Using the Internet to Enhance Global Strategy

Using the Internet to Enhance Global Strategy

European Management Journal Vol. 23, No. 1, pp. 1–13, 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain 0263-2373 $30.00 doi:10...

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European Management Journal Vol. 23, No. 1, pp. 1–13, 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain 0263-2373 $30.00 doi:10.1016/j.emj.2004.12.005

Using the Internet to Enhance Global Strategy GEORGE YIP, London Business School ANNA DEMPSTER, Birkbeck College, University of London How does the Internet affect globalization and global strategy within firms? How should multinational companies re-evaluate their global strategies to best take advantage of the Internet? Both managers and researchers have assumed that a correct and appropriate use of Internet technologies by companies speeds up globalization of industries and enables firm use of global strategies. This paper provides empirical evidence on the exact uses of the Internet by global companies, how their use affects key globalization drivers and how they believe this, in turn, affects performance. We derive ten lessons on how companies can use the Internet to enhance their global strategies. Ó 2005 Elsevier Ltd. All rights reserved. Keywords: Internet, Globalization, Global strategy, Multinational companies Can companies use the Internet to enhance their global strategies? Both in the sense of expanding their geographic scope, and in the sense of globally operating more-integrated strategies, the ubiquitous nature of the Internet (and its application in the World Wide Web) should make it easier for companies to globalize (Govindarajan and Gupta, 2001; Yip, 2000). This paper provides a framework for thinking about this issue and provides evidence from a survey of 115 multinational companies, primarily based in Europe. We address the following questions: v Does industry make a difference? Which industries offer more potential for using the Internet to enhance global strategies? v Does use of the Internet make it easier for companies to implement global strategies? v Which aspects of Internet use help most with implementing global strategies?

European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

v Which aspects of website design and functionality affect global strategies? v Does using the Internet improve the performance of multinational companies?

The Internet as a Driver of Globalization What characteristics cause some industries to make more use of the Internet? Observing the more successful applications, commentators and researchers have suggested a number of industry characteristics which promote Internet use (Andal-Ancion et al., 2003): digitizability of the end product (e.g., most information-based products such as directories and encyclopedias), time sensitivity of the end product (e.g., airline travel), high search costs (e.g., books), potential for customization (e.g., clothing retailers), insufficient matching of buyers and sellers (e.g., business-to-business exchanges and consumer-to-consumer auction sites), and a tradeoff between richness and reach (e.g., retail brokerage, Evans and Wu¨rster, 1999). We propose an additional industry characteristic—globalization—that also increases use of the Internet by firms. One of the main difficulties in assessing the effects of the Internet per se is that it has come at a time of other significant developments in the global economy (Nadler and Tushman, 1999). The various drivers of globalization that have blurred geographical boundaries for business have also introduced global opportunities as well as increasing operational complexities. However, taken as a whole Internet technologies have in many cases accelerated globalization processes through a number of key technological characteristics that have made it particularly suitable for driving the globalization tendencies of multinational firms:

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USING THE INTERNET TO ENHANCE GLOBAL STRATEGY

v Designed as a decentralized network with no central control, no single body or person can dictate what goes in, comes out, or how it is used (although some national governments increasingly try to selectively block or monitor Internet access and use). Companies and sub-units can use and adapt the Internet according to their specific needs. v The effect of this decentralization of transactions and information transfer raises major questions about the role of bodies which would have traditionally had functions of control, such as governments and regulatory institutions. In terms of transferring, accessing information, companies are now much less dependent on local infrastructures. v As a technology, the Internet is designed with disregard for established boundaries such as geographical, political and legal. v Borderless communications mean that distance in no way hinders communications. International management teams who use the Internet are not limited by geographic scope. v As an interactive medium, the Internet can be used for collaboration and identity building across a dispersed community such as those in a global firm. v Cost and speed advantages are also substantial. The Internet is a much less expensive way to send information, and this information can be received in real time anywhere in the world. For global businesses this has massive implications for the possible scale and scope of operations and redefines the traditional trade-off between richness and reach, allowing both to be achieved for relatively little cost. 1 v Nomadic/mobile computing has become a reality as the Internet, the World Wide Web, and their accompanying technologies, such as WAP and 3G, continue to evolve.

the Internet and its repercussions on multinational firms are only just emerging (Bakos and Brynjolfsson, 1999).

A Framework for the Internet and Globalization Our framework for the Internet and globalization builds on extensive previous research on the relationship between industry characteristics, particularly industry globalization drivers, and global strategy (Porter, 1986). Exhibit 1 illustrates the core components of our framework. Industry globalization drivers, such as globally common customer needs or global scale economies (outlined in detail in the next section), encourage firms in specific industries to use various global strategies—such as global market participation, global products, global activity networks, global marketing, and global competitive moves (Path 1). There is also a direct effect between these industry globalization drivers and Internet use (Path 2). Firms using global strategies are likely to make more use of the Internet to exploit the latter’s global capabilities (Path 3). In turn use of the Internet further enables the implementation of global strategies (Path 4). Lastly, Internet-enabled global strategies contribute to improving the global performance of a firm (Path 5). To investigate our questions and to test our framework we designed a questionnaire and had it completed by 115 multinational companies from Europe and other parts of the world. We also conducted follow-up interviews with a selection of participating firms. Appendix ‘Research Methodology’ describes our methodology in detail.

