A fundamental shift is occurring in the world economy. We are moving rapidly away from a world in which national economies were relatively self-contained entities, isolated from each other by barriers to cross-border trade and investment; by distance, time zones, and language; and by national differences in government regulation, culture, and business systems. And we are moving toward a world in which barriers to cross-border trade and investment are tumbling; perceived distance is shrinking due to advances in transportation and telecommunications technology; material culture is starting to look similar the world over; and national economies are merging into an interdependent global economic system. The process by which this is occurring is commonly referred to as globalization.
Correspondent: Globalization has been one of the most important factors to affect business over the last twenty years. How is it different from what existed before? Companies used to export to other parts of the world from a base in their home country. Many of the connections between exporting and importing countries had a historical basis. Today, to be competitive, companies are looking for bigger markets and want to export to every country. They want to move into the global market. To do this many companies have set up local bases in different countries. Two chief executives will talk about how their companies dealt with going global. Percy Barnevik, one of the world’s most admired business leaders when he was Chairman of the international engineering group ABB and Dick Brown of telecommunications provider Cable & Wireless.
Cable & Wireless already operates in many countries and is well-placed to take advantage of the increasingly global market for telecommunications. For Dick Brown globalization involves the economies of countries being connected to each other and companies doing business in many countries and therefore having multinational accounts.
Dick Brown: The world is globalizing and the telecommunications industry is becoming more and more global, and so we feel we’re well-positioned in that market place. You see currency markets are more global tied, economies are globally connected, more so nowadays with expanded trade, more and more multinational accounts are doing business in many, many more countries. We’re a company at Cable & Wireless now, well-positioned to carry the traffic and to provide the services to more and more companies that now need to get to five countries or twelve countries, we’re often there.
Correspondent: When Percy Barnevik became head of the international engineering group ABB, his task was to make globalization work. He decided to divide the business into over a thousand smaller companies. In this way he believed the company could be both global and local. In answering the question “How do you make globalization work?”, Percy Barnevik describes the “global glue” that keeps the many different people in ABB together. He then looks at the need to manage the three contradictions of company: it is decentralized but centrally controlled, it is big and small at the same time and it is both global and local.
Percy Barnevik: We have now for ten years after our big merger created a “global glue” where people are tied together, where they don’t internally compete, but support each other, and you have global leaders with global responsibility and your local managers working with their profit centers, and if you have the right, so to say, agenda for these people and the right structure, you can use a scale of economy and your advantages of bigness but being small. We used to say you have three contradictions: decentralized and still centrally controlled, big and small, global and local, and, of course, to try to make these contradictions work together effectively, then I think you have a big organizational competitive edge.
Correspondent: Globalizations can bring advantage to a business, but how does a company go global? Dick Brown mentions three ways companies can achieve “globalness”. Firstly, companies can work together in alliances. Secondly, they can acquire or buy other companies, and thirdly they can grow organically by expanding from their existing base.
Dick Brown: Well, as you go global, and a handful or more of companies are going to really push out, in my view, to be truly global companies, and some of them, maybe all of them, will also work to be local. They’ll be local in chosen markets and global in their ability to carry their customers’ needs from continent A to continent B. We want to be one of the companies that’s both global and local. Alliances are one way to be global, it’s not the only way to be global; you can acquire your way to “globalness”, you can organically grow your way to “globalness”, you can have alliances which help you get global quicker, so you take your pick.
Percy Barnevik: You have to start from the top with local people who understand language, culture and so on, and I think in this global world where the East is coming up now, that’s a winning recipe.
Correspondent: ABB already found the winning recipe. Its theory of globalization has become the company’s working practice. So how do you make theory work in practice? Percy Barnevik believes that successful globalization involves getting people to work together, overcoming national, cultural barriers and making the organization customer-driven.
Percy Barnevik: You see the easy thing is to have the theory, but then to make the systems work, to make people really work together, to trust each other — Americans, Europeans, Asians, to get over these national cultural barriers and create a common glue, ABB, and then make them customer-driven. If you can achieve that, and create that culture deep down then I think you have an important competitive edge.
Correspondent: What Dick Brown and Percy Barnevik have shown is that there are different routes to globalization and that companies have to work hard to succeed in going global. Actually one of the disadvantages of the Global Strategy is that integrated competitive moves can lead to the sacrificing of revenues, profits, or competitive positions in individual countries — especially when the subsidiary in one country is told to attack a global competitor in order to convey a signal or divert that competitor’s resources from another nation. The challenges managers of transnational corporations face are to identify and exploit cross-border synergies and to balance local demands with the global vision for the corporation. Building an effective transnational organization requires a corporate culture that values global dissimilarities across cultures and markets.