The Indian economy has undergone a radical shift both structurally and operationally since the economic reforms introduced by the Government of India in 1991. In this era of cutthroat competition, where scale and competence have become the buzzwords, the companies have realized the need to grow beyond the local boundaries where the resources are depleting fast, customers are becoming more demanding , markets increasingly competitive and inter firm rivalry turning hostile. Globalization seems to be a panacea for the companies as they wrestle to gain competitive advantage. The recent spurt in the M&A activities by Indian companies is a testament to this fact. Despite the recent financial meltdown, the pressure on firms to globalize their foothold is building up, thanks to the glorification of being global by media and even the investors. The inevitability of this fact might even make the best of the corporate strategists to overlook the mistakes committed by even the most celebrated companies in the past. The German auto giant Daimler-Benz and the US auto behemoth Chrysler, merged to reap the promised benefits which might arise out of the common supply chain integration. But they were unable to acknowledge the fact that they were different in almost every respect be it culture, operating practices or the procurement of materials. The end result Jurgen Schrempp the mastermind behind this deal had to resign under shareholders pressure and Chrysler ultimately got sold out to the private equity giant Cerberus.
In an attempt to outsmart the rival companies by gaining economies of scale and scope, sometimes managers seem to overlook the vital questions that
• Whether there are potential benefits arising out of the deal?
• Will the arising profits surpass the costs involved?
• Does the management have the necessary expertise and experience to successfully execute the deal?
Just because a strategy has worked for a particular company or industry, doesn’t make it imperative that it will work for the company too. Ben Q, the Taiwanese electronics giant like several Japanese companies in order to venture into foreign markets, entered into a deal with the German mobile manufacturer Siemens AG, creating one of the world’s largest mobile handset makers BenQ Mobile, in order to create a global brand name, and access to Siemens superior R & D and access to European markets. But the incompatible cultures, different work practices , lukewarm product response, poor sales and recurring losses forced BenQ Mobile to file for bankruptcy. The myopic view of the strategists created serious problems for the parent company. To circumvent increasing local competition and to realize economies of scale, even companies in the formerly fragmented and localized industries like retail, consumer banking and insurance, are relying increasingly on globalization. In some cases this has done little or no good to the merging entities. Companies fail to acknowledge the fact that even the global customer has distinct needs and customization rather than standardization is what a customer expects out of a contact. It’s no wonder that even companies like Wall Mart, McDonalds and FedEx had to amend ways and acknowledge the fact that company need to reconfigure even their “prized strategies” as they ventured into diverse geographical markets. I do not intend to mean that globalization strategies are flawed. There are innumerous path breaking stories where company’s prized handsome returns, but the need of the hour is that the companies involved must not forget what their core competencies are i.e. what are they best in and whether apart from theoretical on-paper benefits what will be the realizable practical returns a company can gain out of it.
