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IBM: A Study of the Business Strategies Used

When IBM first stated to expand internationally before Palmisano was there and it did so in the classic international pattern of many enterprises. IBM during that time undertook most of its activities from home and sold most of its products internationally through overseas sales offices. But Palmisano joined IBM in 1972 and it moved away from that model during that time. It moved to a classic multinational enterprise. A multinational organization or corporation owns or controls the production of goods and services in one more countries other than home country, They are usually Registered in one country but have operations in more than one country. Multinational companies engage in many different things in foreign countries. The import goods and services to foreign countries, Make significant investments in foreign countries, Buy and sell licenses in foreign markets, engage in contract manufacturing, and open manufacturing facilities in foreign countries. IBM wanted to use that model because many markets were still segmented from each other by high barrier trades. There were also national differences in Business that required considerable localization. I think that IBM was established this way because they wanted to open their barriers into the foreign market and try and expand their operations since the developing countries didn’t have much of a Market they were supposed to be helped by that strategy the adapted under Palmisano. There are some advantages for multinational and some disadvantages as well. IBM was focused more on the advantages than the disadvantages of multinational another reason they went into that direction as well. Some advantages of it are that it creates jobs, wealth and prosperity. Minimum standards are also enforced in that particular orientation as well an example of this is if you go to another country and you visit Starbucks in that other country you can be certain that they will offer you something familiar for what you are used to. The economy in the foreign countries will be better due to the job creation that is happening.

Over that past few decades IBM moved away from the multinational model and was moving toward to the Palmisano characteristics which could be referred to a global integrated enterprise. A way to summarize that was that they were locating their work and operations anywhere in the world based on the economics, expertise and where the world is based on economics, expertise and the right business environment. They were integrating those operations horizontally and globally. They had separate supply chains in separate markets. They claim they now have a global supply chain as well. The R and D was global for many years. Their research and software development was carried out in many labs across the world. Their professional services businesses were used to think of human capital. In the terms of countries, regions and business units they manage and deploy them as one global asset. There were some things that also left IBM to do this shift change, the Globalization of the world economy, the global nature of many IBM customers, and the emergence of fierce competition in markets that are in India and China. An really good example of this is India, India has a trio of outsourcing firms. Tata consulting firms, Infosys and Wipro stated to take all of IBM’s core information technology service business. People in India enjoyed an advantaged based on large supply of highly educated but relatively inexpensive engineering and managerial talent. IBM had to develop a different model to compete with them.

In the mid 2000’s IBM bought Daksh which was an Indian firm that was a smaller version of India’s big three information technology service firms. IBM had invested heavily in an Indian unit and built it into a large global business and it was leading the market share that now competes effectively on cost and quality against its Indian rivals. The motivation for expanding into places like India is to gain access to low cost labor. IBM can also find a large supply of highly skilled people in India. They could staff in global service operations and move seamlessly around the world. The people in India also have a handle of speaking English as well. IBM had to locate their work and operations anywhere in the world based on the economics, expertise and where the world is based on economics, expertise and the right business environment. They were integrating those operations horizontally and globally. They had separate supply chains in separate markets. They claim they now have a global supply chain as well. The benefits to their model is the low coast basically and that is why IBM is heavily into places like India. Palmisano said that IBM is early in the journey in becoming a integrated global enterprise. They are trying to help produce managers and engineers who see themselves as global professionals and global citizens.

IBM is pursuing a transnational strategy. A transnational strategy is trying to simultaneously achieve low costs. They do it through location economies, economics of scale, and learning effects. I noticed that IBM was trying to enter India because it wanted lower costs. Companies that use transnational strategies do it through location economics, economics of scale and learning effects. IBM was trying to differentiate their product as well by product offering across geographic markets to account for local differences. They were trying to fight their competition in India which was Tata consulting services, Infosys and Wipo. On example of a company that is running this strategy is Caterpillar Inc. To deal the pressures of cost Caterpillar redesigned its products to use many identical components. The companies that want to abide by this strategy think that they are going to do good. Once they reduce the costs they think that they would do a good job. IBM is trying to use many strategies like this to reduce the costs.

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