Download Operating in the Next Phase of Globalization

Operating in the Next Phase of Globalization:
Promise or Peril?
Executive Summary
March, 2013
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Over the last 20 years, globalization has transformed the economies of countless
countries. The intersection of technology, trade, and capital has unleashed higher rates of
economic growth and expanded opportunity for billions of people throughout the world.
Globalization has also transformed business – how it’s conducted, where it’s conducted,
by whom. The transformation has touched the very structure of the enterprise as well as
the nature and definition of economic “value.” Emblematic of the change has been the
emergence of the Globally Integrated Enterprise (GIE), which refers to companies that
are truly “global” (as opposed to “multinational”) in their management and their
operations, utilizing global supply chains not just for products, but also services, capital,
ideas and intellectual property.
The technological, economic and societal forces driving this new era of global business
are being felt every day and are being seized upon by forward-thinking leaders of
communities, companies and industries around the world. Among these leaders –
entrepreneurs, CEOs, mayors, commissioners and community leaders – old ideological
divisions and definitions are falling away or no longer apply. A simpler focus has arisen –
what works?
These leaders cut an exciting and compelling new path, and coupled with the rising living
standards in much of the world, there’s reason for optimism about the near-term future.
But it’s useful to keep in mind the generic disclaimer of investment funds: “past
performance is no guarantee of future results.” The existence of encouraging economic
trends and pragmatic leaders does not ensure that global integration will continue, nor do
they ensure a smooth path of continued progress. It was exactly a century ago that the
world was described as being on the cusp of a new era of peace and prosperity. But that
lofty vision was brutally snuffed out a year later, with the start of a war that stifled the
process of global integration for decades to follow. One of the lessons from that episode
is the need to identify vulnerabilities and address them before they metastasize. The first
step in that process – as well as the most important step – is to pursue rigorous research
that will deepen the understanding and the value of the Globally Integrated Enterprise –
both among the enterprises themselves as well as the broader public.
New Challenges for a New Era
This initial step is particularly timely now, given that both the developing and developed
markets face large – and largely new – challenges.
 Many emerging economies are nearing the end of the easy path to rising GDP and
per capita income. Some call this the “middle-income trap,” reflecting that it can
be easier to transition from a low-income to a middle-income economy than to
jump from a middle-income to a high-income economy. In addition, this shift is
unfolding simultaneously throughout the world, with more countries than ever
before moving toward (or achieving) middle-income status.
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This situation is new, and it is creating an intense competitive dynamic, on a scale
that many do not yet grasp. Growth markets have plucked the low-hanging fruit of
global integration. Now they operate in a dramatically more competitive climate,
with higher degrees of regulation, higher standards, and higher expectations on a
number of fronts, including product and service quality, wages and working
conditions, protection of intellectual property and the rule of law.
The word “higher” is deliberately chosen. While much conventional wisdom
suggests that countries can grow through a “race to the bottom,” for companies or
countries (or any other entities) to achieve long-term success in the new global
economy they must operate on a higher plateau.
 The countries of the developed world, conversely, face exciting new
opportunities. While it may seem perverse to use the word “exciting” when
talking about low-growth regions or countries like Western Europe, North
America and Japan, many of the capabilities and skills needed to succeed in an
innovation-based global economy are deeply engrained in these and other mature
markets.
But success will depend on these economies – and in particular their business,
government and societal leaders – addressing some monumental challenges. Amid
the global integration of the past three decades, these economies piled up massive
deficits – not just financial, but also deficits of competitiveness, and in some
cases; of “trust”. Their populations were aging. Their infrastructure was rusting.
Their schools were under-performing. And their governments were failing to keep
pace with the transformations unfolding around them.
Now, the bill has come due for those deficits – all at once – and middling
economic growth rates of recent years have given rise to talk of a “new normal”
in which developed markets expand slower than in recent decades. This speaks to
the urgency of the developed world addressing its huge structural overhangs. But
the political challenges so far have been daunting, perhaps even more daunting
than the economic ones.
