The Indelible March to Globalization
Our objective is not to settle the argument on whether globalization is on balance good or bad for the world. To some degree, the point is moot. The globalization ship has already sailed and is unlikely to return to port. The question is more about the pace of globalization going forward. Some parts of the world are clearly much further down the road than others. But irrespective of where you live, it is reasonable to assume that global networks will continue to expand, hastened by what seems like a perpetual decline in the costs of connecting people, markets, knowledge, and innovations.
One other reality that has become clear to decision makers around the world: The largest markets for major companies are almost always outside their home country. While this is easy to understand if you are talking about small countries like Egypt or Peru, it’s also the case for companies based in the USA or China. According to the IMF, the nominal gross world product reached US$87.3 trillion in 2019. That same year, the world’s largest economy was that of the USA at $21.4 trillion. So, if you are a US company focused only on domestic sales, you might be ignoring three-quarters of the potential market for your products or services. Or, if you are a Chinese company focusing your sales only on the Yangtze River Delta region, you might be missing out on 97 percent the world’s potential demand! Of course, patterns of demand are never equally spread across markets, but it is safe to conclude that external markets are invariably much larger than domestic markets.
Like it or not, we cannot escape the realities of living in a global world. From the products we buy, technologies we use, people we work with, and financial instruments we rely on, we are up to our eyebrows in globalization. It has now become so pervasive that none of us can fully appreciate its influence. And, notwithstanding gyrations on trade deals and flare-ups of nationalism, the indelible march to globalization will continue.
Five Key Implications for Leaders
In Chapter 2, we presented significant data that demonstrates how pervasive globalization has become and that for most leaders it is actually a relatively recent phenomenon. About 15 years ago, globalization as a day-to-day concern for companies or leaders was the exception and not the rule. As we demonstrated in Chapter 2, this is no longer the case. Globalization has now become relevant to the majority of leaders. Even if a leader wanted to focus only on domestic business, he or she can’t. The global diffusion of technology and innovation, the global movement of goods, the integration of global supply
Globalization’s impact 59 chains, the expansion of global competitors, etc. leave leaders with essentially no place to hide from globalization.
What are the implications of globalization for business leaders? There are plenty to go around. In this section we’ll focus on the top five. But first, it’s important to point out that the globalization journey is not something to be avoided or procrastinated. It isn’t going away. Wishful thinking will not reduce its impact. The smart leaders are the ones who do not confront globalization as an enemy but rather embrace it as a friend. No doubt a friend to be respected, but globalization is also a friend that can provide huge benefits to the leaders and companies who get out in front of it.
Be Vigilant: The Competitors are Everywhere
The globalization of capital markets has resulted in an abundance of available financing on a global basis. At the same time, the Internet has lowered entry barriers for many businesses (especially the service side of any business). What do you get when you add bags of money to a room full of smart and ambitious people? Lots of start-ups. Complicating matters: The time it now takes for a company to go from birth to aggressive adolescence has shortened dramatically. Bottom line: New companies are constantly forming and growing up around the world.
From Brazil to China and from Vietnam to Sweden, fast-moving and ambitious start-ups are marching forward and challenging old-school competitors. In the past when industries were more stable, you knew who your competitors were and spoke the same language. Often the leaders went to the same schools and knew each other personally. Business planning was orderly and market research focused on customers you understood and with whom you formed a personal relationship. Those days are long gone.
Today, every company risks getting broadsided by start-ups or even national champions from far-off parts of the world that have new ideas, innovative products, and disruptive business models. Competitive advantages that had been built over decades can now be destroyed almost overnight by competitors who seemingly appear out of thin air. Global giants like Alibaba, Spotify, Xiaomi, Teva Pharmaceutical, BYD, and Zara all started in locations that were not on the dominant players’ radar screens. Because the global giants of the day overlooked these start-ups or didn’t take them seriously, the “newbies” were able to gain a toehold during their early years. And as they grew and began to get noticed, the global giants still underestimated how quickly these upstarts could expand and grow. And they also incorrectly and often arrogantly concluded that because many of these new competitors were based in the emerging markets, they would flame out and amount to nothing.
Global leaders need to remain vigilant and keep their eyes and ears open for new ideas, new customers, and new competitors no matter where they are from. They should resist the urge to discount the upstarts that appear in locations with names that are difficult to pronounce. Just because their foundersdidn’t attend Harvard, MIT, or Cambridge doesn’t mean incumbents can take them any less seriously. Global leaders cannot afford to put their heads in the sand. Hoping and praying that their past successes will foretell the future is not going to work. The rules have already changed and continue to change faster than most realize.