Borders are so 20th Century

When the first reports surfaced at 12:17 pm Pacific Time on August 11 that the Blaster computer virus was on the loose, researchers at antivirus-software company Trend Micro (TMIC ) Inc. scrambled to come up with a fix. Meanwhile, the company’s five global alert commanders began sizing up Blaster via cell-phone calls and e-mails. At 1:55 pm, Hammud Saway, the commander based in Japan, declared a global alert, signaling that this virus was nasty enough to require all the company’s resources. Just 51 minutes later, a cure was ready. The company routinely is among the first responders to viruses, often delivering 30 minutes before market leader Symantec (SYMC ) Corporation, according to GEGA IT-Solutions in Germany, a response tester. 

Trend Micro is able to respond so quickly partly because it’s not organized like most companies. It has spread its top executives, engineers, and support staff around the world to improve its response to new virus threats–which can start anywhere and spread like wildfire. The main virus response center is in the Philippines, where 250 engineers are willing to work the evening and midnight shifts necessary to keep ever-vigilant. Then there are six other labs scattered from Munich to Tokyo. “With the Internet, viruses became global. To fight them, we had to become a global company,” says chairman Steve Chang, a Taiwanese who started the company in 1988.

Trend Micro is among a new breed of high-tech companies that’s defying conventional wisdom about how corporations ought to operate. While most large companies have extensive worldwide operations, these companies go much further–aiming to transcend nationality altogether. C K Prahalad, a professor at the University of Michigan Business School, calls this the fourth stage of globalization. In the first stage, companies operate in one country and sell into others. Second-stage multinationals set up foreign subsidiaries to handle one country’s sales. And the third stage involves operating an entire line of business in another country.

What’s different about these outfits–call them transnationals–is that even the executive suite is virtual. They place their top executives and core corporate functions in different countries to gain a competitive edge through the availability of talent or capital, low costs, or proximity to their most important customers. Trend Micro’s financial headquarters is in Tokyo, where it went public; product development is in PhD-rich Taiwan; and sales is in Silicon Valley – inside the giant American market.

When companies fragment this way, they are no longer limited to the strengths, or hobbled by the weaknesses, of their native lands. “This is very new, and it’s important,” says Prahalad. “There’s a fundamental rethinking about what is a multinational company,” he says. “Does it have a home country? What does headquarters mean? Can you fragment your corporate functions globally?”

There has long been talk of the stateless corporation–BusinessWeek even ran a cover story on it in 1990. Yet the dispersal of key corporate functions takes the idea one step further, and it’s made possible by advances in technology, especially the Internet. Harvard Business School Professor Christopher A Bartlett says improved communication is allowing an evolution toward “an integrated global network of operations”. To deal with the gaps between time zones and cultures, these tech transnationals operate like virtual computer networks. Thanks to the Internet, they can communicate in real time via e-mail, instant messenger, or Web videoconferencing. Over time, these scattered experiments could coalesce into a powerful new model for business. Bartlett and other management experts say the strategy of truly globalizing core corporate functions is applicable for all kinds and sizes of companies.

Tech’s transnationals are popping up all around the world. They range from business-intelligence-software maker Business Objects (BOBJ ) with headquarters in France and San Jose, California, to Wipro (WIT) a tech-services supplier with headquarters in India and Santa Clara, California, to computer-peripherals maker Logitech International (LOGI ) with headquarters in Switzerland and Fremont, Calif. While no one tracks the numbers, BusinessWeek interviewed executives at a dozen such companies, and new ones keep popping up. For instance, 24/7 Customer, a business-services provider with headquarters in Los Gatos, California, and Bangalore, India, just raised $22 million from Silicon Valley venture capitalists.

Running a transnational company is a tough management challenge, though. Executives are separated by oceans and time zones, making it difficult to maintain basic communications and routines that old-style companies take for granted. Then there are the cultural chasms. “The curse is that national cultures can be very different,” says Trend Micro’s Chang. “We have to figure out how to convert everybody to one business culture–no matter where they’re from.” That’s why Chang is visiting the company’s 20-plus sites and laying out a set of common values. Chang, who learned to do magic tricks when he performed at his parents’ bowling alley in Taiwan during his youth, breaks the ice by performing sleight-of-hand with cards or coins.

In spite of the complexities of spanning the globe and a sluggish economic environment, most of these tech transnationals have been delivering outstanding financial results. Of the dozen companies BusinessWeek studied, the average revenue increase last year was 25.4%, vs. a 4% decline for the overall tech industry, says market researcher
IDC.

These companies use geo-diversity to great advantage. Logitech, for instance, has placed its manufacturing headquarters in Taiwan to capitalize on low-cost Asian manufacturing. Meanwhile, its business-development headquarters in Europe has lined up strategic partnerships that have kept the company at the cutting edge of peripherals design, particularly for optical pens and mice. That has helped Logitech hold its own against mighty Microsoft (MSFT ) in worldwide markets for peripherals.

For Wipro, there are clear pluses to locating sales in the US and engineering in India. Wipro’s vice-chairman, Vivek Paul, is based in Silicon Valley to be close to the mammoth US market. At the same time, the company can underprice Western rivals because 17,000 of its 20,000 software engineers and consultants are in India, where the annual cost per employee is less than one-fifth that of Silicon Valley.

There are even some unintended benefits from operating transnationally. To collaborate smoothly in spite of the geographic barriers, all of the Wipro managers file electronic activity reports with their superiors on Monday, who in turn pass them along, via e-mail, until summaries reach Paul, who travels nearly constantly. Not only does Paul stay plugged in wherever he is, but the report process “steps up the pace of the organization,” he says.

This next big step in globalization won’t be steady–or fast. Expect startups to experiment with new ways of operating, and a few innovative established companies to tinker with their geographic organizations. But being transnational requires fundamental and difficult shifts for the giants that might not be worth the trouble. Often, the transformation requires a unique leader–and extremely flexible business unit managers. Still, given the necessity to exploit new markets and to operate ever more efficiently, the pressure won’t let up to create something approaching a corporation without a country. 

By Steve Hamm in New York in BusinessWeek. Copyright 2003 by The McGraw-Hill Companies, Inc

Tech’s Transnationals

A group of tech industry companies are taking multinationalism to extremes spreading key headquarters functions around the world–in an effort to be more competitive. Here’s a sampling:

Trend Micro

Having a computer-virus response center in low-cost Manila and six smaller virus-response labs scattered around the globe allows this
Taiwanese/American/Japanese company to guarantee delivery of innoculations against major viruses in less than two hours. No rival virus company has such international reach.

Logitech International

With dual headquarters in Switzerland and Silicon Valley, Logitech holds its own against mighty Microsoft in computer peripherals. One key advantage: the top manufacturing exec is in low-cost Taiwan. That helps Logitech make quick decisions about whether to manufacture products at its Chinese factories or farm them out.

Wipro

The company’s vice-chairman is in the US so he can schmooze clients in the largest market for its technology services. But 17,000 of its 20,000 engineers and consultants are in India, where annual cost per employee is less than one-fifth that of Silicon Valley.

Cognos

The Canadian/American company’s international orientation has changed the way it makes software. In the past, it released different versions for each country. This month it will ship business software, designed for multinational customers, that includes all of the major languages, plus data on local currencies and tax regulations.