LOOKING TO THE FUTURE
LOOKING TO THE FUTURE International geographic expansion is a two-tiered consideration: How much of a firm's sales and production should be outside its home country? Of that outside, how should sales and production be allocated among countries? As yet there is no comprehensive model to answer these questions, and perhaps differences among companies and dynamic environmental conditions make such a model impractical. Meanwhile, companies are simply apt to place more emphasis on certain areas of the world than on other areas as they see opportunities evolving. Typical of this was a prediction by Procter & Gamble's CEO in 1989 that more than half of P&G's sales would flow from outside the United States within the next few years, up from just 27 percent in 1985, while sales would grow more rapidly in the Far East than elsewhere.45
For large U.S. firms, an intriguing question is whether they are approaching an optimum ratio between domestic and foreign operations. Some data suggest that they are.46 For about a three-decade period beginning in the early 1950s, most large U.S. firms seemed to embrace a concept that "more is better" when it came to international business. This emphasis was perhaps inevitable inasmuch as most firms were starting from such a low base of international dependence. Yet the advantage of "more is better" should hold only until a firm reaches some optimum combination of domestic to foreign operations. Otherwise companies would continue to improve their performance until they had no domestic operations at all—not a logical situation. If some companies are approaching their optimum position, we should expect those companies to grow domestically and internationally at about the same rate in the future.
The need to allocate among opportunities because of insufficient resources is liable to play an even more important role in the near future. The opening up of Eastern bloc economies, the global move toward privatization, and the more liberal allowance of majority ownership have combined to create more opportunities from which to choose. At the same time companies have not increased their resource bases concomitantly to take advantage of all these new opportunities. Furthermore, the problems of many companies in the late 1980s and early 1990s that had overextended their debt positions, particularly with leveraged buy-outs, might further inhibit their unrestricted international expansion.
Data availability should continue to improve so that global environmental scanning will assume an ever greater importance. The need for information will be important, because of competitors going global and because of economic and political volatility. However, the information explosion will present new challenges in timely analyses that may necessitate an even greater reliance on tools that reduce alternatives under consideration.
For large U.S. firms, an intriguing question is whether they are approaching an optimum ratio between domestic and foreign operations. Some data suggest that they are.46 For about a three-decade period beginning in the early 1950s, most large U.S. firms seemed to embrace a concept that "more is better" when it came to international business. This emphasis was perhaps inevitable inasmuch as most firms were starting from such a low base of international dependence. Yet the advantage of "more is better" should hold only until a firm reaches some optimum combination of domestic to foreign operations. Otherwise companies would continue to improve their performance until they had no domestic operations at all—not a logical situation. If some companies are approaching their optimum position, we should expect those companies to grow domestically and internationally at about the same rate in the future.
The need to allocate among opportunities because of insufficient resources is liable to play an even more important role in the near future. The opening up of Eastern bloc economies, the global move toward privatization, and the more liberal allowance of majority ownership have combined to create more opportunities from which to choose. At the same time companies have not increased their resource bases concomitantly to take advantage of all these new opportunities. Furthermore, the problems of many companies in the late 1980s and early 1990s that had overextended their debt positions, particularly with leveraged buy-outs, might further inhibit their unrestricted international expansion.
Data availability should continue to improve so that global environmental scanning will assume an ever greater importance. The need for information will be important, because of competitors going global and because of economic and political volatility. However, the information explosion will present new challenges in timely analyses that may necessitate an even greater reliance on tools that reduce alternatives under consideration.
Comments
Post a Comment