So it seems that the Internet is at least highly complementary to the already powerful trends that are forcing companies to become global, and at most a key driving force of the continued globalization of existing companies.

How much should a Company use the Internet?

While the Internet seems all pervasive in daily life, research on its dominant effects on globalization is limited and empirical work on the precise use of

How much of its business should a company expect to book over the Internet? During the Internet bubble, commentators and promoters expected tradi-

Industry Globalization Drivers

#1

Use of Global Strategies

#3

Use of Internet

#4

Enabling of Global Strategies

#5

Improved Global Performance

#2

Note: (#) indicates Path numbers as discussed in text.

Exhibit 1 Overall Framework of Globalization and Internet

2

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Sales Service and Customer Information (both at 4.3), and Marketing (4.2).

Worldwide Revenues Booked Over the Internet Industry Sector

% of Industry

% of Firm

Chemical/Pharmaceutical

5.0

3.6

Construction/Capital Goods

6.5

2.0

Energy/Resource

5.2

6.2

Financial/Property

4.8

3.5

Logistics/Transport

6.2

4.4

10.2

7.6

Technology/Media/Telecommunications

9.6

7.0

Average

6.8

4.9

Retail/Grocery

Lesson 1: Don’t worry about booking huge percentages of your revenues over the Internet but make sure that nearly every activity takes the Internet into consideration.

Does Industry Globalization Affect Use of the Internet?

n = 115 companies

Industries differ in their globalization potential and in their degree of Internet use. How are the two related?

Exhibit 2 Use of the Internet by Industry

tional companies to rapidly shift the bulk of their business to the Internet or die. This credo was typified by General Electric’s ‘‘destroyyourbusiness.com’’ initiative. We found that only 6.8% of industry revenues and 4.9% of firm revenues were booked over the Internet. But there were, of course, differences by industry sector. Two sectors scored notably higher than the others did. Both the Resource/Support and Technology/Media/Telecommunications sectors had much higher levels of revenues booked over the Internet at both the industry and firm level (Exhibit 2). These industries were particularly well suited to take advantage of the various characteristics and cost benefits of the Internet and adopted it much more quickly.

Market Globalization Drivers Market globalization drivers depend in particular on globally common customer needs and tastes, which in turn allow multinational companies to sell products (goods or services) with a high degree of global standardization. The higher the degree of global commonality in an industry, the easier it is for companies to use the Internet and the Web to offer information and transactions to customers around the world. Examination of the two ends of the spectrum makes this point clear. At one extreme, companies in an industry in which all customers around the world want only one globally standardized product could reach and sell to these customers with the simplest of websites, and these websites should have a high degree of global standardization. At the other extreme, companies in an industry in which customers in different countries want nationally unique products would have to provide far more complex websites, and these websites should need a high degree of local customization, not just in their content but also in their format.

However, it was clear that managers in all industries made sure that the Internet was taken into consideration in nearly every individual activity. We found that most individual activities of the majority of companies made some use of the Internet (Exhibit 3). The greatest use at the time of the questionnaire was for R&D, Customer Information, and Marketing (all at 3.1 out of 5.0). Most companies reported they would greatly increase each activity’s use over the next three years, with the greatest predicted uses for After

3.1

research and development 2.0

production

3.9

3.0 2.6

distribution / logistics

3.9 3.0

marketing

4.1

2.3

selling after-sales service

3.8

1.8

billing and collection

3.6 3.1

customer information

4.3 2.6

supplier information

4.0

2.5

OVERALL ACTIVITIES 1.0

Now In Three Years

3.7

2.3

1.5

2.0

2.5

3.8 3.0

3.5

4.0

4.5

5.0

Exhibit 3 Firm Use of the Internet by Activity

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We measured market globalization drivers in terms of the extent to which customers have globally common needs and tastes. We found this measure to have a large positive correlation (.27) with expected future use of the Internet, measured as average of all individual activities (even though it did not have a significant relationship with use of the Internet now). This finding implies that in industries where companies have customers with more globally common needs and tastes, firms are more likely to increase their use of the Internet across various value adding activities (as listed in Exhibit 3). Industry sectors (see list in Appendix on Research Methodology) which rated high in our survey of globally common needs and tastes include: chemicals and pharmaceuticals; technology, media and telecoms; logistics, distribution and transportation; and energy and resources. This list matches those found in other studies (Morrison, 1990; Johansson and Yip, 1994).

