Managing tomorrow's people: Types of globalisers

How does your company’s performance compare with that of peers in the following areas?
  1. Financial performance in the current year
  2. Financial performance over the last five years
  3. Ability to formulate long-term strategy
  4. Ability to execute long-term strategy
  5. Ability to change strategy quickly
  6. Ability to assess and exploit opportunities worldwide
  7. Ability to assess and manage risks worldwide
  8. Ability to integrate global assets/strengths of company in collective undertakings (e.g., to get different parts of the company to work together)
  9. Ability to turn new technology into commercial products/services

Survey respondents benchmarked their companies against peers in various areas of ability. Three of these directly affect how well organisations execute global strategies: the ability to assess and exploit opportunities worldwide, to assess and manage risks worldwide, and to integrate the business’s global assets and strengths in collective undertakings. Overall, respondents are less confident about globalisation than most other areas. Only 22%, for example, say that they are better than peers at managing risks globally, against 40% or more who call themselves above average in general areas of strategy and financial performance.

From the survey data three broad categories of globalisers emerge:

  • Autopilot Globalisers: Those who have either not rethought strategy in this area since the downturn—19% of those surveyed—as well as those who believe it would simply be too hard to change course anyway, an additional 9%.
  • Reactive Globalisers: Those who are accelerating the pace of globalisation at their companies but seem to seek shortrather than long-term goals.
  • Effective Globalisers: Those who ranked themselves above average in at least two of the three globalisationrelated areas—and who have reviewed their strategy since the downturn—have much in common, and are here called “effective globalisers.”

Autopilot globalisers

Respondents from these companies, 28% of the survey sample, sense that they are missing out. Some 74% say that a downturn is a better time than usual to benefit from globalisation—slightly higher than the average of 69%—but only 52% say that current conditions have made globalisation more important to them, well below the overall figure of 67%. As a group, these companies do no worse financially than the norm, but no better either: 46% consider their financial performance above average both in the current year and over the last five years against survey averages of 42% and 48%, respectively.

This type of globaliser may achieve average financial performance because the practice itself is so common. It is certainly more widespread than businesses wish to admit. Of all respondents, 71% agreed that companies, in selecting where to increase or decrease their foreign presence, follow a “herd mentality” rather than doing detailed homework. Although asked about business as a whole, rather than their own firms, 77% of autopilot globalisers agreed with this, perhaps having experienced it themselves.

“Nine out of ten multinationals are unwilling or unable to localise sufficiently to be real players. They dabble in the market but are completely irrelevant.”

Mr Lakshminarayana has seen this tendency among competitors. “Most people rush in because ‘if I’m not there first there will be nothing left.’ That hurts in the long run. A variation is: ‘let’s go in and figure it out as we go along.’ If you follow this reasoning, you’ll make some very costly mistakes.” Mr Venkatesan adds that two common misjudgements he sees others making “is to assume that a new country is very similar to your own and not investing to win. Nine out of ten multinationals are unwilling or unable to localise sufficiently to be real players. They dabble in the market but are completely irrelevant.”

Reactive globalisers

A slightly smaller group, roughly 20% of the total, is made up of respondents from organisations that are accelerating the pace of globalisation. Though not on autopilot, this group does not consider itself all that good at globalisation. Reactive globalisers are not looking for long-term strategic opportunities so much as a quick fix to the economic crisis.

  • 87% say the downturn has made globalisation a higher priority, and 80% say that now is a better time than normal to benefit from it;
  • 55% say that today the search for new markets to deal with immediate troubles in existing ones is their leading driver of globalisation, compared with 36% for all other respondents;
  • 57% see cost savings as a leading impetus of their policy, compared with 48% for other respondents.

In seeking these results, many of these companies are also looking to act fast. When asked about which of a variety of ownership arrangements they were more likely to use because of the downturn when entering new markets, 48% of reactive globalisers say they are more likely to purchase local firms directly, their preferred answer. This is double the figure for other companies in the survey. Building from scratch holds much less appeal: 22% of those in a hurry are more likely to do so, the same as the survey average.

