Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter.
Thakur, Rajiv Ranjan
Redefining Global Strategy: Crossing Borders in a World Where
Differences Still Matter
Pankaj Ghemawat
Harvard Business School Press, 1st Edition, 2007, pp. 257
ISBN-13: 978-1-59139-866-0
Price: US$29.95
Ghemawat, in his text, has taken a different view in highlighting
the true characteristics of business on the globe today and term it as
semi-globalized, rather than few of the oft-repeated pronouncements made
by, either likes of Thomson Friedman in recent times or by Levitt, three
decades ago, regarding globalization of markets and an integrated world.
The latter on this premise suggest companies following global strategies
i.e. one-size-fits-all character. Phrases like, 'The world is
flat', 'Death of Distance', 'the End of
History' or Levitt's favourite, 'the convergence of
taste' are few popular ones, used by different people to emphasize
the integrated world. The basic premise, which Ghemawat suggests in his
book, is that even today, differences between countries are larger than
acknowledged and therefore, there is a need for redefining global
strategies to describe broader set of strategic possibilities.
In his opinion, the strategies that presume complete global
integration tend to place far too much emphasis on international
standardization and scalar expansion. While it is, of course, important
to take advantage of similarities across borders, it is also critical to
address differences. He further adds that in near and medium term,
effective cross border strategies will reckon with the reality, that the
author calls semi-globalization. The primary goal, he has determined is
to stretch thinking about cross-border strategies for a
semi-globalization world. Illustrating, Coke's strategy over three
decades or so, it has been suggested, how, Coke following a global
strategy got adrift in a sea of trouble and that, only recently, it
started to regain its bearings. The author in his detailed research
highlights the different shades of strategy which Coke faced under
different leadership, Roberto Goizutea exploiting similarities, Douglas
Ivester staying with the course, Douglas Daft succumbing to differences
and finally, Neville Isdell managing similarities and differences.
While, Coke is found to be unususal along certain dimensions, other more
'typical' companies may experience similar biases towards
adopting one-size-fits-all strategies, is what the author has concluded.
Supported by his extensive research and loaded with data, Ghemawat
is authoritative in his conclusion that most types of economic activity
that can be conducted either within or across borders are still
localized by country. Moreover, he goes on to make a finer point, that,
it is possible to turn the clock back on globalization-friendly
policies. While the technological drivers of increased cross-border
integration may be irreversible, the same can not be true about policy
drivers.
Chapter 1 summarizes evidence that the current state of the world
is one of semi-globalization: levels of cross-border integration are
generally increasing and, in many instances, setting new records but
fall short of complete integration and will continue to do so for
decades. The chapter goes on to explain, why semi-globalization is
essential for cross-border strategies to have distinct content--as well
as why failing to keep it in view can be a recipe for poor performance.
Chapter 2 collects the reasons, that, borders still matter and
classifies them in the cultural, administrative, geographic and economic
(CAGE) distances between countries. In the CAGE framework, four
components often intertwine, for example, it is hard to imagine
countries being close to each other administratively--say, part of a
trade area--unless they happen to be close culturally, geographically,
or economically. The multiple dimensions of distance still matter a
great deal. Examples of Google, it is not difficult to understand how
distances matter using the CAGE framework. Biggest problem in Russia
seems to have associated with a relatively difficult language
(cultural). Difficulties in dealing with Chinese censorship reflect the
differences between Chinese administrative and policy frameworks and
those in its home country, the US (administrative). Though Google's
products can be digitized, it had trouble adapting to Russia from afar
and has had to set up offices there (geographic). And with respect to
Economic Distance, the underdevelopment of payment infrastructure in
Russia had been another handicap for Google relative to local rivals.
This framework is best applied at the industry level because different
types of distance vary greatly in importance from industry to industry.
It reaches conclusions as how different industry kinds are particularly
sensitive to each component of distance. Applications of the CAGE
framework include making differences visible, understanding the
liability of foreignness (L'Oreal of France in S Korea facing the
local competitor, Amore Pacific), comparing foreign competitors,
comparing markets and discounting market size by distance.
Chapter 3 discusses why--if at all firms should globalize in a
world in which distance still matters. It presents a scorecard for
tracking value creation that includes but goes beyond the familiar
components of size and economies of size. It also supplies a set of
analytical guidelines and a list of specific questions to ask and
answer. The aim is to foster more realism about how cross border
strategies will add value in the face of large cross border differences.
Using examples of WalMart, Cemex and Philips, Ghemawat tries to find a
common thread in their globalization initiative, which is insufficient
attention to the creation of economic value. What is instead, noticed,
is value being ignored or analyzed superficially, survival being treated
as proxy for value creation or a focus on trailing indicators of
performance. The obvious antidote is to adapt and extend the rigorous
focus on value creation that has been proven to work in single-country
strategy. The ADDING Value scorecard follows, single-country strategy in
four of its six value components: adding volume (growth), decreasing
costs, differentiating or increasing willingness to pay, and increasing
industry attractiveness. The other two components are normalizing risk
and the generation of knowledge and other resources, which reflect the
large differences across countries. The ADDING Value scorecard provides
a basis for assessing whether a particular strategic move makes sense
which must be supplemented with concerns, if the selected strategic
option is likely to lead to sustained value creation and capture.