Cost Globalization Drivers Key cost globalization drivers include global economies of scale or scope, global sourcing efficiencies, cost differences in producing in different countries, and high product development costs. Each of these spurs MNCs to implement global strategies such as global factories, global production networks, global buying, relocation of activities to low cost countries, and development of global rather than national products. Each of these strategies is made easier by use of the Internet: including to coordinate a global network of production sites, to coordinate global buying both in terms of internal customers and external suppliers, and to coordinate national needs in the development of global products. We measured cost globalization drivers in terms of:

and transportation for sourcing efficiencies; energy and resources; and retail and groceries for cost differences; and technology, media and telecoms for new product development costs.

Government Globalization Drivers Government actions affect industry globalization by raising inter-country trade and investment barriers or, in some cases, by providing inducements. The existence of trade and investment barriers should encourage the use of the Internet as ways to bypass them, particularly import duties and taxes. Unless a government is actively engaged in monitoring and censoring Internet traffic, as is the case of a few authoritarian regimes, most governments find it impossible to track or tax services delivered over the Internet. For goods and services ordered over the Internet but delivered physically across borders, governments should, in theory, be able to tax these at the frontier. In practice, however, most governments miss significant proportions of the increasing number of relatively low value items. Other government globalization drivers include global standardization of technical standards and global commonality of marketing regulations. Differences in technical standards among countries affect the extent to which products can be globally or regionally standardized. Industries moving to global technical standards should generally make more use of the Internet as ways to make these standards more accessible and transparent, which in turn should encourage adoption of global standards. Differing marketing regulations affect the extent to which uniform global marketing approaches can be used. Marketing across borders over the Internet is easier in industries with globally common regulations.

(a) the importance of global scale or scope economies, (b) potential savings from global sourcing efficiencies, (c) extent of cost differences in producing in different countries, (d) ratio of new product development costs relative to expected lifetime revenues.

We measured government globalization drivers in terms of:

We found that new product development costs had a significant and positive correlation (.22) with current uses of the Internet although the others did not. All four measures, however, have large positive correlations (from .18 to .27) with expected future use (the average of all individual activities.) This finding implies that companies in industries which have stronger cost globalization drivers are more likely to increase their use of the Internet across their various value adding activities (as listed in Exhibit 3). Industry sectors that rated high in our survey on cost globalization drivers include: logistics, distribution and transportation; and chemicals and pharmaceuticals for scale/scope economies; logistics, distribution

We found that level of favorable global trade and investment policies had a significant positive correlation (.22) with current use of the Internet at the time of the questionnaire, although the other measures did not. But all three measures had a large positive correlation (from .19 to .25) with expected future use (average of all individual activities). This finding implies that companies in industries that have stronger government globalization drivers are more likely to increase their use of the Internet across their various value adding activities (as listed in Exhibit 3). Industry sectors that rated high in our survey include: none in particular for favorable trade and investment policies; energy and resources; technology, media

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(a) level of favorable global trade and investment policies, (b) global standardization of technical standards, (c) global commonality of marketing regulations.

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and telecoms; logistics, retail and groceries; and distribution and transportation for standardization of technical standards; and technology, media and telecoms for commonality of marketing regulations.

Competitive Globalization Drivers Globalization requires companies to be particularly sensitive to competitive actions and reactions. The Internet heightens this global rivalry in several ways. First, ‘‘Internet time’’ accelerates the necessary speed of moves and countermoves. Second, the Web creates a public forum for signaling, making it easier for competitors to communicate with each other. Third, comparison of competitors becomes much easier for potential customers, particularly in terms of price transparency—the Web allowing for both cross-competitor and cross-border comparisons. Fourth, the Web makes it easier for companies with a given competitive advantage to transfer and leverage that advantage globally in a variety of ways discussed above (such as by reducing the amount of physical investments needed). Fifth, for existing industry leaders or incumbents, the Internet era has created the phenomenon of ‘‘born global’’ rivals—via the Internet these companies have global reach from the day they put up a Website (such as Amazon and eBay). We measured competitive globalization drivers in terms of the average of all the individual industry globalization drivers listed above. We found this measure to have a significant positive correlation with both current (.25) and expected future (.45) Internet use (average of all individual activities). In a further test, we ran a regression of average activity use of the Internet now against average industry globalization drivers. The result showed a significant slope of 0.31, meaning that a 1.0 unit increase in the strength of industry globalization drivers results in an average .31 unit increase in the use of the Internet in company activities (Exhibit 4). This finding implies that companies in industries that have stronger

5.0

4.0

Average Activity 3.0 Use of Internet

Slope = 0.31

2.0

1.0 1.0

2.0

3.0

4.0

5.0

Average Industry Globalization Drivers Exhibit 4 Effect of Industry Globalization Drivers on Use of Internet

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competitive globalization drivers are more likely to increase their use of the Internet across their various value adding activities (as listed in Exhibit 3). Industries that rated high on the average of all the globalization drivers in our survey include: technology, media and telecoms; and distribution and transportation. Lesson 2: Most companies in more globalized industries make more use of the Internet in order to better exploit globalization potential. The competitive implication is that companies in such industries need to carefully monitor how rivals are making use of the Internet, and lead or match rivals’ activities.