As a group, reactive globalisers more often reported aboveaverage financial performance during the last five years (52% to 48%). In the last year, this proportion has decreased (49%) although the gap with the survey average (42%) has grown slightly. In other words, reactive globalisation has probably yielded only a small advantage, and is unlikely to create much more because globalisation is a long-term strategy. As Mr Gopalakrishnan points out, “There is a kind of myth about globalisation. If a company is looking at this as an answer for the slowdown, it is not going to get an immediate one. The benefits are definitely going to take some time.”

Given current economic conditions, will elements of the following business activities and operations be spread out over more or fewer countries in a year’s time?
  1. R&D
  2. Sales and marketing
  3. Joint ventures
  4. IP rights management
  5. Back-office operations
  6. Production of goods and services
  7. Information technology service delivery
  8. Physical offices or operational facilities

Effective globalisers

This group, 23% of those surveyed, are much more likely to be accelerating their globalisation strategies (42% to 19%), though these figures differ little from the overall response (39% to 20%). What sets effective globalisers apart is the degree of thought and planning behind their strategies. A much higher percentage give a great deal of consideration to a whole range of factors before entering or increasing activity in a new market [see chart below].

Factors given consideration when making decisions about increasing activity in countries

  Effective globalisers Rest of survey
IP protection/strength of legal system 44% 22%
Exchange controls/controls on repatriation of profits 42% 18%
Level of technology infrastructure 32% 25%
Level of other infrastructure 31% 12%
Tax incentives 25% 19%
Level of technological expertise/education in country 44% 20%
Size and demographics of market 66% 38%
Effective globalisers are also much more willing to build from scratch, a sign of willingness to learn about, and commit to, local markets: 43% say that the current climate makes them more likely to enter into direct ownership of a new unit that they intend to grow, against 17% who are less likely. The equivalent figures for the rest of the survey are 17% and 19%, respectively. Another indication of this willingness to get involved on the ground is that the condition of local infrastructure is more likely to be a leading barrier to globalisation efforts for this group (48%) than for the survey as a whole (41%). While they are more willing to create a new business, effective globalisers consider it just one of a range of options, based on their understanding of the local situation, legal requirements, and market segment. Neil Sutton, Vice President, Global Portfolio, BT Global Services, calls it a matter of “horses for courses” or choosing the best tool for the job at hand.
“If you want to think outside the box, you have to step outside the box.”

Companies seeking to understand and engage with new markets begin with an in-depth study. Mr Lakshminarayana explains that at Wipro, “Before we enter a market we spend up to a year understanding it. It means you can be slower to enter. If you look at business as something you want to do for 30 to 50 years, one year doesn’t matter.” Next, interviewees stressed the importance of paying attention to local conditions, especially in emerging economies where average disposable income remains significantly less than in the West. Cisco went so far as to base its Chief Globalisation Officer in Bangalore because, as Mr Elfrink says, “if you want to think outside the box, you have to step outside the box.” He adds that while many companies try to sell their existing products into new markets, “we try to create products and services for these markets—which we can perhaps then sell in the West, something we call “reverse innovation.” Microsoft’s Mr Venkatesan agrees: “You can’t address 90% of the population unless you localise. You have to have local leadership and be willing to invest for the long term.”

Such local understanding not only improves sales; it helps show what else given economies might offer. Although cutting costs and growth are the leading factors driving effective globalisers in their strategies, they are less dominant than for other companies. Instead, these businesses are much more likely than others to focus on important long-term drivers, including access to talent (a leading impetus for 42% of effective globalisers but only 21% of others), access to new ideas (39% to 27%) and access to superior R&D (16% to 9%).

In fact, for those tuned into a market, a downturn helps ease one of IT’s perennial problems—a scarcity of talent, especially in developing countries. Mr Sutton notes that “you are seeing reduced workforce churning. People have the opportunity to solidify their experience base.” Mr Venkatesan agrees: “there has probably never been a better time to attract talent than now.”

Regarding new ideas and R&D, experienced executives agree that it’s vital to be connected to the market—to be developing products not only in the market but for the market. For Mr Wilfrink, this wider vision is the cutting-edge approach to globalisation. “It is about access to talent, access to new markets, access to new innovation.”

