Wednesday, September 17, 2003
The new transnational
Businessweek is carrying an interesting story on next stage of globalisation -- the emergence of the "stateless" transnational corporation. In effect, these are companies spread right across the world using every form of arbitrage to their competitive advantage.
What's different about these outfits -- call them transnationals -- is that even the executive suite is virtual. They place their top executives and core corporate functions in different countries to gain a competitive edge through the availability of talent or capital, low costs, or proximity to their most important customers.
C.K. Prahalad, a professor at the University of Michigan Business School, calls this the fourth stage of globalization. In the first stage, companies operate in one country and sell into others. Second-stage multinationals set up foreign subsidiaries to handle one country's sales. And the third stage involves operating an entire line of business in another country.
Among the companies profiled in the article is Wipro, with its twin headquarters in Bangalore and California, though I am not convinced Wipro fits the bill just yet.
For Wipro Ltd., there are clear pluses to locating sales in the U.S. and engineering in India. Wipro's vice-chairman, Vivek Paul, is based in Silicon Valley to be close to the mammoth U.S. market. At the same time, the company can underprice Western rivals because 17,000 of its 20,000 software engineers and consultants are in India, where the annual cost per employee is less than one-fifth that of Silicon Valley.
What's different about these outfits -- call them transnationals -- is that even the executive suite is virtual. They place their top executives and core corporate functions in different countries to gain a competitive edge through the availability of talent or capital, low costs, or proximity to their most important customers.
C.K. Prahalad, a professor at the University of Michigan Business School, calls this the fourth stage of globalization. In the first stage, companies operate in one country and sell into others. Second-stage multinationals set up foreign subsidiaries to handle one country's sales. And the third stage involves operating an entire line of business in another country.
Among the companies profiled in the article is Wipro, with its twin headquarters in Bangalore and California, though I am not convinced Wipro fits the bill just yet.
For Wipro Ltd., there are clear pluses to locating sales in the U.S. and engineering in India. Wipro's vice-chairman, Vivek Paul, is based in Silicon Valley to be close to the mammoth U.S. market. At the same time, the company can underprice Western rivals because 17,000 of its 20,000 software engineers and consultants are in India, where the annual cost per employee is less than one-fifth that of Silicon Valley.