 A rebalancing of global trade and trade leadership is needed, reflecting evolutions
in trade trends. For the past two decades, emerging market countries were largely
dependent on exports, rather than domestic consumption. In contrast, the mature
economies were on a consumption binge, driven by the purchase of cheap
imported goods and housing. They increasingly abandoned manufacturing. Now,
this global situation is shifting back to one of greater balance. Emerging
economies are starting to turn more to domestic consumption, driven both by the
reduction of spending by mature economies and by the purchasing power of their
rising middle classes. Meanwhile, mature economies are increasing their exports,
fueled by a variety of factors (e.g., increase in domestic fuel production in the
U.S. and the reanimation of domestic manufacturing). Especially important are
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the digital transformation of services businesses to become global and exportable;
and the impact of the digital revolution on small and medium businesses in both
manufacturing and services, allowing them to become globally integrated
enterprises.
The multiple issues facing companies and countries throughout the world can seem like a
thicket of interconnected, systemic problems. In fact, they are all symptoms of a single
historic shift toward a more integrated global economy and society – one that opens new
possibilities to spark virtuous cycles, if we can develop agreement on the right conceptual
framework, and implement new approaches to business, policy, practice and governance
at national and international levels. But business and societal leaders lack the conceptual
underpinnings for pragmatic operational management, decision-making and policy. As at
previous inflection points in history, we need a new language – and new thinking – to
harness the promise of this new era and avoid the peril that can arise in periods of change.
New Thinking for a New Era
A critical element of the new language and thinking is the pursuit of comprehensive
research and scholarship focused on globally integrated enterprises. This research should
provide a comprehensive profile of GIEs, illuminating the factors contributing to success
and failure, as well as the ways in which these enterprises promote economic opportunity
and higher living standards. The research should also provide an operational and practical
roadmap that can help existing GIEs grow and help aspiring GIEs to realize their vision.
By helping to develop understanding of GIEs and illustrate what’s worked in the past
(and what is likely to work in the future), this research can help to break down public
misperceptions and enable a constructive public policy environment.
Also important to developing new language and new thinking is devising fresh ways to
understand, research, and measure the value of global economic activity. Drawn from
new metrics and new curricula, this information can help business and government
leaders more fully understand contemporary dynamics and prepare them to use new tools.
Underscoring the need for new approaches are the outdated assumptions that guide many
nations and leading international bodies – assumptions that don’t reflect the past 30 years
of globalization nor today’s and tomorrow’s dynamic innovations (such as cloud
computing, mobile devices, and pervasive broadband) and changes that are unfolding
throughout global business.
Along the same lines, much of the traditional terminology about global business is being
rendered obsolete. How are we to distinguish between an “import” and an “export” when
so much of what is imagined, produced and delivered is derived from multiple locations
around the world? Put differently, can there be “outsourcing” when there is no longer an
“out” in integrated marketplaces and economies?
To spark the new thinking that will contribute to global integration, and to continue to
nurture it, a number of paradigm shifts are needed. These include:
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 A deeper understanding of global enterprises. There is still a tendency to
identify companies as defined by the country in which they were founded, even if
they derive a majority of their revenue from operations in other countries. This
tendency can provoke provincial biases that leads to misguided public policy or
misleading public perceptions that may hamper companies’ ability to operate in
select markets and grow within them. The implicit assumption is often that a
company is acting as an agent of its home country government or that it has
certain inherent characteristics by virtue of where it was founded. While
recognizing the existence of state-owned enterprises in many jurisdictions,
globally integrated enterprises are firmly rooted in the private sector. And these
enterprises are extremely diverse, with national boundaries an arbitrary and
imprecise way of classifying them. Thus there is a clear need for companies that
operate throughout the world to be seen as – and treated as – the globally
integrated enterprises they have become.
