The aim of the strategy and management concept must be the organization of the internationalization process
Besides analyzing the ‘global footprint’ and its expected trends, GEXSO also examines concepts for a successful internationalization and aims to develop a solution for the controlled implementation of the globalization process. The status quo of a company already determines whether or not an international expansion makes sense. Therefore, the study focuses not only on expected trends but also on the mechanisms, for the organization, of the complex internationalization process. GEXSO gathers and classifies these internationalization mechanisms in categories such: as globalization model; strategy and governance; customer and market orientation; supplier management; flexibility; risk management, and; human resources, information and communication, for machinery and plant manufacturers, industry and automotive suppliers, and for industry component manufacturers.
This paragraph describes all globalization models that are currently implemented. International expansion is driven by the demand from foreign customers or from customer locations of companies, i.e. the customer base from the home region that impacts supply, or new customers from growth regions. GEXSO postulates an accelerated globalization process within the coming years due to increasing demand from emerging economic regions and the increasing number of international customers. This causes an increase of supply chain resource requirements in expansion regions. The interviewed companies currently still regard West and Central Europe, with 50 per cent of their customers, as their most important market. Whereas at least nearly 16 per cent of the customers still come from North America, 10.6 per cent come from East Asia and only 3.9 per cent from South America – both future expansion regions. 11.3 per cent of customers are from Eastern Europe which, concerning the supply chain, is thus equal to East Asia.
Looking at the different sectors, the production sites of the machinery and plant manufacturers are predominantly located in Central and Western Europe. However, their customers are less concentrated in Europe than those of the automotive suppliers: 48 per cent of the customers are located in their home region vs. automotive suppliers at 56 per cent.
Looking at production sites, the machinery and plant manufacturing industry is comparably less global than automotive suppliers – quite in contrast to their customer structure: For instance, 13 per cent of their customers come from East Asia whereas only 8 per cent of customers of the automotive supplier industry are located in this region.
The chart illustrates the different internationalization strategies of both industry sectors. The automotive suppliers have a more distributed and localized approach: Production sites and suppliers are not nearly as concentrated as they are within the machinery and plant manufacturing industry. Although the customers of the machinery and plant manufacturers tend to be located outside of their home region, compared to automotive suppliers this industry sector generally counts on suppliers and production sites that lie within their home region.
Although the automotive suppliers have more production sites and suppliers in different regions, their customers are mainly concentrated in Western and Central Europe. Sites within the home region are still more important compared to overseas sites.
From this perspective, the machinery and plant engineering sector operates more internationally even though its supply chain is more concentrated. As already demonstrated, half the customers of the participating companies are still located in Central and Western Europe. However, over a third of the companies state that more than half of their customers are already located outside of this region and according to the chart some companies in this sample rely even more on the markets in Eastern Europe and overseas.
The previous section discussed the development of production sites in different regions of the world. We examined the relationship between international production sites and sites in the home region, and gained insight into internationalization strategies of the examined industries, particularly in relation to their production capacities. The following figure illustrates the clearly linear correlation between the total number of production sites and the number of production sites that are located outside of the companies’ base region. The gradually ascending straight line demonstrates that companies of both industries, regardless of their size, consistently operate on average 63 per cent of their production sites outside of their home region. Therefore, with high statistical significance, the companies follow a similar strategy to globalize their production sites.
The sector-specific analysis also reveals differences. With equally high statistical significance, globalization of both industries progresses similarly. For every new plant in the automotive supplier industry 0.66 plants are built outside of the base region. In the machine and plant engineering sector this figure is only 0.43 (Caution: A number of points are accumulated in the chart). There is an apparent consensus about the adequate pace of and emphasis globalization between international and home locations, although machine and plant manufacturers act a little more conservatively, and put more emphasis on their home production base.
As originally expected by GEXSO, when looking at the ratio of production sites outside of the base region compared to the number of total production sites within the production network, the degree of globalization will increase in approximately 50 per cent of the companies within the next five years. Only four companies will have a decreasing globalization degree while all remaining companies will keep their globalization degree constant.
These findings confirm the lively progress of the globalization process in the machinery and plant engineering and the automotive supplier industry. The medium-term increase of new production sites is eleven per cent net and takes place primarily outside the home region. As a result, a large part of the interviewed companies experience an increased globalization degree of their production network.
Leadership principles and globalization model
GEXSO examines the participants’ leadership principles for internationalization. We asked about the degree of autonomy of individual national subsidiaries or international units in their decision-making processes for investments, product development, strategic purchases and marketing control. The results verify the companies’ centralized approach: according to the participants’ statements, approximately 81 per cent of investment budget decisions are made centrally, and 74 per cent of product developments are managed centrally. In 71 per cent of the companies, headquarters even decide all issues regarding purchases, and in 72 per cent of the companies they make all decisions concerning marketing control. On average, the interviewed companies in the machinery and plant engineering sector and the automotive supplier industry delegate little into local units. International branches are managed and coordinated primarily from the head quarters. At most, these branches are able to decide about only daily business operations. Significant elements of marketing control, purchasing and product development are controlled centrally. The picture is more differentiated with regard to the characteristics of company products: The proportion of companies is equal as to whether they produce their goods globally in a uniform manner (30 per cent) or allow for product variation in different markets (~32 per cent). The proportion of companies with customer-specific products is a little higher (37 per cent). Due to strongly-centralized approaches during business-critical decision-making processes, the participants of the GEXSO study primarily follow a global to international model. Multinational or transnational internationalization models are rather atypical. Only nine companies in the study significantly delegate important business decisions to national subsidiaries or deal with them on a regional level. With one single exception, investment budget decisions are made on a national or regional level. However, central decisions are made on this level too: for instance, product development is managed centrally in half of the companies with delegated decision-making processes. Generally, almost all interviewed companies manage at least one of the four key areas – investments, sales, purchases and product development – centrally.