Global Strategies and Use of Internet The previous arguments and analyses show that companies in more globalized industries should make more use of the Internet. It is also well established that companies in more globalized industries should and do make more use of global strategies. These strategies include global market participation, globally standardized products and services, global activity networks, global marketing, and global competitive moves (Yip, 1992). So the next question is whether companies that make more use of global strategies should make more use of the Internet, and conversely, whether use of the Internet actually helps them to implement global strategies. Overall, we found that the average use of global strategies was positively correlated (.22) with the average use of the Internet in firm activities, and also with the use of the Internet for two individual activities: after-sales service (.23) and customer information (.24). However, these findings do not imply causation. It could be either that greater use of global strategies leads to more use of the Internet or that greater use of the Internet leads to more use of global strategies. The truth is probably both. A related finding does provide evidence that the effect flows from use of the Internet. We asked about the extent to which use of the Internet made it easier for the companies to implement various global strategies. We found that use of the Internet had at least a moderate effect (2.5 or higher on 1 to 5 scale) on all global strategies, with the greatest effects for operate global activity networks and co-ordinate globally dispersed activities (Exhibit 5). We found further support for this enabling effect on global strategies of use of the Internet by conducting some correlation analysis. We found that greater use of the Internet, as measured by the average use of the Internet in firm activities was positively correlated with every measure of the extent to which the Internet made it easier to implement global strategies (detailed in the next sections) and with the average of these measures (correlation of .39). 5

USING THE INTERNET TO ENHANCE GLOBAL STRATEGY

participate in foreign markets

2.6

globally rollout new products and services quickly

2.6

offer standardised products or services

2.5

offer localised products or services

2.6

locate activities outside home country

2.8

operate global activity networks

3.2

co-ordinate globally dispersed activities

3.1

have a globally uniform marketing

2.6

use global competitive moves

2.6

Mean

2.7 1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Score

Exhibit 5 Internet Effects on Implementation of Global Strategies

Internet Effects on Global Market Participation By substituting for or supplementing physical activities, the Internet makes it easier for companies to participate in foreign markets. The advent of global strategy in the 1980s meant that companies started to pull back from smaller or non-strategic markets in order to reduce costs. The Internet makes it more economically feasible to once again serve these non-core markets. Ironically, the Internet is allowing companies to return to the multinational era when companies sought a presence in as many countries as possible. Today, companies can participate in core countries with physical presence supplemented by Web activities. At the same time, they can participate in non-core countries with a Web presence supplemented by some physical activities. We measured global market participation in terms of the extent to which companies: (a) participate in foreign markets, (b) globally roll out new products and services quickly. We found that participate in foreign markets was not significantly correlated with any measure of current use of the Internet (path 3 in Exhibit 1). As participation in foreign markets typically takes years, even decades, to build up, this finding implies that companies have not yet responded in their Internet activities to their existing patterns of foreign market participation. However our survey found implications for current efforts to expand foreign market participation. We found that the use of the Internet in many activities was correlated with making it easier to implement the strategy of participate in for6

eign markets (path 4): production (.30), distribution/ logistics (.20), marketing (.20), selling (.40), after-sales service (.45), billing and collection (.48), customer information (.32), and overall activities (.34). Hence, current use of the Internet in various activities is starting to make it easier to participate in foreign markets, with powerful implications for the future. For the other measure of global market participation we found that to globally roll out new products and services quickly was significantly correlated with use of the Internet in overall activities (.22) and with many individual activities such as selling (.23), after-sales service (.32), billing and collection (.25), customer information (.27), and supplier information (.20). The difference between (a) participate in foreign markets is not surprising, as the former reflects prior activities, while (b) globally roll out new products and services quickly, clearly reflects current activities. So companies using this latter strategy are more likely to use the Internet to enhance it. We also found that the use of the Internet in many activities was correlated with making it easier to implement the strategy of globally roll out new products and services quickly (path 4): including selling (.23), after-sales service (.32), billing and collection (.25), customer information (.19), and overall activities (.19). Hence, current use of the Internet in a large range of activities is starting to make it easier to globally roll out new products and services quickly. Lesson 3: Use of the Internet enables global market participation, particularly if a company uses the Internet in marketing related activities, including: distribution/logistics, marketing, selling, after-sales service, billing and collection, and customer information. European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

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Internet Effects on Global Products and Services Global products and services are seldom totally standardized worldwide, but they are designed with global markets in mind, and they have as large a common core as possible. Some industries and categories, such as personal computers and air travel, allow the potential for a very large common core, while others, such as furniture and legal services, allow for less commonality. Deciding on the extent of global standardization poses a major dilemma for MNCs. Use of the Internet and websites eases this dilemma by making it easier to offer an array of global, regional, or local products, and local customization options for standard core products. While the same can be done through traditional media (brochures or sales calls), the Web provides more options and the interactivity of the Internet provides for customization by the customer (as in Dell Computer’s ordering system).

global and local products shows that the Internet helps solve one of perhaps the greatest dilemmas in globalization: how to be both global and local at the same time. This dual capability of the Internet for globalization parallels its other dual capability of increasing both reach and richness simultaneously (as discussed earlier). Lesson 4: Use of the Internet enables both globally standardized and locally customized products and services. Companies can now use the Internet to lessen the globalization tradeoffs they have had to make in regard to products and services.