What to do about differences? Chapters 4-6 introduce the AAA
strategies for responding to differences: adaptation, aggregation and
arbitrage. Chapter 4 focuses on adaptation strategies that adjust to
differences across countries. Since this category of responses to
differences will already be familiar, the chapter aims to stretch
thinking by emphasizing the levers and sub levers available for adapting
more effectively. The first, most obvious approach to adapting to
differences across countries is variation. Electrolux of Sweden
exemplified this approach to extreme and even experimented with
individualization. A second lever for dealing with adaptation challenges
involves focus on particular geographies, products, vertical stages and
so forth as a way of reducing heterogeneity. Smaller players in top
ten--companies such as Indesit of Italy, Arcelik of Turkey and Maytag
focus on particular regions instead of operating globally. A third lever
for adaptation involves externalization--through joint ventures,
partnerships and so forth--as a way of reducing its internal burden. An
example is Haier's partnership with Michael Jemal, as a way of
adapting to unfamiliar requirements of the U.S. markets. A final lever
discussed is that of innovation which given its cross--cutting effects
can be characterized as improving the effectiveness of adaptation
efforts. The framework further elaborates Variation which encompasses
changes in products, policies, business positioning and even metrics or
parameters and also makes explicit, the sub-levers, namely, product
focus, geographic focus, vertical focus and segment focus. Change is
aided by a flexible, realistic and open mindset--and may require a major
organizational push.
However, even with full exploitation of adaptation related
possibilities, adaptation as a strategy for dealing with
semi-globalization suffers from two distinct sets of limitations. First,
assuming that centralized decisions are made at the global level and
decentralized decisions at the local level fails to account for
cross--border aggregation mechanisms that operate at levels intermediate
to the country and the world. Second, adaptation strategies almost, by
definition, treat differences across countries as constraints to be
coped with and thereby, ignore the possibilities of capitalizing on
them.
Chapter 5 focuses on aggregation strategies, that, overcome some
differences among countries by grouping them based on similarities.
Aggregation is all about using various grouping devices to create
greater economies of scale than country-by-country adaptation can
provide. While there are many possible bases of aggregation, the
chapter, focuses on geographic aggregation by region. A company like
Toyota, a global heavyweight, has pursued a very elaborate array of
strategic initiatives at the regional level which has been explained in
five evolution phases. Number of regional strategies has been indicated,
such as, regional focus, regional portfolios, regional hubs, regional
platforms, regional mandates, and regional networks. Other than the
region as a basis for cross--border aggregation, other bases identified
are, channels, client industries, global customers, and particularly
important for diversified companies-global business units or product
divisions.
Chapter 6 focuses on arbitrage strategies that exploit selected
differences across countries instead of treating them all as
constraints. The chapter reviews arbitrage strategies based on CAGE
differences. An example of one of the arbitrages is cultural arbitrage
and its favorable effects. For example, French Culture or, more
specifically, its image overseas has long underpinned the international
success of French Haute couture, perfumes, wines and foods. The Teva of
Israel, had $ 5.3 billion in sales in 2005. Teva's success is
rooted in administrative arbitrage: according to Hurvitz, who ran it for
26 years, it owes its existence to the Arab boycott of companies doing
business with Israel. In response, Israel let local companies copy drugs
patented overseas, if their owners did not market them locally--which is
how Teva built up its process expertise. A similar administrative
loophole underlies the success of a more recent wave of Indian
challenges in generic drugs.
Chapter 7 examines the trade--offs among the AAA strategies and the
extent to which it is possible and advisable to pursue more than one of
the As at the same time, it addresses, in other words, the development
of integrated strategies for playing the differences. This is also
because the focus has shifted from globalization of markets to
globalization of production. Ghemawat's recommendation for the
companies is to nail down at least one of the As and with one in hand,
possibly seek another, but be careful about pursuing the elusive
'trifecta'. The effective pursuit of combination of AAA
strategies would require expanded conceptions of coordination and arrays
of coordination mechanisms. Nobody has yet figured out the optimal way
to organize a complex global company, but much can be learned from
looking at leading-edge companies.
In Chapter 8 we find the conclusion of the book, which looks at the
future of globalization about which both optimism and pessimism have
been expressed. A step by step approach for companies to enhance global
value creation has been discussed. The chapter starts on a note of
caution where a beautiful quote, 'even if you are on the right
track, you'll get run over if you just sit there' by Arthur
Godfrey and Will Rogers, adorn the top head of the chapter. Discounting
various predictions, Ghemawat at least is convinced of the state of semi
globalization to be the order of the world at least for next 20 years.
And, if future is uncertain which it is, he suggests periodic path
making. One, by anticipating bumps and detours even if you do believe
that the world will eventually become more and more integrate; second,
paying attention to other predictable surprises, as well. Third, adding
to predictive power by taking things down to the industry and company
level. Fourth, recognize the importance of business in shaping broad
outcomes--including those related to the future of globalization.
Lastly, as the title of the text suggests Redefining the Global
Strategies, it suggests a five step process for getting started. Step1,
Performance Review; Step 2, Industry and Competitive Analysis; Step 3,
Difference Analysis using CAGE Distance Framework; Step 4, Development
of Strategic Options: AAA strategies; and Step 5, Evaluation: ADDING
Value scorecard.
In a nutshell, what Ghemawat tells the world of business is not to
rush into globalization, just because, everyone else seems to be doing
so. Instead, it should see the value that such moves create and focus
more on the 'differences in differences' in the industry and
company context. A one-size-fits-all character strategy may not be the
right prescription for the future of many under the globalization
apocalypse around. Hence, suggesting a periodic review of the future and
redefining of the future path.
Rajiv Ranjan Thakur
Associate Professor, IMT, Ghaziabad