 The triumph of data over ideology. The great new natural resource of our age –
data – can be a catalyst for deeper understanding of the operational advantages
and shortcomings of global integration, new business models, and definitions of
economic value. Maximizing the opportunity presented by the vast new supply of
data depends on discarding traditional frameworks that were shaped for a
fundamentally different set of assumptions about production, society, governance
and even nature. The increasingly rigid political and economic dogmas of left and
right are a mismatch for the way global systems actually operate. And they don’t
provide the basis for a sustainable social or workplace compact. To be truly and
productively progressive, we must begin with a fact-based – and data-driven –
grounding in the everyday realities of global business.
 A new model of leadership. Conventional wisdom today sees a global “crisis of
leadership” across civil society. However, the largely unwritten story is of a new
generation of leaders – many of them at the city level – who are embracing
technology and working in pragmatic, collaborative, non-ideological ways. The
decisions of these mayors, police chiefs, heads of urban school systems, and nonprofit organizations are immediately visible in people’s lives. Their decisionmaking is driven by a belief in a smarter way to get things done. The work and
approaches of these leaders must receive an increased level of visibility and
empowerment – especially their collaboration-based approaches to decisionmaking.
Business executives will need to adopt this new model of leadership. That will
mean resisting the siren song of “short-termism” – striving instead to build
systems and institutions that survive and thrive by investing in the sources of
long-term growth, such as fundamental research. Along the same lines, it will
mean an openness to reinvention of one’s company, since a successful first act is
no guarantee of a second. And effective leadership will take many forms, but it
will not be centered on the vague concept of “charisma.” The objective should not
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be to build a cult, but rather a sustainable culture of leadership that survives the
inevitable C-suite transitions.
 Open and secure flows of trade, people and ideas. We must resist any retreat
into protectionism or mercantilism. Having said that, our trade regimes – which
are still largely based on manufacturing, despite a global economy that is rapidly
shifting toward services – must be updated. We also see the persistence – and
occasionally the hardening – of immigration restrictions that tend to deprive the
economies of innovators who contribute to much-needed job-creation.
Importantly, we must simultaneously improve protection of intellectual property,
while ensuring open standards for information and technology and supporting
more shared, social forms of innovation. We also need global systems that both
ensure the security of critical infrastructure and societal systems, and protect
individual privacy. Finally, we need global standards and practices for managing
cyber and systemic financial risk.
More fundamentally, it is imperative for the project of global integration not to dissolve
into regional, national or ideological sectarianism. We must keep the big picture in mind.
Therefore, progressive thinkers and leaders in the developed world must help emerging
countries that are bumping up against the middle-income trap to achieve a smooth
transition to a higher plateau. Similarly, progressive leaders in the emerging markets must
help foster thoughtful, balanced, long-term solutions to the structural overhangs of
mature markets – including increased investment in infrastructure, education and R&D,
rather than a singular turn to austerity.
We cannot keep the big picture before us unless we first define it. And that definition
must apply across civil society – to corporations, industries, cities, nations and the nonprofit sector.
The Center for Global Enterprise
The Center for Global Enterprise (CGE) is aimed at addressing these needs. It will pursue
a multi-pronged approach, focused on:

Fostering a clear and more nuanced understanding of globally integrated
enterprises – both the benefits and any liabilities – while also developing an
operational and practical roadmap for these enterprises

Deepening our awareness of what it means to be a global enterprise, a global
citizen and global leader in the 21st century

Shaping the ideas and frameworks that reflect both the era in which we live and
the era in which we will live – a process that we think will help enterprises,
industries, governments and societies realize a more prosperous and progressive
future
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
Developing a new consensus around the implications of global integration, with
the objective of helping to enable more effective global policies and business
practices
To that end, the Center’s initiatives will include:
 Convening a broad spectrum of leaders and scholars to discuss a range of issues
linked to global integration. The individuals will be drawn from multiple sectors,
regions and disciplines, ensuring a broad, non-partisan and non-ideological
spectrum of perspective and expertise.
 Developing and scaling the management science and leadership training for
globally integrated enterprises, in partnership with the world’s leading businesses
and business schools.
