10.chp.10. innovation in global world-jbsb(2)

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Ahmed and Shepherd, Innovation Management: Context, Strategies, Systems and Processes, 1st Edition, © Pearson Education Limited 2011

Chapter – 10 Innovation

in Global World

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SbongPresentation Innovation in global world

• Drivers of global world

• Evolution of business in the global environment

• Configurations and structure for global environment

• Innovation subsidiary location and management

• Conclusion

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Chapter Objectives Appreciate the drivers of industry globalization and innovation. Communicate the underlying reasons for the evolutionary trend

towards transnational configuration for innovation. Understand the advantages and limitations of different structural

configurations for global innovation. Appreciate the factors that are required to implement and work the

transnational form of innovation. Describe the role of subsidiaries in the global roll-out of an

innovation. Appreciate the issues involved in the R&D location decision. Recognize the added challenges in managing people and teams in

an international environment. Describe the roles and responsibilities of managers in global

innovation projects.

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Global Business Characteristics

(Ohmae)

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Introduction – Drivers of global world

• Globalization causes trends of economy, social, politic and technology driving a commonality of features across the world (Ohmae, 2000). The business characteristic has changed.

1. Convergence of product preferences and tastes.2. The process of integrating purchasing, manufacturing and

marketing on global economies of scale.3. Organization with global operations, cultures and mindsets. 4. Market and industries dominated by large players.

• Globalization has simultaneously developed the global markets which is more sophisticated, more demanding, consumers are more highly differentiated, and more customized products and services.

• This means organizational responses must be more flexible by using the more flexible strategy of its operation management.

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Global BusinessDrivers

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The process of industry is influenced by a number of drivers:

• Market drivers – Homogeneous customer needs, Global customers, Global channels, Transferable marketing.

• Cost drivers - Economies of scale and scope, Learning and experience, Sourcing efficiency, Favorable logistics, Technology development costs.

• Governmental and economic drivers – Trade policies, Integration of world capital markets, Global binding roles of law, Compatible technical standards.

• Competitive drivers – Globalized competitors, Interdependent countries.

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Market drivers:• Homogeneous customer needs – Customers in different

countries who desire the same type of product or service provide an opportunity for firms to standardize their products.

• Global customers – Customers who source and buy global facilitate the push to a uniform global offering.

• Global channels – The existing of channels of distribution that facilitate getting goods to customers scattered worldwide plays a role in driving forward globalization.

• Transferable marketing – Certain products and product categories are highly amenable to uniform marketing.

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Cost drivers • Economies of scale and scope – Single country is not large

enough to provide economies of scale to a larger global market.

• Learning and experience – Beyond economies of scale it may be learning and experience effects continue to take place.

• Sourcing efficiency – Global purchasing can provide purchasers bargaining and negotiation power, making them dictate of purchase.

• Favorable logistics – If product can be transported with ease and cost effectiveness, they fuel the global trend.

• Technology development costs – In some industry the cost of innovation are so high that recouping investment requirees a global market, like airline and automotive sectors.

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Governmental and economic drivers • Trade policies – Policies that promote world trade encourage

use of a global strategy.

• Integration of world capital markets – Transactions on a global market require efficient and integrated financial markets.

• Global binding roles of law – Safe business transactions occur if rules can be globally applied and upheld.

• Compatible technical standards – Differing product standards imposed by governments make it difficult to use a standard product.

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Competitive drivers

• Globalized competitors – when by competitors adopt globalized approaches, often it is necessary for others to match or pre-empt their move by following a similar route.

• Interdependent countries – Companies taking actions in one country usually find they are being closely monitored by customers and companies alike in other countries.

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Ahmed and Shepherd, Innovation Management: Context, Strategies, Systems and Processes, 1st Edition, © Pearson Education Limited 2011Figure 10.1 Forces of global strategySource: Adapted from Yip, 1989


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Deciding on the strategy for global operation requires making choices along a number of strategic dimensions.

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Evolutionof

Global Businesses

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Figure 10.2 Evolutionary organizational response to global drivers of change (Vernon, 1066)

Evolution of business in the global environment

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Vernon, 1966: Innovation in home countries – develop exports in similar markets – internationalization – multinational or global markets – transnational markets.

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China Internationalization of its Automotive• In 1980s China opened Auto market to international companies.• In 1983, American Motor Company signed a joint venture with

Beijing Automotive Works.• Since then, some of foreign automakers followed, such as:

Volkwagen, GM, Toyota, Honda, Nissan, Mazda, Hyundai and KIA.• In 2009 GM had 9 joint venture with wholly own distribution centre.• GM employee 32.000 employees in China and relocating its international operation

from Detroit to Shanghai.GM commands 11% market share, sold 1,46 million cars.• GM has been increasing 60% revenue compared to 2008.• China has become the fastest automotive growth country.• In 2008 selling 9,5 mil cars, 2009 sold 10,89 mil cars.• As the result, local car makers developed reverse engineering of international

models.• China now are reversing the trend from FDI by allowing domestic Chinese

automakers to acquire foreign brands.• The first was Shanghai Automotive Industry Corporation in 2005 purchased MG Rover

Group, and export the auto parts to all over the world.

