compete locally, or do they compete against your home markets?
Functions Affected—Which functions in your company (sales, engineering, manufacturing, purchasing, finance, etc.) need to be present in the region?
Presence in the Region—How do you want to organize your presence in the region (facilities, joint ventures, alliances, licensing arrangements, etc.)?
Entrance Strategy—How will you enter the region? How long will it take to be operational?
Human Resources—Who will do the globalization work in your company? How much travel are they willing to do, and for how long? Are core staff willing to relocate?
Here are some factors to consider as you work your way through this analysis:
Many automotive suppliers that pursue a global business design eventually find themselves facing a fundamental business design choice: do I organize the company around regions, or do I organize it around global product groups? In a regional organizational design, there will typically be a vice president for each major region where the supplier is operating (e.g. North America, Europe, Asia), to whom the functional divisions report within that region. In a global organizational design, there will typically be a global VP for a product group or “family” who has responsibility for marketing, sales, and engineering in every major market region. Our experience is that the higher up you are on the food chain (meaning the more design, engineering and systems integration responsibility you have), the more it makes sense to be organized around global product groups.
In either design, some version of “matrix reporting” is commonplace in global companies. Staff need to be comfortable with multiple reporting relationships, each for a different purpose and set of activities.
Much attention has been paid to the potential savings companies are achieving by “globalizing” their product development process. Many mistakes have been made—and a lot of money lost—by rushing too quickly into this process. There are a number of considerations that need to be kept in mind as you make these choices. The key choices the company needs to make, that will differ according to each company’s product line and marketing strategy, include:
How much do I commonize product design across regions? Commonization of designs can save development time and money and reduce manufacturing costs, as well as customer service and inventory costs. The degree to which you can commonize depends on two factors: (1) how much customization your local markets require and (2) which elements of the product this customization affects (e.g. structural and mechanical vs. aesthetic and ergonomic).
How much do I centralize or decentralize product development strategy and decision-making? The decision on organizational structure is related to the issue of customization of products across regions. The more customized local markets are, the more it argues for local control and decision-making. (Some companies opt for a hybrid system that has global “centers of excellence” with different regions taking the lead on different product families.)
One of the choices on the centralization/decentralization spectrum is what is referred to as “distributive product development” (DPD). DPD is the process of designing your product development process so that different aspects of the process are done in different geographic locations, often by different divisions or third-party outsourcing.
The degree to which a distributive strategy is right for your company will be affected by many factors, including:
There are important advantages and disadvantages to Distributive Product Development:
There are a few simple process steps you can take to clarify your globalization strategy.