 Pursuing applied research to identify the most important and pragmatic
opportunities for shaping new language and measurements to describe global
integration and to drive new policy regimes to enable it. The research initiatives
will build on the ideas contained in Samuel J. Palmisano’s Foreign Affairs essay
on the Globally Integrated Enterprise and will include the creation of a
comprehensive database covering examples and case studies related to the GIE.
Other potential research topics and themes include:
o A survey of the global corporate landscape that highlights best practices
for GIEs – e.g., in managing shared services, supply chains, skills, culture,
leadership development, policy, corporate citizenship and so on. This
research will provide pragmatic and instructive examples of how to get
“from here to there.”
o An examination of how and why industries have evolved in particular
cities or countries. Will globalization shift these “capitals” from the
developed to developing worlds? Or are industries themselves becoming
globally integrated platforms, with work and distribution networked
around the world? If so, what are the implications of this new model for
all industries, for the companies that comprise them, and for the customers
and consumers they serve?
o A review of the threads and patterns that link GIEs together as well as the
forces most likely to derail global integration.
 Reviewing scholarship to identify existing research on the impact of globalization
that clarifies generally accepted research methods; the assumptions on which they
rest; the consistencies and inconsistencies of current views; and the need for
further research.
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 Launching survey research, initially focused in the United States and China, to
determine public perceptions among leaders of business, government, civil
society and the general public about economic opportunities in, and perceptions
of, the other country. This research will sample attitudes about the economic and
societal impact of globalization – e.g., how does it affect jobs, growth,
investment, poverty, health care and education?
The Center will also pursue opportunities to collaborate with stakeholders – from the
worlds of business, academia, government, and civil society – who are committed to
helping deepen public understanding of 21st century global integration and the role
enterprises will play in this new era.
The “Maturity Model”
A key element of the Center’s work will be establishing a framework to measure the
breadth and depth of companies’ global integration.
Today, no company operates in a fully-applied version of the best thinking on global
integration. Each business and function within a corporation resides somewhere along
the spectrum, beginning with “last generation” management thinking and reaching
toward the GIE.
By constructing a GIE “maturity model,” the Center can assess the relative overall
development of a corporation and characterize its current state through the “fingerprint”
of its more- and less-developed businesses and functions. The model will be based on
interviews conducted by the Center’s staff with business and functional leaders.
Academic writings or other recent books on organization may help round out the initial
GIE maturity definition. But the data – functional and business performance – will
provide the validation.
The maturity model will explore four dimensions of functional performance:
1. Productivity – amount of resource required for comparable unit output (e.g., customer
support FTE’s per transaction per year)
2. Velocity – amount of time required to deliver output (e.g., customer service center
response time)
3. Accuracy – alignment between actual and intended output (e.g., customer support
center average first-time problem resolution rate)
4. Precision – consistency of output (e.g., statistical distribution of customer support
center first-time resolution)
The Center will explore all dimensions of performance. Enterprises will not, and should
not, weigh them equally. Depending on the function, some dimensions of performance
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will carry greater value. For example, productivity may be the most important dimension
for back-office support functions, while velocity may be the most important dimension
for logistics. In nearly all cases, a minimum threshold of performance on all four
dimensions will be necessary. As the Center’s intellectual property will serve enterprises
across industries and geographies and, ultimately, public and not-for-profit institutions, it
will explore performance dimensions without bias.
The Center will form its core intellectual property around a database of real-world
functional performance from enterprises profiled with the GIE maturity model.
Conclusion
The globalization of business, and the broader integration of the global economy, has
enabled billions of people to realize a standard of living that is without precedent in
human history. Building on this ongoing progress calls for recognizing the many ways in
which the world has been transformed and then pinpointing the business practices,
leadership styles, and innovations that will help unleash even greater opportunity and
prosperity.
That will be the work of the Center for Global Enterprise.
Contact:
Christopher G. Caine
President, The Center for Global Enterprise
Office (646-632-3742)
Mobile (202-957-1569)
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