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Configurations and Structures

ofGlobal Businesses

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Figure 10.4 Ethnocentric centralized R&D

Configurations and structure for global innovation

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MnC manage their innovation by organizing and controlling their operation through different formats – Ethnocentric centralized R&D

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R & D at Samsung• By 2004 Samsung Electronics was spending more on R & D than other

Asian company outside Japan.

• Samsung investment rose to $ 4,6 bn in 2004, while 2000 was $ 1,6 bn.

• Samsung recruited 3000 scientists and engineers a year to its strong R&D workforce of 25.000 people.

• However, Samsung R&D centers are in Korea, headed in Suwon.

• Samsung’s approach was its Value Improvement Program, based in Suwon.

• A team normally have between 15 to 80 members who work together on a project for a few months.

• The centre handled about 40 project a year.

• The team looked at every aspect of a proposed innovation, trying to cut production costs and improve performance.

• All together Samsung centre saved $ 2,5 bn in 2004, and further plan to save of $ 3,5 bn for the following year.

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Figure 10.5 Geocentric model for R&D


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Geocentric model R&D – company is more dependent on foreign market, centralized innovation for knowledge based, send personnel abroad to collaborate with local manufacture, suppliers and customers abroad.

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Figure 10.6 Polycentric decentralized R&D


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Polycentric decentralization R&D – Innovations and R&D takes place in foreign subsidiaries to response to local tastes.

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Figure 10.7 R&D hub model


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R&D hub model (co-ordinated federation) – Control and co-ordination from hub in regional center.

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Figure 10.8 Integrated R&D network


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Integrated R&D network – interconnected amongst dispersed competencies.

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Ahmed and Shepherd, Innovation Management: Context, Strategies, Systems and Processes, 1st Edition, © Pearson Education Limited 2011Figure 10.9 Evolutionary trend to integrated R&D formSource: Adapted from Boutellier et al., 1999


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The evolutionary trend

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Innovation in

Subsidiary locations and Management

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Figure 10.10 Value added chain of comparative advantageSource: Kogut, 1985

Innovation subsidiary location and management

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Comparative advantage - defines location-specific amongst countries (Ricardo,1817). Country risks and costs becomes more important nowadays.

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Figure 10.11 Subsidiary roles and responsibilitiesSource: Adapted from Bartlett and Ghoshal, 2000


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Roles of subsidiary in innovation management – Strategic leader (partner to the center of R&D), Contributor (as support role in innovation), Implementer (low competence in development), Black hole (subsidiaries that have lack of capability).

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Roles of subsidiary in innovation management

• Strategic leader - The role for those companies which are highly competent and situated in strategically important market. The subsidiary can become a partner to the centre of innovation.

• Contributor - A subsidiary possessing distinctive competences, but operating in unimportant markets, can play a support role in the development of innovations and its strategies.

• Implementer – Subsidiaries with low competences in R&D and operating strategically unimportant markets take on the role of implementer. It is important in realizing economies if scale, not thinking tank operations.

• Black hole – Subsidiaries that operate in important markets, but lacking in capability base eat up resources without making significant returns.

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Figure 10.12 Global team effectivenessSource: Adapted from Govindarajan and Gupta, 2001


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People and teams configuration for global innovation effectiveness.

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Ahmed and Shepherd, Innovation Management: Context, Strategies, Systems and Processes, 1st Edition, © Pearson Education Limited 2011Table 10.1 Improving communication and cultivating trust


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Improving communication and cultivation trust for global innovation effectiveness.

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Figure 10.13 Roles and responsibilities for managers

Source: Adapted from Bartlett and Ghoshal, 2000


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Leadership for global innovation

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SbongPresentation Conclusion

• Companies can no longer succeed by innovating just in their domestic markets, since competitors exploiting global markets can gain significant market and cost advantages.

• With such kind of pressure, many companies have evolved structures and systems to coordinate their operation for global competitive dynamics.

• The integrated network model, also known as the transnational structure form, occurs because it provides a balance between global efficiency and responsiveness effectively. This form become more pervasive into the future needs.

• To anticipate this situation, it is inevitably leading to the challenges of managing a diversity of people and cultures.

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SbongPresentation Questions1. Explain the key drivers of globalization, and the implications of these key

drivers for innovation!

2. Explain the five different organizational structure configurations of global innovation, and explain also the advantages and disadvantages of each model !

3. What actions are necessary to make the integrated R&D network (the transnational form) effective?

4. Why is the decision to conduct R&D in a particular location or subsidiary complex?

5. Explain the different roles of a subsidiary can play in roll out an innovation?

6. What additional difficulties exist in managing global innovation team project? What actions needed to overcome these problems?

10.chp.10. innovation in global world-jbsb(2)

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evolutionary

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global binding

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