Globally Integrated Enterprise
Encyclopedia
The globally integrated enterprise is a term coined in 2006 by Sam Palmisano, CEO of IBM
Corp, used to denote a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production
and value delivery worldwide. State borders define less and less the boundaries of corporate thinking or practice.
model of the 19th century, most operations were centred in their home country, with only elements of sales and distribution happening overseas.
The multinational model of the 20th century—in which companies created small versions of themselves in each country—was a response to the trade barriers that arose after the World Wars. For IBM (Palmisano's employer), this was a successful model because it enabled the company to grow in those markets, understand local customer requirements and cultivate local talent. But it also created redundancy because each country had its own back-office functions (e.g. supply, procurement, finance and human resources).
Now the globally integrated enterprise can locate functions anywhere in the world, based on the right cost, skills and environment, argues Palmisano. (IBM now has one supply chain, for example.) This new organisational form has emerged because everything is connected, and work can move to the place where it is performed cheapest. The barriers that used to block the flow of work, capital and ideas are weakening.
Palmisano mentions the Law of Global Integration, driven by three forces—economics, expertise and openness—without explicitly stating what it is or how it can be verified.
of Roubini Global Economics (RGE) Monitor
wrote:
IBM
International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
Corp, used to denote a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
and value delivery worldwide. State borders define less and less the boundaries of corporate thinking or practice.
The Argument
Palmisano argues that in the internationalInternational
----International mostly means something that involves more than one country. The term international as a word means involvement of, interaction between or encompassing more than one nation, or generally beyond national boundaries...
model of the 19th century, most operations were centred in their home country, with only elements of sales and distribution happening overseas.
The multinational model of the 20th century—in which companies created small versions of themselves in each country—was a response to the trade barriers that arose after the World Wars. For IBM (Palmisano's employer), this was a successful model because it enabled the company to grow in those markets, understand local customer requirements and cultivate local talent. But it also created redundancy because each country had its own back-office functions (e.g. supply, procurement, finance and human resources).
Now the globally integrated enterprise can locate functions anywhere in the world, based on the right cost, skills and environment, argues Palmisano. (IBM now has one supply chain, for example.) This new organisational form has emerged because everything is connected, and work can move to the place where it is performed cheapest. The barriers that used to block the flow of work, capital and ideas are weakening.
Palmisano mentions the Law of Global Integration, driven by three forces—economics, expertise and openness—without explicitly stating what it is or how it can be verified.
Criticisms
Brad SetserBrad Setser
Brad Setser is an American economist and blogger. A former staff economist at the United States Department of the Treasury, he worked at Roubini Global Economics Monitor, along with Nouriel Roubini...
of Roubini Global Economics (RGE) Monitor
RGE Monitor
Roubini Global Economics or RGE , is a global economic and financial analysis firm based in New York City. The company also has offices in Asia and Europe.-History:...
wrote:
- 'In my view, this underscores a key element of tension in America’s current backlash against globalization that was not evident in the late 1980s. Today, the pressures are being borne disproportionately by labor, whereas 20 years ago, capital and labor were in the struggle together. In the late 1980s, many of the once proud icons of Corporate America were fighting for competitive survival at the same time that US workers were feeling the heat of global competition. The pain was, in effect, balanced. Today, US companies, as seen through the lens of corporate profitability, are thriving as never before while the American workforceWorkforceThe workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
is increasingly isolated in its competitive squeeze. In essence, capitalCapital (economics)In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
and labor are working very much at cross purposes in the current climate, whereas back in the late 1980s they were both in the same boat.'
Sources
- The Economist (4 April 2007)
- Samuel J. Palmisano. The Globally Integrated Enterprise. (Foreign Affairs, May/June 2006) http://www.ibm.com/ibm/governmentalprograms/samforeignaffairs.pdf
- Criticisms of the paper on Economist's View blog
- Comment on Palmisano's proposal from the IT industry
- And again
- And again
- Approbation from the Dean of Cheung Kong Business School