be that the foreign subsidiaries are younger and also that at the time these firms’ in-
ternational telecommunications were established, communications costs were higher,
making it more economic to have local processing support. In comparing service and
manufacturing firms, Kane found that 66% of the multinational manufacturing firms
had decentralized data processing, while only 33% of the service firms were decen-
tralized. Eleven percent of the manufacturing firms had centralized data processing,
while 52% of the service firms were centralized. These patterns in organizing tech-
nology support probably reflect the differences in needs between service and manu-
facturing firms; manufacturing must have its technology close at hand, while service
firms can afford to have it provided remotely.
28.2 FACTORS DRIVING THE USE OF IT IN THE MULTINATIONAL COMPANY. A
variety of factors have made the use of IT a key ingredient in the successful multi-
national firm. As Hammer^8 notes, the basic for managerial decision making in the
past was to minimize cost or to achieve economies of scale in production. Now, prod-
uct or service quality, ability to respond quickly to customer needs, and reduced time-
to-market are as important as cost. Six factors have made the use of IT particularly
attractive for international firms in pursuit of these goals.
(a) Global Markets. With improvement in data communications (increased data
rates, improved quality, and reduced costs) and in international transportation, along
with a general lowering of international tariffs, markets have become more global.
This tendency becomes pronounced as regional markets develop (for example, the
EC) and with political changes in Eastern Europe. King and Sethi^9 have noted that
increases in global trade have been followed closely by rapid growth in service trans-
actions, international monetary transactions, and foreign direct investment. In this
environment, IT becomes one of the key factors that determines success.
In global markets, firms tend to locate production close to the most effective labor
pool, close to raw materials, or to take advantage of government regulations. A key
problem for firms operating globally is coordination. IT and particularly data com-
munication can be used to exchange information resulting in improved coordination.
For example, Banker’s Trust Corporation uses an integrated office system to better
coordinate the activities of their Asia Pacific Division. With the system, the time to
craft and receive approval on financial proposals was reduced on average from 15 to
3 days.^10
(b) Timeliness. As McFarlan^11 notes, the required response time for firms operating
in global markets is shrinking dramatically. Companies in the automobile and con-
struction industries have been able to reduce their design cycles by upwards of 60%
through the use of a combination of automated design equipment (CAD) directly
connected to the systems of their suppliers and customers (see section 28.5(a)(i), “In-
terorganizational Systems”). McFarlan reports that a $30 million investment in man-
ufacturing and information technology by a U.K. chemicals company transformed
what had been a 10-week order entry and manufacturing cycle down to two days.
28.2 FACTORS DRIVING THE USE OF IT IN THE MULTINATIONAL COMPANY 28 • 7(^8) Hammer, 1990.
(^9) King and Sathi, 1992.
(^10) Turner, 1986.
(^11) McFarlan, 1992.