Ashridge

Virtual Learning Resource Centre

Globalisation: The external pressures

Bookcover

edited by Paul Kirkbride, John Wiley and Sons (in association with Ashridge) 2001.

A copy of this book can be ordered online via the Ashridge e-bookshop.

Abstract

This book is a series of essays written by 14 experts, working for or with Ashridge on a wide range of issues concerned with Globalisation as a major factor in the external activities of many companies today. A second volume on the internal implications of globalisation is the subject of a separate summary.

(Summarised by Edgar Wille in February 2004)

(We always say that there is no substitute for reading the book to gain the full benefit. Also the authors of the book are not to be held responsible for any errors, misunderstandings or inaccuracies of the summariser. It is of the nature of the task that a summary can never fully represent the full richness of the authors' offerings.)

Chapter 1: The state of globalisation today by Paul Kirkbride, Paul Pinnington and Karen Ward

This chapter offers some definitions of globalisation and delineates four schools of thought about it. It recognises the intense feelings aroused by the topic and seeks a balanced perspective. The most comprehensive of the definitions is from Ray Reilly and Brian Campbell from University of Michigan and TriMas Corporation, respectively.

'Globalisation is the integration of business activities across geographical and organisational boundaries. It is the freedom to conceive, design, buy, produce, distribute and sell products and services in a manner which offers maximum benefit to the firm, without regard to the consequences for individual geographic locations or organisational units. There is no presumption that certain activities must be located in certain places or that existing organisational boundaries are inviolable.

'Instead, the global firm stands ready to respond to changing market conditions and opportunities by reconsidering its options from a broad economic perspective and choosing the alternatives which are thought to be best in the long run. Globalisation incorporates a willingness to consider worldwide sourcing for parts which were previously manufactured in our own at-home plant, the development of relationships for distribution and selling through otherwise unrelated firms located in other countries, and the use of joint ventures with international partners to develop and exploit a new technology. The global firm is not constrained by national boundaries as it searches for ideas, talent, capital and other resources required for its success.'

Globalisation is a total approach to managing business around the world, which seeks the whole to be greater than the parts. It goes beyond mere exchange between relatively distinct national economies, to one where national economies are subsumed into wider international processes and transactions. Transnational companies thus come to represent stateless capital, without any national identification or loyalty, which would be willing to locate anywhere in the world to secure the most advantageous terms or returns. Ultimately it would lead to the withering away of the national state as a prime actor.

Four schools of thought are examined: the globalist; the sceptical; the transformalisationist; the anti-globalist.

The globalist thesis

This school believes that globalisation is here to stay. It is based on a convergence of tastes and homogeneity for the use of standard products and services. It achieves cost efficiencies by integrating purchasing and manufacturing processes. It stems from a few major players who dominate business worldwide and it is maintained by large organisations who have global cultures and mindsets. It has grown out of the multinational corporations, who had substantial direct investment outside their domestic markets, and who undertook active management of these offshore assets, both strategically and operationally.

They moved from simple seeking of competitive advantage anywhere, to consolidation into global regional and niche groups, including global account strategies, to the point where the industry became dominated by four to ten players whose power moved from mere products and prices to the intangible power of branding and learning. They did not start out to be global, but were rather driven incrementally from a home market strategy.

They started by looking for low cost factors of production or security of supplies. Then reducing product life cycles and increasing research and development costs led them to engage in market seeking behaviour outside their home market, initially in an opportunistic way. In addition there was the need to scan the global environment in order to learn how better to position themselves competitively.

'Global connectedness' is a term often used to describe the stituation which developed. Some writers point out the enormous personal cost which globalisation can have on staff. Kevin Barham and Claudia Heimer give checklists on how to engage an organisation in three stages 'going international', "going multinational', 'going global'. The third phase includes creating a cultural whirlpool for key people who need to be international and linking country managers with people who look at the whole globe.

This school is convinced that globalisation represents a new global age, that it erodes national governments, that the central driving forces are modern capitalism and new technology and the outcome will be the creation of a new 'borderless world' and the end of the nation state.

The sceptical thesis

This school says that globalisation is not here to stay. In fact it does not actually exist. The members of this school believes that the historical analysis supporting the existence of globalisation lacks analytical depth.