Internet Effects on Global Activity Location

The Internet helps to solve the long-time dilemma facing multinational companies—how much of their value chain to recreate overseas? In earlier eras of poor transportation and communications, the solution generally required the foreign location of a lot We measured global products and services in terms of expensive assets and activities. In the global era, of the extent to which companies: beginning in the 1980s, many companies found that they could reduce duplication by operating physical networks with specialized nodes. As an electronic net(a) offer globally standardized products or services, work, the Web, through both intranets and extranets, (b) offer locally customized products or services. completes this process of deduplication. Many downOf the different measures of curand support activities rent Internet use, we found that The Internet helps solve stream lend themselves well to Webcustomer information and overall based replacement for local activities had significant positive correlations (.20 and .23) with one of perhaps the greatest di- physical presence. Globalizing R&D operations has been a the measure of (a) offer globally standardized products or services. lemmas in globalization; how key objective of global companies. But centralization at one We found that offer locally stanto be both global and local at location has been the tradidardized products or services was tional strategy to achieve the not correlated with any measure the same time needed scale in R&D. The of current Internet use. Web now enables virtual R&D teams that concentrate We found, however, that use of and pool expertise and rethe Internet in many activities sources from separate locations, so that companies was correlated with making it easier to implement can both tap into local expertise and achieve global the strategy of (a) offer globally standardized products scale. The Web can also be used to co-ordinate globor services (path 4): production (.22), selling (.28), ally dispersed production activities. Many compaafter-sales service (.38), billing and collection (.47), cusnies now handle their global after-sales service tomer information (.26), supplier information (.18), and through their Websites. overall activities (.32). Hence, current use of the Internet in various activities is starting to make it easier to We measured global activity location in terms of the offer globally standardized products or services. extent to which companies: Interestingly, the effects were even more extensive for the strategy of (b) offer locally standardized products or services : production (.24), distribution/logistics (.25), (a) locate activities outside home country, marketing (.19), selling (.27), after-sales service (.24), (b) operate global activity networks, billing and collection (.28), customer information (.22), (c) co-ordinate globally dispersed activities. and overall activities (.33). First, we found that operate global activity networks The above findings imply that on the one hand comwas significantly and positively correlated with curpanies are not yet making much use of the Internet rent use of the Internet for after-sales service (.19), cusrelative to globally standardized or locally customtomer information (.27), and overall activities (.25). We ized products. But on the other hand companies are also found that co-ordinate globally dispersed activities finding great potential from Internet use for enabling was significantly and positively correlated with curboth these strategies. Also, the applicability for both rent use of the Internet for production (.18) and overall European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

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activities (.24). However, we found that locate activities outside home country was not significantly correlated with any measure of current Internet use (path 3 in Figure 1). These three findings imply that just the act of locating activities overseas does not in itself spur Internet use. But operating global activity networks and coordinating globally dispersed activities, which both require a degree of global integration, do require use of the Internet for appropriate activities. When we looked at how use of the Internet might enable these global strategies, we found many effects. We found that use of the Internet in many activities was correlated with making it easier to implement the strategy to locate activities outside home country (path 4): selling (.22), after-sales service (.36), billing and collection (.21), customer information (.20), and overall activities (.21). For the strategy of operate global activity networks, the enabling activities were after-sales service (.19), customer information (.24), and overall activities (.25). For the strategy of co-ordinate globally dispersed activities the enabling activities were after-sales service (.29), customer information (.27), and overall activities (.28). Interestingly, use of the Internet for the production activity was not correlated with the enabling of these three strategies. These findings imply that firms found it is more important to use the Internet for customerrelated activities, than production-related activities, in order to support strategies of global activity location. This may not be surprising if we consider that a primary role of the Internet is to reduce distance, and there is usually a greater distance between a company and its customers than within a company. Lesson 5: Use of the Internet enables the global location of activities, especially if a company applies the Internet to customer-related activities.

