Global Strategy: New Challenges

Cornelis A. de Kluyver
Masatoshi Ito Professor of
Management
Peter F. Drucker and
Masatoshi Ito Graduate School
of Management
Claremont Graduate University
October 2009
The Headlines Today…Globalization,
Technology, and Hyper-Competition

What’s ahead?
More globalization?
More technology?
More competition?
Or……?
What will it take to succeed in the coming
decades?

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Globalization – Setting the Record Straight

Globalization is ….
Centuries Old (Phoenicians, Chinese, British,
Dutch…
NOW Multi-Dimensional (Economic,
Technological, Political but Cultural?)
Often Misunderstood (Is the world really flat?)
More Fragile than we Think (Protectionism?)
Changing as We Speak (Has Globalization
Entered A New Phase?)

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Globalization Today…Where Are We?

Product Markets?
Supply Chain Infrastructure?
Capital Markets?
Regulatory Regimes?
Mindset?
Culture?

Paradox #1: The more global we get,

the more local we want to be...
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 Technology…Tool or Life Style?

We are only at the beginning…

Technology is about to explode further
Information, bio-technology, other
Technology is creating an unprecedented inter-
dependence
Economies, markets, companies, individuals
But…Counter forces are emerging

Paradox #2: The more high tech, the more

high touch...

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 Hyper-Competition - Can it last?

Today’s competitive environment:

being globally competitive is an imperative
half lives of products, companies are getting shorter
size matters; therefore
consolidation will continue
alliances will thrive
but…M&A’s have mixed track record, new
governance issues are emerging, anti-trust forces

Paradox #3: More competition and more cooperation -

a new symbiosis of large/small (entrepreneurial)
companies
de Kluyver - New Strategy 6
 The Future...

More globalization
but…need political/economic infrastructure
More technology
but…need high touch/simplification
More competition
Asia, Europe, Latin America
but…cooperative strategies will thrive

PLUS…Demographic Shifts….

de Kluyver - New Strategy 7

 Three New Global Challenges:

Globalization is entering a new phase

Global Tectonics

A new compact between business and

society

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 The First New Global Challenge:
Globalization is entering a new phase

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 Globalization is Now a Two-Way Street

 GLOBALIZATION used to mean, by and large,

that business expanded from developed to
emerging economies

 Now it flows in both directions, and increasingly

also from one developing economy to another

 The Bottom line – Business these

days is all about ―competing with
everyone from everywhere for
everything‖
Source: Globality‖, a new book by the Boston
Consulting Group (BCG)
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The Evidence: Fortune 500 rankings of
―Emerging Market‖ companies

 The number now stands at 62, mostly from the

so-called BRIC economies of Brazil, Russia,
India and China, up from 31 in 2003,

 and is increasing rapidly. At the current rate,

―emerging-market‖ companies will account for
one-third of the Fortune list within ten years

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 Who are they? (1)

NATURAL RESOURCES
 Vale (Brazil) – Iron Ore and Pellets
 Basic Element (Russia) and Aluminum
Corporation (Chalco) of China – Alumina
 Votorantim Group (Brazil) – Zinc
 Gazprom (Russia) – Natural Gas
 MISC Berhad (Malaysia) – Shipper of
Liquefied Natural Gas
 Sinopec (China) and PetroChina
 (CNPC) (China) – Energy

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Who are they? (2)

TELECOMMUNICATIONS/
ELECTRONICS
 Huawei Technologies and ZTE (China) –
Telecommunications Equipment
 China Mobile (China) – Network
 Galanz Group, Johnson Electric and Midea
Group (China) – Microwaves, Motors, and
Electric Fans, resp.

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Who Are They? (3)

LOGISTICS
 Cosco Group
(China) – Shipping
 CIMC (China) –
Containers
 CSIC (China) –
Shipbuilding

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 Who Are They? (4)

OTHER SECTORS
 Automotive Components (Wanxiang Group
(China), Bharat Forge (India), Marcopolo (Brazil)
 Consumer Goods (Coteminas (Textiles, Brazil),
JBS-Friboi (Meat, Brazil), Tata Tea (India),
Perdigau (Poultry, Brazil), United Spirits (India)
 Others – Jet Aircraft, Batteries, Fibers,
Chemicals…..

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How Do They Do It?

1. Exploit Early
Advantages
2. Act With Global
Ambition
3. Demonstrate
Willingness to Reach
Outside

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1. Exploit Early Advantages

Privileges Access to Markets and

Resources
 Protectionism afforded shelter from global
competition (natural resources, markets)
Freedom from ―Legacy Assets‖
 No outdated technologies and plants, labor
agreements, distribution channels
Access to Low-Cost Labor
(Subsidized education)

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 2. Global Ambition

Entrepreneurship
 More than half of the new global
challengers are led by the
company’s founders
Tightly controlled ownership
structures facilitate risk taking
 China, Russia (gov’t), India (family)
Low perceived cost of capital
 State of family funding
Effective defenses against takeovers
 Protection
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3. Willingness to Reach Outside

Partner to build world-class

capabilities (fast)

Use acquisitions to reach

global scale (leadership)

Build global management

teams

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The Second New Challenge: Global Tectonics

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 Global Tectonics

Environmental tectonics – The

Environment

Technological tectonics – Advances in

biotechnology, nanotechnology, information
systems

Societal tectonics - Shifts in international

governance and political and cultural values

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 1. Population Growth and
Urbanization

