Globalization Is Changing. Here’s How Your Business Can Adapt5 September, 2019 / Articles
Our world has moved from globalization euphoria in the early 1990s to a globalization backlash over the past decade. We are witnessing a profound transformation of globalization – of its original definition as “the development of an increasingly integrated global economy marked by free trade, free flow of capital, and the tapping of cheaper foreign labor markets”- shaped by new actors like China, trends in e-commerce and new technological dimensions, such as artificial intelligence and machine learning.
New face of globalization
Moscow’s Pushkin Square as McDonald’s opened its first branch in 1990. It was preceded by KFC’s first store in Tiananmen Square. These companies quickly became the poster children of globalization. Many firms followed suit, pursuing acquisitions, courting new customers and rapidly opening factories around the world. The International Monetary Fund has estimated that foreign direct investment surged by an average of 50% during the 1990s.
Today, we are witnessing a reverse trend. The Economist has examined the track record of the 500 largest firms worldwide and found that in eight out of 10 sectors, multinational firms have expanded their aggregate sales more slowly than their domestic peers. For US-based firms, returns are now 30% higher in their home market. Other moves by multinationals reflect similar trends: Uber retreated from China in 2016, after spending nearly $1 billion a year competing with Didi. In India, Vodafone is losing customers to Reliance, a domestic firm.
Further stoking this uncertainty is the rise of China’s cultural, economic and business influence. The greatest example is its bold Belt & Road Initiative. Touching dozens of countries across Asia, Africa, the Middle East and Europe, with over $60 billion in infrastructure investments, it bids to increase regional and global connectivity – and heralds an era of globalization with Chinese characteristics.
The rise of technology is introducing opportunities and obstacles for global and domestic companies alike. Brookings Institution estimates that five years ago, the free flow of data contributed $2.8 trillion to the global economy, a figure that could reach $11 trillion by 2025. Global digital platforms from Amazon and Facebook to Alibaba, internet connectivity and the new oil – big data – are enabling small businesses to become “micro-multinationals”.
Individuals are participating in globalization directly, using digital platforms to learn, find work, showcase their talent and build personal networks. Some 900 million people have international connections on social media, and 360 million take part in cross-border e-commerce.
At the same time, this brings growing competition, and inequality continues to increase. The rates of disparity and inequality – between rural and urban areas in developed countries, between developing and developed markets and ultimately between people and machines – are on the rise. Multinational companies are increasingly seen as agents of inequality and face growing pressure and criticism from governments and consumers alike.
What does it take to succeed in this new era?
APCO Worldwide’s recent research revealed that only 14% of business executives surveyed feel very prepared to deal with unexpected geopolitical threats, and only 18% felt they were equipped for the challenge of recruiting and retaining the talent needed for growth. The key takeaway of the study is that enterprises today need to lean into risks and have a process to embrace and adapt to them. The model that emerged from the research identifies three critical building blocks of an agile enterprise: active leadership, shared advocacy and enterprising culture.
1. Active leadership
Components of active leadership include honesty, transparency, visionary thinking and action, embracing diversity of thinking and opinion – and most importantly, willingness to take decisive action. There are numerous examples of companies taking a stand – from proactively setting a “living wage” to protecting the more vulnerable like immigrants and refugees. In all cases, this action was clearly driven from the top of the C-suite.
Salesforce Chief Executive Marc Benioff said he didn’t set out to be an activist CEO, but was pushed by his employees. Citigroup’s Michael Corbat took multiple public stances to embrace the gender pay gap problem at the bank and vowed to address it. Fortune’s CEO Initiative, Coalition for Inclusive Capitalism, and the B-team, among others, are a testament to a rising trend of leaders compelled to speak and act on key social issues.
2. Shared advocacy
APCO found that among the engaged public (on political/social issues), an overwhelming majority – 77% – would admire a company that uses its business strengths to address a social issue (as opposed to donating money for a charitable cause). As many as 88% of business leaders agreed that solutions to society’s greatest problems will rely on the resources and innovations of businesses. But no corporation can do it alone; it requires external engagement and bringing diverse partners to the table – from the UN and other multilateral organizations to NGOs, foundations, civil society and the next crop of academic talent – to establish incubators to jointly solve intractable challenges. There has been a proliferation of new public-private partnerships, including Johnson & Johnson’s JLABS, MIT Solve and UN Global Compact.
3. Enterprising culture
How a company treats its employees is viewed as a direct reflection on how the company is run and operates around the world. It is critical to build an organization and culture that learns quickly from failure, empowers the middle and questions the status quo. For companies to succeed, leaders need to understand what motivates people across generations, different cultures and geographies. Another important element of success is empowering employees and allowing for ownership and autonomy.
Multinational companies are on the frontline of the battle for a more inclusive globalization, and for growth prospects in an era of geopolitical uncertainty. Considering these three elements is crucial to building an agile enterprise that can weather the storms of tomorrow.