Internet Effects on Global Marketing Research on global marketing shows that different elements of the mix need to have different degrees of global uniformity (Syzmanski et al., 1993), with brand names and packaging having the most uniformity, pricing, advertising and distribution moderate uniformity, and selling and promotion the least (Yip, 1997). Hence even global marketing involves a combination of global and local elements. The Internet should make it easier for MNCs to provide such combinations—Websites can easily provide local adaptations around core elements. Conversely, global marketing on the Web requires some specific choices: whether to provide Websites in different foreign languages, whether to have a globally common look for different country Websites, and whether to have a globally common content. We measured global marketing in terms of the extent to which companies have a globally uniform marketing mix. We found that to have a globally uniform marketing mix was not significantly correlated with any measure 8

of current Internet use (path 3 in Figure 1). On the other hand, we found that use of the Internet in some marketing-related activities was correlated with making it easier to implement the strategy of have a globally uniform marketing mix (path 4): after-sales service (.28), billing and collection (.34), and customer information (.25). These findings imply that companies have not yet made much use of the Internet to help with the strategy of having a globally uniform marketing mix, but those who do are finding it useful. Lesson 6: Use of the Internet helps companies to have a globally uniform marketing mix, especially if a company applies the Internet to customer-related activities.

Internet Effects on Global Competitive Moves Perhaps the hardest element in global strategy is that of making globally coordinated competitive moves, such as monitoring competitors globally and making cross-country counter-parries (Porter, 1986). The Internet and Web provides additional tools, such as: v using the Web to monitor competitors more closely v responding more quickly via Web offerings v using deep linking, metatags and other techniques to hijack potential customers from competitors’ websites v choosing the right mix of competitive and cooperative behavior with rivals and other partners v establishing global standards to limit or pre-empt competition We measured global competitive moves in terms of the extent to which companies use such moves. We found that to use global competitive moves was significantly and positively correlated with current use of the Internet for after-sales service (.23), billing and collection (.18), and customer information (.27). Also, we found that use of the Internet in most activities was correlated with making it easier to implement the strategy of use global competitive moves (path 4): research and development (.21), production (.20), selling (.29), after-sales service (.44), billing and collection (.38), customer information (.33) and overall activities (.25). These findings imply that companies are currently using the Internet in mostly selling and customer-related activities to help with the strategy of global competitive moves. But companies are also finding that Internet use in other activities such as R&D and production also helps enable global competitive moves. Lesson 7: Use of the Internet helps companies to make global competitive moves.

Nature of Multinational Firm Websites In addition to examining the effects on globalization of use of the Internet, we also investigated the effects European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

USING THE INTERNET TO ENHANCE GLOBAL STRATEGY

2.7

different foreign languages

3.8

Now In Three Years

2.6

globally common look

3.7

2.3

globally common content

3.4

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Exhibit 6 Languages and Commonality of Websites

of Website design in regards to: languages used, global commonality, transactional capability, and specific functionality.

Languages and Global Commonality There are many arguments that multinational companies should maintain their websites in different foreign languages, in order to better serve foreign customers. A separate argument, independent of language, is that multinational companies should maintain a globally common look for different country websites, or even globally common content to strengthen branding. We found that the companies, on average, made only moderate use of these three aspects, but planned to greatly increase their use over the next three years (Exhibit 6). We also investigated whether these three aspects of website design made any difference to the implementation of global strategies. We found that having different foreign languages helped companies to participate in foreign markets, and that having a globally common content or a globally common look each helped to implement a globally uniform marketing mix and to use global competitive moves. Lesson 8: Having foreign languages and a globally common content or look helps with some global strategies.

Functionality of Websites Beyond being transactional, other aspects of website functionality might affect globalization. We investigated several aspects and found that the companies in our sample currently make the most use of provides advertising and marketing, followed by provides detailed product information (Exhibit 7). When asked about European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

planned use in three years’ time, these two remained the top items, although provides detailed product information overtook provides advertising and marketing. The lowest uses were for offers competitor comparisons online and monitors online customer satisfaction. We also investigated whether these different functionalities helped with the implementation of various global strategies (by looking for significant and positive correlations between each functionality and each global strategy). We found that many website functionalities help to enable many global strategies. Certainly, none hurt. Lesson 9: The more multifunctional a company website, the more it enables globalization.

Effects of Internet Use on Global Performance Our fifth and last research question was whether use of the Internet improves a firm’s global performance. We used several measures of performance and asked about the effects of Internet operations on the firm’s global performance in terms of each measure. Exhibit 8 shows that the overall effect was positive, though moderate, at a mean of +.66 in a possible range from 2.0 to +2.0. All measures were on average positive, with brand awareness and brand image enjoying the greatest positive effects. Profitability enjoyed the least positive effect at +.25, market share enjoyed a below average gain of +.43, while sales enjoyed an average effect of +.65. Lesson 10: Use of the Internet improves all aspects of global performance, but more for brand and customer measures than for profitability. 9