They maintain that the present highly internationalised economy is not unprecedented and suggest that is it less open than it was from 1870 to 1914. They consider that genuinely transnational companies are rare. Most companies trade multinationally on the basis of nationally located assets. Capital mobility is concentrated mainly in the more advanced industrial countries, to the detriment of the 'third world'. The world economy, far from being global, is a matter of trade, financial flows and investment between North America, Europe and Japan.

This school of thought believes that what we call globalisation is nothing more than regionalisation or internationalisation. The future could be dominated by the clash of regional blocs, rather than by a homogenous world economy.

The transformationalist thesis

This school believes that globalisation exists, but says it is more complex than some simplistic descriptions allow. Some of this school emphasise that it is limiting to look at only economic factors. Globalisation, for them, is political, technological and cultural as well. Anthony Giddens puts it:

"Globalisation is a complex set of processes, not a single one. And these operate in a contradictory fashion. Thus there are winners, but they create losers in the global power balance. The gap between rich and poor grows, between first and third worlds. The world consists of the elites, the reasonably content and the marginalised, the latter being the largest class worldwide".

This thesis is summarised by recognising the unprecedented scope of interconnectedness in the world, the restructuring of national governments by globalisation, which will lead to a new architecture for the world order, with both integration and fragmentation operating.

The anti-globalist thesis

This group was brought to public attention by the anarchic scenes in Seattle, Prague and elsewhere. The anti-globalists see globalism as a hegemonic strategy pursued ideologically by a few small but powerful international bodies without democratic oversight or transparency. The agenda of these bodies is the liberalisation of capital markets and trade flows and the creation of free market economies to the benefit of the largest transnational corporations and the G7 nations.

This opposition rejects globalisation because it creates greater inequality and assumes that economic growth is a panacea, which it is not. The key global institutions (IMF, WTO and World Bank) and the transnationals do not promote development; they are the new colonialists who exploit local resources in the developing world and place them in a 'debt treadmill', all of which leaves us a global economic elite and a marginalised and subjugated world proletariat.

Is this the global age?

I have given extra space to this chapter as it provides the groundwork for much which follows in the book.

The last section gives a brief historical survey of other forms of globalisation in the history of the world, going back even before the Roman empire, on to 1500-1850 and the formation of the great colonial empires, then into the stretching of European and American power world wide, and finally from the end of World War 2 the move toward the clustering of patterns of globalisation in the domains of politics, law and governance, military affairs, cultural linkages and human migration, in all dimensions of economic activity and of shared environmental threats.

The authors do not think we have a truly global market, but we do have an increasingly borderless world. Business management still has to manage according to sound principles. Globalisation is not the sine qua non of management, but it is affecting more and more individuals, communities, organisations and states than ever before.

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Chapter 2: The globalisation process in the world economy by John Heptonstall

The author begins by telling us that there is no such thing in existence as a truly global economy. If there were, there would be free circulation of people, goods and services, technology and know how, capital and information. Companies would be indifferent as to where their plants were located.

In reality countries and groupings of them subsidise exports, impose import quotas, close whole sectors of the economy to foreign investment, impose tariffs. There are vast differences between the economic performance of countries, the stability of their currencies, their openness to trade and investment, and the wealth and well-being of their residents. The flow of funds through foreign direct investment (FDI) and portfolio investment has been more rapid than the growth in trade. To say that globalisation has really arrived is possible only if trade is growing significantly faster than world output, ie that world exports as a percentage of world GDP show a systematic increase.

Continuing world poverty

However, protective barriers have been reducing and the existence of a world economy is closer than it has ever been. Nevertheless hopes for an end to world poverty have not been realised. Some countries have been by-passed and others have been made poorer. The gap between rich and poor has increased both within countries and between countries. The share of world trade in the Middle East has declined and Africa was the source of only 2% total non OECD trade toward the end of the 20th century.

The world has become more open, more interdependent and more ‘global’, but the development is highly uneven, made more so by the fact that poorer countries are vulnerable to market volatility, because they are so dependent on a few commodities, such as cocoa, tea, tobacco, sugar or coffee. This is because of the facts of economic life, of demand variation, rather than by the deliberate manipulation by the rich.

Where proliferation of trading blocs, such as the EU, continues, trade barriers by customs unions work against those poorer nations which are members of no 'club’ at all. Then the rush of banks, some operating in offshore ‘Eurobond' markets, to lend money to developing countries grew out of control, leading to disaster when the day of reckoning arrived. Many developing countries borrowed more than they could ever repay. Twenty years later the debts are still outstanding, and pleas for debt forgiveness are part of the anti-global protest platform.