 The world population is rising – fast – from 6.4 billion today to 9

billion by 2050
 Aging populations in Europe, the U.S. and Japan will present
key challenges for the public as well as the private sector
 More than half will live in cities.
 Local and federal governments will be hard pressed to provide
the necessary infrastructure and social services
 Rising potential for social, health-related, economic and security
volatility
 Mega cities – with 10 million or more inhabitants – will become
commonplace; rural development may languish

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 2. Rise in Global
Healthcare Needs

 Demographics/Ageing of the Population

 Further globalization will increase the
likelihood of epidemics and the spread of
infectious disease
 The threat of biological terrorism also is
becoming more real with every passing day.
 Most of the solutions to these problems will
have to be provided by the private sector –
from providing a healthcare infrastructure to
developing new generations of drugs to
developing disaster response systems.
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3. Scarcity of Basic Resources

 Access to plentiful fresh water is a key concern in many

areas and is a major determinant of local growth and
investment; future conflict over water resources is
increasingly likely.
 The availability of food is impacted by and affects population
growth, technology, and governance. Increasing crop yields,
enhancing foods with vitamins, and improving distribution
systems will be critical.
 Energy availability is an ongoing concern in many industries
and has spawned innovation and investment in a whole new
range of renewable sources of energy.

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 4. The Environment

 Possible effects of global warming:

 Flooding of low-lying countries due to rising sea
levels, increased frequency of severe storms and the
retreat of glaciers and icecaps.
 Temperature increases; in temperate areas with four
seasons, the growing season would be longer with
more precipitation; less temperate parts of the world
would likely see long droughts and the emergence of
deserts.

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 5. The Spread and Power
of Knowledge
 Technology:
 Information technology
 Biotechnology
 Nanotechnology
 Application Domains
 Focus on Medicine, Agriculture, the Environment
 Long term, advances in the biosciences will also likely
shake up the world of electronics and make silicon
obsolete (The ―DNA‖ computer?)
 One day, ―nanomedicines‖ will be able to monitor,
repair, and control human biological systems.
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 6. Issues of Conflict
and Governance?

 From bilateral clashes between superpowers (pre-

1989) to multiple civil and intra-country conflicts, most
of them clustered in the developing world.
 The emergence of Terrorism
 The clash of the two primary sources of law:
 The rule of law as defined by local and national
legislatures, multilateral agreements, and an emerging
body of international law.
 The market defines the second set of laws. This
second set of laws is becoming -- within the
boundaries of applicable legal structures -- the
dominant force in the evolution of corporate
governance practices around the world.
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The Third Challenge: The New, Emerging
Compact Between Business and Society

Nine

New

Rules

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 1. Size means scrutiny

The bigger a company is, and the more market

dominance it achieves, the more attention and
demand it faces for exemplary performance in ethical
behavior, good governance, environmental
management, employee practices, product
development that improves quality of life, support for
communities, honest marketing, etc.

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 2. Cutting costs raises compliance risk

The more companies use traditional means to cut

costs—finding low wage producers in less developed
countries, squeezing suppliers, downsizing, cutting
corners, etc.—the more potential there is for crises
related to noncompliant ethical practices.

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 3. Strategy must involve society

For forward-thinking companies, social and

environmental problems represent the growth
opportunities of the future.

GE is looking to solve challenges related to the

scarcity of global natural resources and changing
demographics.
IBM prioritizes producing social innovations
alongside business product and process
innovations.

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4. Reducing risks means building trust

Classic risk management strategies must expand

beyond financial and currency analysis to include
destabilizing trends and events arising from society.
Smart leaders realize that no company can manage
these risks if it doesn’t earn the trust of society’s
leaders and of its communities.

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5. Satisfying shareholders means satisfying
stakeholders
In the long-run, the company that pays attention to the
business-society relationship ultimately serves its
investors’ interests because
 Stronger ability to identify risk,
 Can build trust with its stakeholders
 Better positioned to develop goods and services that
society values.

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6. Global growth requires global gains

Increasingly, growth requires a

global perspective that
recognizes the importance of
strong communities which
supply infrastructure, maintain
stable business climates,
attract investment capital,
supply healthy educated
workers, and support growth
that generates consumers with
greater purchasing power.

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7. Productivity requires sustainability

 Companies have seen that commitment to

environmental management and safety in
the workplace has been a driver of lower
costs and greater productivity.
 Companies that take on the challenge of
constraining their behavior through
commitments to corporate citizenship find
new incentive to innovate to compete.
 The more companies innovate, the more
productive and sustainable they become.

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 8. Differentiation relies on reputation

In the U.S., an estimated 50

million people, representing over
$225 billion a year in purchasing
power, comprise the emerging
―lifestyles of health and
sustainability‖ consumer base.
As the influence of these activist
consumers grows, they will
demand companies to
demonstrate sterling reputations
and commitment to society.
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9. Good governance needs good
representation

The recent wake of the corporate

scandals in all parts of the world is
creating strict controls and
governance reforms. But behind
these changes is a deeper
revolution calling for companies to
include stakeholders in formal
governance.

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Spectrum of Corporate Responses to the New
Challenges To Date

 None
 Short-term Perspective
dominates
 Ethical
 Rooted in Corporate Social
Responsibility
 Strategic
 Rooted in Long-term
Strategic Perspective

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A Pragmatic Response

Has Your Company

Defined a Response?
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Questions?

Thank you!

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