USING THE INTERNET TO ENHANCE GLOBAL STRATEGY

1.2

collects data on consumer

3.7 1.5

offers competitor comparisons online

2.5 1.6

monitors customer online satisfaction

3.6 1.8

offers online support

3.9 1.9

offers accounting online

3.1

Now In Three Years

2.1

offers booking online

3.2 2.3

offers purchasing online

3.7 3.2

provides detailed product information

4.4 3.4

provides advertising and marketing

4.2 2.1

AVERAGE

3.6 1.0

2.0

3.0

4.0

5.0

Exhibit 7 Nature of Multinational Firm Websites

1.1

brand/company image

1.1

brand/company awareness 0.7

customer satisfaction customer retention

0.6

channel relationship

0.6 0.5

customer gain

0.4

market share 0.3

profitability

0.7

AVERAGE -2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Exhibit 8 Effects of Internet on Global Performance

Conclusions and Implications Our Study confirms that using the Internet does indeed help companies to globalize and to implement global strategies. We have drawn eleven lessons for managers from our findings. Perhaps the most important lesson is that the Internet helps companies be both global and local at the same time. Web design is also important, which means that managers responsible for globalization need to include Web designers on their global strategy teams. Competing in Internet time also means competing in Internet global space.

work Economy at London Business School for the funds that supported this study.

Appendix Research Methodology Our main research method was to collect data from large multinational companies in Europe and elsewhere worldwide using a specially designed questionnaire.

Acknowledgment

Questionnaire

The authors thank the Vice Chancellor’s Office at the University of Cambridge and the Centre for the Net-

A two-page questionnaire was developed on the following items:

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USING THE INTERNET TO ENHANCE GLOBAL STRATEGY

v The strength of specific globalization drivers for a designated industry in which the firm participates. v The percentage of industry and firm revenues now booked over the Internet. v The extent to which various firm activities make use of the Internet, now and in three years time. v The extent to which the firm uses various aspects of global strategy. v The extent to which the Internet makes it easier for the firm to use the same aspects of global strategy. v What the firm’s website does, now and planned for three years’ time. v Whether the website offers foreign languages, and whether it has a globally common look or content. v Effects of Internet operations on the firm’s global performance in terms of: revenue growth; profits; market share; channel relationships; customer satisfaction, gain and retention; and brand/firm awareness and image.

The additional questionnaires were reliably filled out by willing participants and had the benefits of increasing sample size and providing a late responses subsample that could be compared with the earlier ones.

The questionnaire was pre-tested on ten MBA students of several nationalities in a leading UK-based business school. Based on the students’ comments we made various amendments.

We found no significant differences in means at the 95% confidence level between early and late responders in terms of firm size, percent international, or use of the Internet (% of industry revenues booked over the Internet, % of firm revenues booked over the Internet, and overall firm use of the Internet for various value-adding activities. Therefore, we can conclude there is unlikely to be significant non-respondent bias.

Sample The targeted population was the 1000 largest international companies in each of the UK and Continental Europe, and the 500 largest companies in the United States. Given their size, these companies can all be considered incumbent firms, i.e., not Internet start-ups. The questionnaire was mailed to firm CEOs with requests to pass it on to the head of International Business if necessary. All returned questionnaires were filled out by senior managers: largely by CEOs, presidents, VPs, heads of strategy or heads of e-business who specified their position. A number of the mailings were returned as undeliverable (55 for the United Kingdom, 73 for Continental Europe, and 47 for the United States). A total of 79 completed surveys were received from the first mailing. A postcard reminder was sent two months after the first mailing and a further 26 surveys were received. After deducting the undeliverable addresses, our response rates were as follows: 4.1 % for the United Kingdom, 5.5% for Continental Europe, and 1.8% for the United States. Ten extra questionnaire replies were collected through an executive education program held at London Business School in March 2001. All ten responses were collected after the original deadline of the questionnaires and therefore classed as ‘late’ responses. The respondents came from a number of regions including those outside Europe and the United States. European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

Checking for Non-response Bias and Nationality Differences We checked whether responding companies might be significantly different from non-responding ones by comparing the responses of the sample that responded to the first mailing and the sample that responded to the reminder, a standard technique for inferring the differences between respondents and non-respondents. To the extent that there is a response bias, we should assume that our sample represents companies who make greater use of the Internet and/or have more interest in it. Therefore, any bias will be to report higher levels of use, etc., than might be the case in the total population of large international companies.

Similarly, we found no significant differences between the European and non-European samples in terms of the percent of industry revenues booked over the Internet (European 6.5% and non-European 6.7%), in terms of the percent of industry revenues booked over the Internet (European 4.3% and nonEuropean 4.8%), or in terms of overall firm use of the Internet for various value-adding activities. This lack of differences allowed us to combine all the observations in one larger sample.