Equity funding has tended to remain largely domestic, but the size of the international financial markets has continued to grow phenomenally towards the ten trillion dollar mark, as far as can be told. Banks who lend in these markets are largely unsupervised and unregulated, and are a jungle into which borrowers venture at their risk. Developing countries have unwisely seen opportunity in them and have borrowed heavily, often for unrealistic and grandiose projects which were never completed (and often for money to flow into private accounts). The IMF has then been called in on a rescue mission and has gained a bad name for laying down stringent measures of financial discipline.

Foreign direct investment (FDI) has been slow to take place into the developing world, though it increased toward the end of the century. However this increase has been uneven, with least developed countries, especially in Africa receiving little. China has become a favoured destination. Investment has largely moved from greenfield development to acquisitions, and from natural resource and manufacturing activity to the services sector.

Foreign direct investment (FDI)

FDI, particularly into developing countries, can generate employment and enhance skills, it can transfer technology and know how, it can help to clean up polluting technologies and increase upstream and downstream investments within a country. But, on the other hand, foreign investors, once established, tend to raise capital from local sources, thereby crowding out the local borrowers. The control of assets tends to pass out of the hands of residents into those of foreign companies.

While there are some 50,000 companies involved in some FDI, a handful of large transnational companies (TNC), in fact, dominate by volume. Their power is great. The UN estimates that some 100 companies produce between 4% and 7% of total world GDP.

The ownership and control of local companies with most development potential in the developing world is passing into foreign hands and the host government has little control over this. Most of the profits of acquired companies will be repatriated and rationalisation activities by the new owners will in fact reduce employment. This will also reduce competition. Moreover, TNCs will lean on host governments to reduce tax rates. All in all, the TNCs have different objectives from the host governments. It is not to stimulate local economic development, but to increase their competitive advantage and ultimately maximise the wealth of their shareholders. How these trends are controlled as a result of international scrutiny will determine the future development of globalisation. It is not just a matter of altruism.

John Heptonstall concludes that some of the international banks have behaved with massive irresponsibility in the past and the debt overhang is still very much with us. 'Some of the TNCs have not taken so much care as they might have done to understand and to try to accommodate the needs and objectives of their host countries and their governments. The World Bank and the IMF have sometimes seemed high handed and have not always done their homework as well as they might. And the WTO is not noted for its communication skills so far!'

Three scenarios for the future

He concludes with three scenarios. The first calls for an honest attempt to put things right. This would include debt forgiveness on a scale never attempted. Private sector banks could offset write-offs against tax, so this would not be painful. But they would have to take the debts truly off their books, which they have not done in the past.

An enhanced role for the International Development Agency (IDA) is recommended, but the real challenge would be to motivate the TNCs to direct some of their investment activities to the poorest parts of the world. In the absence of an appropriate regulatory authority, a code of conduct in good corporate citizenship is required, to which all TNCs agreed and adhered - a pious hope perhaps.

A more likely second scenario is to carry on muddling through with some growth in skill and moderate reform all round. This is possible as the seriousness of the situation becomes ever more apparent. Nevertheless this would not include debt forgiveness, though perhaps debt might increase at a slower rate. Vociferous protest against globalisation would not disappear.

The third scenario is 'blood in the streets' If TNCs think of nothing but their shareholders, if the EU and Japan continue their present levels of protectionism, if the IMF and World Bank continue to be seen in the third world as the tools of the rich countries, things could become so bitter that the WTO never manages to hold a further round of trade talks. Things will go from bad to worse and progress toward beneficial globalisation will be severely limited.

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Chapter 3: Global labour markets by Jim Durcan

In the development of the USA, migrants from many countries added to the economic resources and cultural diversity of the country. This was true elsewhere as well. Jim Durcan asks whether the globalisation of the world economy renders mass migration unnecessary, or does it give even greater urgency to the struggles of millions who seek a better life by moving to a better life in more prosperous areas? Does the ability of global corporations to move productive capacity and jobs anywhere, mean that the 'huddled masses' of the verse inscribed on the Statue of Liberty, no longer need to abandon their homes and 'risk the tempests'.

He also asks whether the commitment to free markets and to human dignity should require that governments should demonstrate as great an enthusiasm for free movement of labour as they have for free movement of capital.

