Harvard Business Publishing

I'm just settling down from a trip to Davos and I'm thinking about some of the things I wrote just one month ago--and how much has changed and stayed the same since then. My last posting for 2007 ran under the title above and began with the words "I think the biggest globalization story of 2008 will be the replacement of the bland certainty that the world is quickly becoming 'one' with a somewhat greater recognition of turbulence and uncertainty." It hasn't taken long for the new year to validate that prediction. Last month, as we all know, the financial markets went into a tailspin, forcing an unscheduled 75 basis points reduction in interest rates by the Fed. More recently, the Fed took the rate down another 50 basis points. These moves triggered further debate about whether the U.S. is in a recession and highlighted other macroeconomic/financial signs of weakness.... Keep Reading »

I think the biggest globalization story of 2008 will be the replacement of the bland certainty that the world is quickly becoming “one” with a somewhat greater recognition of turbulence and uncertainty. You’re starting to see this shift now, with some of the opinions recently expressed by corporate leaders in the U.S. and Europe. The sub-prime crisis has fed this shift in sentiment, but other dangers are in the air as well: concerns about global imbalances and institutions, protectionism coupled with nationalism, the emergence of new power centers and miscellaneous geopolitical and even biological hazards. Are all these signs of a coming breakdown in globalization? While anything is possible, I don’t think that that particular outcome is probable. In fact, I tend to be skeptical about frequent announcements of changes in the direction or speed of a globalization process that has unfolded over longer than a century because they leave... Keep Reading »

Going back over all the comments posted in response to my “What in the World” blog, I am struck by the volume of thoughtful commentary and wanted to thank everyone who has taken the time to post comments. Things that I’ve learned or been reminded of by the exchanges include: Continued confusions about globalization. Some commentators still think of globalization as the process of (increasing) cross-border integration and others as the state of complete cross-border integration. Commenter Tevfik Dalgic (September 28) encapsulates the difference: “Globalization is in the making-it is not in its final phase yet.” I’d generally agree with this statement because my point is that the world is not (close to) completely globalized—although I am less certain than Tevfik seems to be that that will be the final phase, or that it will be reached within any meaningful time frame. Believing is seeing. Ultimately, even after definitions (e.g.,... Keep Reading »

In my previous postings, I have mostly focused on the challenges that national differences pose to global strategists. The theme of this post is the long overdue point that these differences need not be just sources of constraint: selected differences can also be potent engines of value creation for arbitrage-based cross-border global strategies. In other words, strategies that take advantage of these differences (factor costs, tax rates, regulations, etc) for economic gain. Such arbitrage strategies get less attention than they ought to, partly because arbitrage is conceived too narrowly and partly because it is often considered a low, unsustainable basis for cross-border competition. Here are some examples of arbitrage strategies that deviate from the usual notion of low-cost manufacturers from emerging markets selling goods in developed ones. Bumrungrad Hospital in Thailand, a pioneer in medical tourism, will treat close to half a million international patients this year in its five-star... Keep Reading »

I’ve spent the last few posts explaining why the world isn’t flat—and why that matters for business strategy. Adding to the complexity—but also to opportunities—is the fact that process of cross-border integration isn’t smooth: instead, it is punctuated by shocks, one of which we may be seeing right now. Thus, the outgoing head of the IMF, Rodrigo Rato warns of a significant worldwide slowdown in economic activity. Corporate leaders in the U.S. and Europe are less definite, but do generally agree that they face a very uncertain outlook. One response to such economic weakness and ambiguity, of course, is to wait for economic growth to recover. But a better one, for most companies, is to try to think through what to do during the bad times. And here, history offers useful guidance—especially because there is limited memory, individually or institutionally, at many companies about how to handle economic downturns because... Keep Reading »

I am gratified by the many responses to my blog. Thanks for taking the time. But I also realize that I could have been clearer. I agree that globalization, in the sense of cross-border integration, is important and that along some dimensions, it has been increasing. What I object to is thinking of it in terms of the never-never land of a flat world, or what I referred to as globaloney. Globaloney is quite common: the last time I looked at my blog, the advertisement flashing above it read “Win in a flat world.” But it can also be very harmful. The Coke example in my last post was meant to illustrate this point. Through much of the 1980s and 1990s, Coke was prey to an early vision of a flat world: Ted Levitt’s. Levitt argued that consumers everywhere wanted the same thing. Coke has now spent nearly 10 years... Keep Reading »

Why do I think globaloney is potentially dangerous to your health rather than just a useful simplification or call to arms? Probably the best example I can think of was Coca-Cola, which a decade ago, in the waning days of CEO Roberto Goizueta’s reign, was acclaimed as the aggressively globalized corporation. Goizueta emphasized that the distinction between international and domestic no longer applied (which he embodied in organizational changes), set aggressively high growth targets, focused on a handful of megabrands to drive volume growth, and engaged in an unprecedented amount of centralization and standardization. Ten years later, under CEO Neville Isdell, Coke has executed an about-face. Isdell has separated out the domestic and international organizations and cut growth targets by half, to the cheers of analysts who had come to regard the earlier ones as unrealistic. The emphasis now falls on variety, with particular push to learn from Japan, Coke’s... Keep Reading »

Some of the commentary on my last post took issue with my focus on levels of globalization, as embodied in my “10% presumption” chart— and suggested that I focus on trends instead. This is actually very useful to do because one of the standard evasions glommed on to by the purveyors of globaloney is that even if the world isn’t quite flat today, it will be tomorrow. In fact, I just heard Colin Powell say exactly that at an after-dinner talk. So lets actually look at the trends on indicators of globalization—some of which I presented snapshots of in my last post. A number of indicators actually exhibit declines, depending on the time period employed. Thus, rough calculations suggest that the fraction of the world’s population accounted for by long-term international immigrants was slightly higher in 1900 -- the high-water mark of an earlier era of migration—than in 2005. The... Keep Reading »

I still remember a TV interview a year ago in Mumbai where the first question I was asked—quite seriously or, should I say, flatly?—was why I still thought the world was round. Spouting such attitudes—the flattening of the world, the death of distance and the disappearance of differences across countries—seems to be considered a hallmark of global thinking. But I prefer to think of it as “globaloney.” Why? Because most types of economic activity that could be carried out within or across national borders are actually still concentrated domestically. Not convinced? Ask yourself, of all the capital being invested around the world, how much is foreign direct investment by companies outside of their home countries? Maybe you’ve heard the globaloney about “investment knowing no boundaries,” and so on. The fact is, the ratio is generally less than 10% and, while it may be pushed higher by merger waves, has never... Keep Reading »