Sample Characteristics Firm Nationality Most of the sample comprised companies headquartered in Europe (85%), as follows: Home Country of Firm

Number of Respondents

UK Germany Switzerland Portugal Belgium Italy Finland France Netherlands

42 15 9 7 5 4 3 3 3 (continued on next page) 11

USING THE INTERNET TO ENHANCE GLOBAL STRATEGY

Firm Interviews

(continued ) Home Country of Firm

Number of Respondents

Spain Sweden Austria Denmark Norway

2 2 1 1 1

TOTAL EUROPE

98 = 85%

USA South Africa Argentina China India Israel

10 3 1 1 1 1

TOTAL USA & OTHER

17 = 15%

TOTAL SAMPLE

115 = 100%

To complement the questionnaire data, we conducted interviews with the heads of Internet strategy of four large UK-based companies that had completed the survey: HSBC Group (banking), Royal & Sun Alliance (insurance), and TBWA/GGT Direct (advertising and media), and part of the TBWA group and Corus group (steel). We also reviewed a case study on a fifth firm (British Airways) that had participated in the survey (Anderson et al., 2001).

Analysis

Firm Size The size in annual revenues of the companies ranged from $0.5 million to $50 billion with a mean of $6.4 billion and a median of $2.0 billion. There was some variation in firm size by nationality. Non-UK European respondent companies reported the largest mean annual revenues ($9.3 billion) followed by US companies ($6.5 billion), UK ($3.1 billion), and Other ($2.4 billion). Percent International On average, international revenues accounted for 52.9% of total firm revenues, with a standard deviation of 26.2%.

We used various analytical techniques, including multiple regression and structural equation modeling. We report in this paper only the bivariate analyses such as correlations (significant at the 5% level, two-tail), but all the significant relationships have been confirmed in multivariate analyses.

Note 1. Evans and Wu¨rster (1999) argue that, unlike traditional bricksand-mortar companies, for very little money an e-business can provide a wide base of customers (reach) with access to a broad range of products (also reach), and detailed complete information about each product (richness). It can also collect huge amounts of information about each customer (richness again) and use it to sell more products and services.

References Industry Sectors The sample firms participated in a wide variety of industry sectors according to their own response descriptions and external follow up investigation. As most large global firms may be players in more than one industry, respondents were asked to specify the key industry for their firm activities. We then classified these industries using 2-digit Standard Industrial Classification (SIC) codes, combining some sectors where the sample was too small. The sample split as follows: # v v v v v

Chemicals and Pharmaceuticals Construction and Capital Goods Energy and Resources Finance and Property Logistics, Distribution and Transportation v Retail and Groceries v Technology, Media, and Telecoms TOTAL

12

%

13 17 15 22 17

11.3 14.8 13.4 19.1 14.8

12 19

10.4 16.5

115

100.0

Andal-Ancion, A.A., Cartwright, P.A. and Yip, G.S. (2003) The digital transformation of traditional businesses. Sloan Management Review 44(2), 34–42. Anderson, J., Parks, T. and Earl, M. (2001) British Airways: Transitioning to e-Business. London Business School. Bakos, Y. and Brynjolfsson, E. (1999) Bundling Information Goods: Pricing, Profits and Efficiency. Management Science 45(12). Evans, P. and Wu¨rster, T.S. (1999) Getting real about virtual commerce. Harvard Business Review 77(6), 84–95. Govindarajan, V. and Gupta, A.K. (2001) The Quest for Global Dominance. Jossey-Bass, San Francisco, Chapter 9. Johansson, J.K. and Yip, G.S. (1994) Exploiting globalization potential: US and Japanese Strategies. Strategic Management Journal 15, 579–601. Morrison, A.J. (1990) Strategies in Global Industries: How US Businesses Compete. Quorum Books, Westport, CT. Nadler, D.A. and Tushman, M.L. (1999) The organizations of the future: Strategic imperatives and core competencies for the 21st century. Organizational Dynamics 28(1), 45. Porter, M.E. (1986) Changing patterns of international competition. California Management Review 28(2), 9– 40. Syzmanski, M., Bharadwaj, S.G. and Varadarajan, P.R. (1993) Standardization versus adaptation of interna-

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tional marketing strategy: An empirical investigation. Journal of Marketing 57, 1–17. Yip, G.S. (1992) Total Global Strategy: Managing for Worldwide Competitive Advantage. Prentice-Hall, Englewood Cliffs, NJ.

GEORGE S. YIP, London Business School, Sussex Place, Regent’s Park, London NW1 4SA. Email: [email protected] George S. Yip is Lead Fellow of the UK’s Advanced Institute of Management Research and Professor of Strategic and International Management at London Business School. A prolific author, his most recent book is Total Global Strategy II (2003), an updated and prize—winning book from 1992. He has won both research and best teaching awards.

European Management Journal Vol. 23, No. 1, pp. 1–13, February 2005

Yip, G.S. (1997) Patterns and determinants of global marketing. Journal of Marketing Management 13, 153–164.

ANNA M. DEMPSTER, Birkbeck College, University of London, Malet Street, London WC1E 7HX. Email: [email protected] bbk.ac. uk Anna M. Dempster is Lecturer in the School of Management, Birkbeck College, University of London. Her research is broadly concerned with strategic innovation, including the evolution of Internet ventures in the UK, role of corporate announcements and real option evaluation of disclosure strategies.

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