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Thursday 05 May 2011

Automotive industry: Corporate culture and internal networks are key to coordinating international activities

• According to a new study by Roland Berger Strategy Consultants and
   ESCP Europe Business School Berlin, coordinating international
   development, production and marketing activities are key to success
   in the automotive industry
• Development, production and marketing are taking place more and more
   at a global level
• This means that corporate culture and internal corporate networks are
   playing an increasingly important role
• Corporate culture must reflect the balance between globalization and
   localization

Increasing globalization in the automotive sector is forcing companies to spread their core competencies in development, production and marketing across borders. Comprehensive coordination of international value chains is therefore becoming a critical success factor for the industry. This is the finding of a study entitled "How automotive companies successfully coordinate their activities across borders". Conducted by Roland Berger Strategy Consultants together with ESCP Europe Business School Berlin, the survey looked at 95 automotive manufacturers and suppliers.

"The international competition in the automotive industry is getting tougher every day. Companies are therefore faced with the major challenge of optimizing their global value chains," explains Wolfgang Bernhart, Partner at Roland Berger Strategy Consultants and co-author of the study. The study analyzed six methods of successfully coordinating international activities: centralizing/decentralizing decision-making processes, direct personal control, formal coordination, output control, social networks and informal communication. "Automotive companies that wish to implement successful strategies abroad should carefully consider all of these alternatives," advises Professor  Stefan Schmid, Chair of International Management and Strategic Management at ESCP Europe Business School Berlin and co-author of the study. "Companies must find the appropriate combination of these methods in order to function smoothly and be globally competitive."

The successful coordination mix
The optimal coordination mixes for the individual functional areas ultimately require applying all six methods to some degree. However, the company sets a specific focus for each area. For example, the optimal mix in production focuses on formal coordination and output control. In contrast, the ideal coordination of marketing activities emphasizes direct personal management and output control. In development, output control is given priority. However, the study also showed that along with these function-specific approaches, corporate culture and internal networks also play key roles in the coordination mix.

Fostering corporate culture and networks
"To achieve success internationally, a strong corporate culture among the employees is indispensable," explains Bernhart. "A major part of this is formed by internal company networks, as they make it possible for employees to share information and opinions independent of their functions."

Companies can foster this communication outside the established hierarchies and across all divisions and departments by setting up cross-functional teams, for example. This means that employees from different departments work together on certain projects. Regularly rotating managers through various departments and locations would also contribute to efficient networking in the company. In this way, automotive companies can develop a corporate culture shared by all employees: shared values, visions or mission statements are of particular importance here.

Corporate culture – global and local
"International automotive companies are faced with an enormous task: on the one hand, they have to develop an understanding of the local markets to be successful there. On the other hand, they have to retain a global perspective and create a culture that unifies the company worldwide," says Philipp Grosche, Research Assistant at ESCP Europe Business School Berlin and co-author of the study.

In other words, the goal is not to export the parent company's culture to its affiliates or subsidiaries around the world (ethnocentric approach). Nor is it to allow each local subsidiary its own corporate culture (polycentric approach). Instead, each country's cultural features should be blended into a common corporate culture, accepted and practiced by all employees (geocentric approach). For example, corporate goals can be formulated jointly and communicated to the units around the world using various channels, such as newsletters, reports or a website. Similarly, internal promotional campaigns and incentives can help employees spread the corporate values and goals within the company.

Download the study for free at: http://www.rolandberger.com/pressreleases or http://www.escpeurope.de/imsm

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