The value of this approach shows on the bottom line. Effective globalisers, by thinking more thoroughly, showing more commitment, and looking at the broader range of benefits to be had from globalisation, have been reaping economic gains: 68% said that they have above-average financial results in the last five years, against 44% of all other companies. Moreover, their edge has widened in the downturn: 65% of effective globalisers indicated that they outperformed their peers in the last year, against just 36% of other firms. These results, however, require ongoing commitment—courage under fire—even in the face of economic turmoil. At Cisco, says Mr Elfrink, “globalisation is one of our five top company priorities.” Similarly at Microsoft, Mr Venkatesan says, “We have a fundamental view that is long term and unaffected by current prospects. If anything we are going to be more global rather than less.”

"International trade, he explains, has been going on for centuries: the cutting edge in this field is “the globalisation of the corporate brain.”

A change in tactics

A long-term vision is not an inflexible one. The downturn is causing companies in particular to spread out their sales and marketing activity. Fifty-seven percent of all respondents, and 77% of effective globalisers, say they will do so within the next year. Similarly, 54% of those surveyed, and 58% of effective globalisers, will move toward a more globalised IT service delivery in the next 12 months.

What this might mean in practice differs by company. Mr Venkatesan of Microsoft notes that “like many companies we were almost dangerously focused on the top cities and top customers. That produced healthy growth, but with the softening of the economy we realised that we had to increase our geographical presence and customer base.” This has led to expansion within markets, with the company now present in 260 towns in India and with a large number of additional distributors.

Wipro has also started casting its net further because of the downturn. “We have started looking beyond our traditional markets of North America, Europe and Japan,” says Mr Lakshminarayana. “If you need growth, you need mass markets and growth markets. India, the Middle East and China are a lot more important now.” At the same time, it is looking to serve existing customers better by near-sourcing some operations to North America, which previously took place in developing countries.

From a tactical point of view, the current economic situation presents IT companies with challenges and opportunities that need to be addressed. Interviewees all spoke of the need to cut costs, a given in a downturn. Good companies, however, are looking further. Cisco, for example, is also actively pursuing what Mr Elfrink calls “an opportunity that was not that obvious.” In particular, he believes that his company’s technology and expertise around initiatives that enhance the sustainability of cities will become even more attractive as cities seek to differentiate themselves as locations for investment. He cites Korea as a country where “‘green’ growth is the numberone priority.”

More broadly, the downturn is also causing firms, as Mr Sutton says of BT, “to ask what we need to do and at what level. You need to be clear about what you need to do globally, locally, regionally and centrally.” This will accelerate shifts in the degree of globalisation of certain functions. Nearly half of companies (47%), for example, have restructured back-office operations due to cost concerns in the last year, the second most frequently changed area after travel policy (53%), traditionally the first victim in a downturn. The impact on globalisation depends on the organisation: 35% expect back-office operations to be more spread out geographically, while 31% expect them to be less so. The nature of the shift, however, does not suggest an abandonment of globalisation. Notes Mr. Lakshminarayana, “as part of overall optimisation, certain back- office functions are getting centralised. That is part of routine; strategically there is no place we are withdrawing.”

One particular trend discernable from the survey is a tendency toward increased virtualisation within IT businesses. Fortytwo percent of respondents have reviewed corporate IT infrastructure with a view to reducing costs, but 54% expect their IT service delivery to be more geographically spread out, against just 17% predicting the reverse. On the other hand, 43% expect a reduction in the spread of physical offices, against just 26% who see an increase. Even among effective globalisers, those retrenching here have an edge (39% to 36%). Mr Sutton explains “there is a trend within our business to have fewer locations and have them work in greater harmony. A lot of companies have grown at a significant rate, and are now questioning what is most efficient.” Mr Elfrink adds that Cisco already has an ongoing policy of virtualisation that attempts to leave behind “old-fashioned thinking about where you have to have offices. Of course [because of the downturn] we had to adjust it a little bit, but we were already on that trajectory.”

For Cisco, however, virtualisation is part of a broader shift that will allow what Mr Elfrink calls “globalisation 3.0.” International trade, he explains, has been going on for centuries: the cutting edge in this field is “the globalisation of the corporate brain. It is really about the rebalancing of knowledge, of wealth, of competencies.”

The downturn, then, has caused some reevaluation of how to pursue globalisation most profitably, though it has not lessened the appeal of the strategy as a whole.