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Strategies for managing risk in multinational corporations

In my post two days ago, reviewing the article by Manuj and Mentzer (2008) titled Global Supply Chain Risk Management, I mentioned that they cited a paper by Ghoshal (1987) titled Global Strategy: An Organizing Framework as one of their references for listing risk management strategies. Today, I will take a closer look at that paper. The word supply chain doesnt even appear once in Ghoshals paper, but why is this paper so interesting in a supply chain risk perspective?

Global strategy
The paper was written at the onset of globalization in 1987, when the buzzword of the day, global strategy, was still an emerging, but already very popular concept among managers of multinational corporations. One of the driving forces in any company is the desire to gaincompetitive advantage over its competitors. Going global is (or in 1987 still was) one of the means to achieve this. Today, its hard to imagine any corporation not being multinational in one way or the the other, or having at least some parts of its supply chain stretched around some parts of the globe. In his paper, Ghoshal provided a framework for selecting appropriate strategies when going global, and risk management was one of the strategies he looked at.

Competitive advantage means and ends


In a multinational or global setting, competitive advantage can be gained from three sources (means): 1) Exploiting national differences in the countries the company is involved in, 2) Benefiting from economies of scale, and 3) Exploiting synergies from economies of scope, created by the diversification of its activities. The strategic task of managing globally is to use these three sources to achieve these three strategic objectives (ends): 1) Efficiency in current operations, 2) Risk management, and 3) Innovation, learning and adaptation. In the following I will deal with managing risks only.

Managing risks
A multinational corporation faces many risks, some of which are endemic to all firms, and others which are unique to organizations operating across national boundaries. Ghoshal (1987) divides the risk into four broad categories, the same four categories that 20 years later are picked up by Manuj and Mentzer (2008). Macroeconomic risks - random movements in the economic environment (wages, interest rates, exchange rates, commodity prices) Political risks - policy actions from national governments (legal and regulatory actions, nationalization, war) Competitive risks - uncertainty about competitors actions or development of competitive technology Resource risks - lack of human resources, technology or capital

One important issue with risks is that they change over time, and the strategic task is to consider these risks jointly in the context of particular strategic decisions. It is the risks that cannot be diversified in a global environment that should be of most concern. If youre interested in political risk in particular, I suggest you read my review of the Gower Short Business Guide on Political Risk.

International Investment Strategies

Putting your money in assets located outside of the United States is known as an international investment. Since it allows investors to place their capital in locations that may generate higher profits for them, this type of investment has generated a great deal of interest among investors. In addition, it provides a new way to make money for all those investors who aren't willing to invest their money in markets with too many barriers (for example, the American market for determined goods such as consumer products or telecommunications is already overexploited). Below are some important strategies in international investment. Diversity

Diversity is the first and most important strategy in international investment. In reality, this is the most important strategy in any kind of investment because it would be too risky to put all of your money into one vehicle even if you are absolutely sure that it will work. It's very important to remember that it is impossible for anyone to determine what will happen in the future. Your plan to invest internationally can go up in flames if there is a coup against the government of the country you're invested in or if the government decides to nationalize determined resources. Proper Research The second most important point in international investment is to properly research the sociopolitical conditions of the region where you wish to invest. You would not want to invest thousands of dollars in an unstable territory, for example. Without conducting thorough research, you might find that the stock you hold is with a company located in a country that has become a victim of terrorism, sabotage attacks by the local population, theft or even occasional visits by the local mob or warlord. If you can, talk to others who have invested internationally. If that is not possible, always makes sure to read and learn as much as you can before making an investment. Stay Updated

Staying informed and updated about what is happening around the world is another important strategy. There's no excuse for not knowing what's happening around the world with the presence of the Internet. Twenty-four hours a day, seven days a week, you can know what is happening in cities and countries globally all with the click of your mouse. A good international investment strategy plan requires a lot of time and is not as simple as applying all of the strategies mentioned above. Even if you follow all three strategies, it doesn't necessarily mean that everything will turn out well. You must also understand the world of geopolitics and global economy and always keep yourself informed.

