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Foreign Affairs
The Globally Integrated Enterprise
Samuel J. Palmisano
SAMUEL J. PALMISANO is Chair of the Board, President, and Chief Executive Officer of IBM.
BEYOND MULTINATIONAL
The multinational corporation (MNC), often seen as a primary agent of globalization, is taking on a new form, one that is promising for both business and society. From a business perspective, this new kind of enterprise is best understood as "global" rather than "multinational."
The corporation has evolved constantly during its long history. The MNC of the late twentieth century had little in common with the international firms of a hundred years earlier, and those companies were very different from the great trading enterprises of the 1700s. The type of business organization that is now emerging -- the globally integrated enterprise -- marks just as big a leap.
Many parties to the globalization debate mistakenly project into the future a picture of corporations that is unchanged from that of today or yesterday. This happens as often among free-market advocates as it does among people opposed to globalization. But businesses are changing in fundamental ways -- structurally, operationally, culturally -- in response to the imperatives of globalization and new technology. As CEO and chair of the board of IBM, I have observed this within IBM and among our clients. And I believe that rather than continuing to focus on past models, regulators, scholars, nongovernmental organizations, community leaders, and business executives would be best served by thinking about the global corporation of the future and its implications for new approaches to regulation, education, trade, and commerce.
CORPORATE EVOLUTION
In its early forms, the corporation was a creature of the state. Governments chartered and sanctioned corporations to perform specific duties on behalf of the nation and its rulers. This changed somewhat during the nineteenth century, when the United Kingdom, the United States, and other countries granted company owners limited liability, and corporations gained a more liberated status as independent "legal persons."
The mid-nineteenth century saw the emergence of what can be called the international corporation. An entrepreneurial joint-stock company, organized in simple hub-and-spoke networks, it established and controlled international trade routes, often relying on its home state's armed forces for protection. In some industries, corporations used these routes to import raw materials (diamonds, rubber, tea, and oil) and export finished products (chocolate, soap, margarine, and other manufactured consumer goods). The basic structure of home-country manufacture and international distribution applied across almost every industry.
A second phase in the corporation's life began in 1914, with the conflagration of World War I and the subsequent collapse of economies in the United States and Europe. International corporations found their trade-based networks blocked. The spread of protectionism in the 1920s and 1930s led to the rise of tariffs, exchange controls, and other trade barriers. In response, businesses began to evolve into what is today recognized as the MNC. The MNC was a hybrid. On the one hand, it adapted to trade barriers by building local production. American MNCs such as General Motors and Ford, for instance, built auto plants in Europe and Asia, thus allowing them to sell to important local markets without incurring tariff penalties. On the other hand, the MNC ...