Globalization: A Different View Of The Business World

Globalization: A Different View Of The Business World

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By Ellen Pearlman Strategic Thinker: Pankaj Ghemawat Credentials: Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona and the Jaime and Josefina Chua Tiampo Professor of Business Administration (on leave) at the Harvard Business School; former consultant with McKinsey & Co.; has done extensive research and writing about globalization and global strategy for the last decade. Big Idea: The world is "semiglobalized" not flat, and borders do matter Book: Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter, published by Harvard Business School Press, September 2007 Blog: What in the World Globalization has become a popular topic for business books. The rate of increase in books about globalization from the mid-1990s to 2003 more than doubled every 18 months, "surpassing the celebrated Moore's Law," declared Pankaj Ghemawat in his latest book on the subject, Redefining Global Strategy. Of course not all of those books attracted significant attention, only the ones that envisioned a "globalization apocalypse," said Ghemawat. As you may have guessed, Ghemawat's thinking on globalization differs sharply from one of the more recent best-sellers on the subject (Thomas L. Friedman's 2005 book, The World is Flat). Friedman believes that technological innovation has removed many of the barriers that limited lots of businesses to a local playing field. But Ghemawat argues that the differences between countries are still significant and are actually "larger than generally acknowledged." He believes that "semiglobalization" is the "real state of the world" now and for decades to come. In this view of the world, "business decisions cannot be made on either a country-by-country basis or on the one-size-fits-all-countries basis." And the right business strategy is neither one that relies on local customization nor on global standardization, or for that matter one that compromises between those two extremes. Instead, he believes that companies must compete in an integrated way that doesn't ignore country differences or give into them. Throughout the book Ghemawat presents tools to help readers operate cross borders. The first is one he calls the CAGE framework-which can be used to measure the differences between countries and to help users understand which differences matter the most in their particular industry. The four components of the CAGE framework are cultural, administrative, geographic and economic differences. The CAGE framework can be used to accomplish specific objectives, namely: making differences more visible, understanding the liability of being a foreign entity in a local market, comparing foreign competitors, comparing markets, and assessing markets taking into account the impact of distance. Unlike many books on globalization, this one does not assume out of hand that all companies need a global strategy. Rather, Ghemawat says that companies first need to consider their answer to the important question: Why globalize at all? Most reasons given for going global are not reasons at all, he says, but slogans (such as, "bigger is better"). Such a serious question deserves serious analysis. Unfortunately, not enough attention is given to scrutinizing why global companies are successful. Too often, asserts Ghemawat, analysts and the media pay too little attention to what really created economic value for the company in question. It may turn out that the company's current business triumph may have little to do with its international expansion. Again, Ghemawat provides a tool—the ADDING Value Scorecard—to help companies assess whether a particular strategic move makes sense. In other words, will it add value to the business both locally and globally. The acronym stands for Adding volume, or growth; Decreasing costs; Differentiating or increasing willingness—to—pay; Improving industry attractiveness or bargaining power; Normalizing (or optimizing) risk; and Generating and deploying knowledge (and other resources and capabilities. And, finally, Ghemawat has one more tool to help companies deal with cross-border differences; it's called the AAA triangle (which stands for adaptation, aggregation and arbitrage). His adaptation strategies are designed to help companies adjust to differences across borders; aggregation strategies are designed to help companies overcome some country differences by grouping them based on similarities; and his arbitrage strategies seek to profit from some of these national differences rather than treating them as constraints. While there are countless global strategies a company could pursue—and Ghemawat spends a lot of time analyzing the failures and successes of global companies—he wisely points out, "Nobody has yet figured out the optimal way to organize a complex global company, but much can be learned from looking at leading—edge companies." Ghemawat's thoughts about globalization are not limited to his papers and books on the subject, he also has a blog, What in the World, where he updates his views on this complex subject. On December 26, 2007, his blog entry "Globalization's Year of Turbulence and Uncertainty," suggested three things that businesses can do in 2008 as they plan their global strategies: "Plan for bumps and shocks in making your strategic plans—in a way that takes things down to the industry and company level. Most shocks vary greatly across industries and companies in their effects, in ways that greatly reduce the usefulness of modeling them in a generic way. For instance, global warming looks very different from the perspective of a financial investor, a construction firm, an automaker (whose reaction would also depend on its focus on large vs. small cars) or a potential supplier of cleaner energy. Focus on the risks and questions that are most likely to affect your company, and how they are actually likely to do so. "Envision multiple possible futures, instead of simply trying to predict the next bump or shock. For instance, instead of trying to predict whether globalization will continue or deglobalization will occur, you might want to think through your strategy with both scenarios in mind. This stretches thinking in a way that simply trying to predict the future and then picking the strategy option most suited to that prediction does not. "Recognize the value of options in an uncertain world. Strategy options often vary greatly in their "learn-to-burn" ratios-the rate at which they generate information about which scenario will come to pass versus the rate at which they commit resources to particular scenarios. Once you take this kind of option value into account, it opens the door to additional strategic possibilities: e.g., mixed supply chains (rather than complete offshoring or onshoring), toeholds as ways of exploring new markets and, more generally, sequenced strategies." To read the full blog posting go to: http://discussionleader.hbsp.com/ghemawat/ Reprinted by permission of Harvard Business School Publishing. Excerpt from Pankaj Ghemawat's "What in the World" blog on HarvardBusiness.org. Also of interest: 1. "Making People Decisions in the New Global Environment," by Claudio Fernandez-Araoz (partner at executive search firm, Egon Zehnder International), Fall 2007, MIT Sloan Management Review. This article explores how to attract the best global talent.  2. "The Innovative Organization: Creating Value Through Outsourcing," by Steven Tadelis (Associate Professor, Haas School of Business), Fall 2007, California Management Review. This article offers a framework for identifying the hidden costs of outsourcing.  3. "The 2008 BCG 100 New Global Challengers: How Top Companies from Rapidly Developing Economies Are Changing the World," The Boston Consulting Group, December 2007 report. To read an excerpt or order the full report, go to:http://www.bcg.com/impact_expertise/publications/publication_list.jsp?pubID=2495 CIOZone Question: What do companies have the most trouble with as they pursue global strategies? Post your thoughts below.