10 Key Strategies and Considerations for Multi-Country eCommerce Rollouts

Multi-country or global eCommerce rollouts have become a buzz word among most retailers and consumer brands. To expand internationally, retailers turn to the online channel as the easiest way to achieve brand penetration. I often get asked what the key considerations are for a global eCommerce platform rollout. The following are 10 aspects that you need to think about, based on my experience on rolling out these platforms for large telecommunications companies (telcos) and retailers:

1. Currency and pricing This is the most important factor to consider. Selling in multiple geographies means the platform needs to support local currencies. This not only means technology support, but pricing a product becomes equally important, i.e. will a retailer take a hit on the margin or worst case vary the price of the product daily based on exchange rates (unlikely). Additionally, taxes and shipping charges are handled differently in each region, so you should factor that as part of the pricing strategy. You must also consider price parity with the local stores, if present, an equally important factor.

2. Language eCommerce platforms should be able to target each region with its own local language. Complexity increases due to two factors: First, there can be more than one language support needed for any geography (i.e. support French and German for Switzerland); Second, the same language can have different variations in different countries (i.e. although both English, trousers in the UK becomes pants in the US and pants in the UK means underpants). Also, from a Web design perspective, there are some languages that occupy more space than others (i.e. French and German use more characters for the same expression as compared to English.) An MVNO (mobile virtual network operator), Lebara, has done this beautifully by creating localization aspects in its page templates.

The content can be translated in a traditional way by an agency like SDL, which provides the data to the eCommerce platform for storage as implemented by many retailers for future international rollouts, or in a more dynamic way by plugging in a reverse proxy like MotionPoint, as done for ASOS. While considering dynamic translation options, special considerations should be given to internal search due to unavailability of the translated data locally as most of the products are not that matured.

3. Operations This includes considerations for fulfillment systems (i.e. where the distribution centers (DC) will be located, and inventory management consider if each region will have different stock pots or share one global stock); Thus, careful consideration should be given to inventory synchronizations and call center operations, such as do you need regional or global customer care and how will they access internal systems. Consideration should be given to split orders across distribution centers and the issues surrounding it.

4. Cultural differences Each region has different browsing and purchasing behavior. Some initial research followed by usability testing is by far the most popular method, which helps in discovering this behavior. This should include careful planning on country specific functionalities including things like gift cards.

5. Legal and compliancy Each region is unique in its legal and compliancy laws. W3C accessibility and cookie laws are more prominent in UK and Europe, where as PCI compliancy is needed in most other

geographies. Even simple things like promotions can vary by country (e.g. in France, you cannot perform business in a negative margin outside of sales periods).

6. Payment and fraud Each geography has different kinds of payment methods. Thus, local payment methods are very important. As per Forrester, bank transfers are common in Europe and Asia, where as cash-on-demand remains prominent in China. On the other hand, checks are still popular in some parts of Europe. Paypal, Bill Me later and ClickandBuy are also gaining global traction. Similarly, effective fraud management is essential. This includes global telephone, address verification, device finger printing, 3D secure and more. Companies like CyberSource, Global Collect and DataCash do master in these capabilities.

7. People, content and merchandising Having the right skills both, technically (i.e. usage of business tools) and multilingual (i.e. ability to understand different languages for merchandising) is key. From a platform point of view, this means having the ability to manage content for different sites and to set up granular roles and responsibilities per site.

8. Infrastructure and hosting Suitable consideration should be given to where both the merchandising business tools and the end user commerce platform should reside (i.e. globally or local version in each region). Depending on the decision, content delivery networks (CDN), caching strategy and the likes should be decided.

9. Catalog design Consider the way you structure your catalog. This includes designing master and country-specific catalogs, as well as strategies to avoid massive synchronization issues, which are a nightmare for support teams. Few retailers have handled these issues very wisely with their use of effective catalog hierarchies and smart relationships between catalogs.

10. Testing Last, but certainly not the least, is testing. This should be planned far enough in advance for the creation of data sets, data migration plan and distribution of users across multiple regions

In summary, more and more retailers are going to embark on this Journey in the not-to-distant future, and if these aspects are not considered as part of the guiding principles or in the design strategies, then retailers will find it very difficult to succeed in this rather unnerving adventure. Is your company ready? What other roadblocks have you encountered that youd like to share in your globalization journey?