A shift in thinking about world business

“We expect GDP numbers to change dramatically. The top ten countries will include India, China, the United States and Brazil. We have to be closer to the new markets.”
Do you agree or disagree with the following?
  1. Increased regulation arising from current economic and political conditions is reducing the benefits of globalisation for us.
  2. The current economic situation has made globalisation a higher priority for us.
  3. The downturn has led us to emphasise our strategy more in developed countries than developing ones.
  4. An economic downturn is a better time to benefit from globalisation than other times.
  5. Greater protectionism has affected our company’s globalisation strategy.
  6. In selecting foreign countries in which to increase or decrease their level of presence, companies make choices based on a “herd mentality” as often as they do based on a detailed analysis of the risks and benefits.
  7. Over the next three years, we expect to see greater competition from companies located in emerging markets.
  8. In searching for new emerging markets, our firm will look more closely at South America than Africa.

Despite the drop in foreign trade and investment happening across the economy, for technology businesses globalisation has, if anything, become a more attractive strategy in the downturn. Wim Elfrink, Chief Globalisation Officer, Cisco and EVP, Cisco Services, notes that the underlying trends that led businesses to globalise have not disappeared in the current malaise. “The demographic shifts around the world are the biggest in history,” he says. As a result, “we expect GDP numbers to change dramatically. The top ten countries will include India, China, the United States and Brazil. We have to be closer to the new markets.” Sixty-seven percent of respondents say that globalisation has become more important because of the current economic climate. As Mr Elfrink points out, the nature of the current contraction, with Asian countries entering the recession later and coming out earlier “is proving the point” of this long-term global focus.

Similarly, 69% of respondents say that current conditions present better opportunities to benefit from globalisation than normal times. Talent is easier to retain in bad times, and cost-conscious buyers are open to products or services that bring overall savings. Looking further, notes KR Lakshminarayana, Chief Strategy Officer of Wipro’s Information Technology Business, “new business models emerge in every slowdown.” Most industries will want to transform during the downturn, and providing the means to do so will be highly profitable for IT companies. “In a bad environment,” he concludes, “one invests more.”

Although companies remain strongly committed to global strategies, current realities are restricting their ability to carry them out. Only 39% of respondents have accelerated their globalisation strategies, and 20% have become less global. Even firms that are still globalising have to make tough choices. Kris Gopalakrishnan, CEO of Infosys, says that “in the short term there is a lot more focus on cost-cutting. We are still expanding into new markets, but the number of markets and people assigned are less.”

More broadly, today’s intense cost pressures are making the driving forces behind globalisation strategies more short term. Obtaining a position in lucrative new markets or gaining longterm market share in an existing one remain important: 47% of respondents consider these collectively as a leading driver of globalisation by their company, little changed from the predownturn figure of 51%. Such long term positioning, however, is no longer the most pressing issue: the wish to cut costs is the most frequently cited consideration, by 50% of respondents, up from 36% before the economy worsened. Similarly, the impetus to find new markets to counteract current difficulties in existing ones, which was previously a consideration for 29% of respondents, now drives 40%. Meanwhile, the immediate demands of survival are leading some to take their eyes off globalisation’s possible longer term benefits. The importance of issues such as access to superior research and development, new ideas and talent has dropped.