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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.

The Argument

Palmisano argues that in the international 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 done best. 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 Setser of Roubini Global Economics (RGE) Monitor 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 workforce is increasingly isolated in its competitive squeeze. In essence, capital 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.'

Others dislike the implied 'feudalism':

'My reading of the article is little more than a self-congratulatory positioning of the "modern" corporation as a middleman managing customer relationships on the one side and globally supplied commodity services on the other, and passing this off as a principal mode of "creating value". Of course the things enabling this role are protection of "intellectual property", and "global security" (globally harmonized legislation and enforcement of your rights and your subjects' obligations). There is indeed a bit of a feudalist whiff to it. There was one statement towards the end catching my attention—"A third challenge will be to figure out how to maintain trust in enterprises based on increasingly distributed business models." I say, good luck, Mr. Palmisano.' But what organizational structure does a globally integrated enterprise fit into: matrix, functional, product, etc.?

See also

Sources

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