Recruitment of employees

Employers in some companies recruit their staff internally and then feel the investment in training and development is worthwhile. Such workers have been protected to a large degree from market forces. And internal negotiation of pay and conditions of service gives a measure of stability. These companies can of course become insulated and when external forces require retrenchment, such as downsizing, outsourcing and return to core activities, job losses and pay cuts can break the arrangements which were regarded as contracts. Few companies are totally insulated from the effects of globalisation, which can mean that they have to expand their geographical reach, with changes to their internal labour market.

Where the internal labour market is not a possibility, employers seeking workers advertise in the wider world. Workers seeking employment respond to job opportunities. Much of this happens on a local or country basis.

However, as with doctors and nurses in Britain, there is an increased effort to meet shortages by seeking employees from other countries. The market becomes to some extent multinational. Given the reduced cost of travel and the electronic availability of job information, in theory all labour markets could encompass the globe. But there remains the fear of workers that their jobs are going to be undercut by migrants.

But these possibilities for migration are limited by the unwillingness and ability of foreign workers to move, leaving behind their families and friends and familiar surroundings. Even more their migration is affected by the limits that governments put on inward flow of migrants. For special skills or activities in which local people do not want to work, there is less difficulty in their being allowed to migrate. There has always been employment discrimination in relation to women, ethnic groups and otherwise disadvantaged people, though somewhat controlled internally by legislation. But the restriction approach still applies to foreign migrants, and is backed by the force of legislation.

Mobility of labour

The EU is committed to mobility of labour within the Union. Language skills, qualifications and credentials limit this and to those outside the EU there is restriction of their ability to enter 'Fortress Europe'. Although in the past, countries have benefited considerably by the inflow of migrants, the current trend of all developed countries is to keep out ‘economic migrants’, who are not considered to be genuine refugees.

Where corporations require certain categories of labour they are able to arrange for inward migration and they will look after all the legal arrangements connected with labour permits and so on. But there is little chance of corporations extending this more widely to residents of poorer countries, though where they invest in poorer countries they can improve the employment situation.

Where poorer countries export their younger people they may affect the age profile and experience an aging demographic situation in the home country. The economic consequences of this are offset partly from remittances sent home by the migrants. Their departure will however reduce the potential for development of their country, which needed their skill and energy.

The fall in birth rates in many developed countries could in future create a greater demand for migrants to fill the gaps and reluctance to let them go. Then the issues raised above would become of greater significance.

The Globalisation of Labour markets

Jim Durcan concludes by emphasising how FDI by large corporations can help the prosperity of developing countries and how a more open policy by developed countries could become necessary to plug their own gaps.

In his last paragraph he seems to see the globalisation of labour markets as an integral part of globalisation as a total concept. "The greatest force in the globalisation of labour markets continues to be the millions of largely anonymous migrants and would-be migrants." He speaks of these people who are prepared to risk their lives in seeking better prospects as a "silent testimony to the inequalities which persist in the global economy". He ends: "One challenge for the twenty first century is whether globalisation will be as effective in providing opportunities for suppliers of labour as it was in the twentieth century in providing opportunities for suppliers of capital." The analogy between labour and capital may be open to doubt. But in any case there is more work to be done on the analysis. It is not at present clear how a complete turnabout on migration is to be achieved.

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Chapter 4: On the internet all business is global (like it or not) by Mike Malmgren

Mike Malmgren considers that the most fundamental aspect of the Internet for globalisation, and business in general, is the shift in the value of products and services from the physical to the digital domain. Products and services are in effect a packaging of knowledge which can travel all over the Internet worldwide, giving awareness of what is available at the touch of a key.

This facility will bring many an enterprise from being a local facility to operating in a world market. The banks, for example, can organise themselves for a global customer base, instead of being restricted to a local community centered on a high street branch. That community itself may well be involved globally and therefore require global services.

Four forces for globalisation

The author defines four forces for globalisation arising from the Internet:

  • Information.
  • Network reach.
  • Language/culture.
  • Economies of scope.

All four forces will vary in their speed of development in different geographical locations, but all will be fuelled by ever expanding technological developments. The only delaying factor is the willingness of organisations and their employees to embrace change. But this may not be a problem, given that 10 years ago email was hardly used by the general public; look also how mobile phones have multiplied in a very short time.

Information

The availability of information on a world wide basis, and the ability to control the use you make of it, is an obvious driver of globalisation. People used to speak of a shrinking world in the 1930’s, but this facility must be the ultimate in shrinking space and time. The Internet brings the 'global village' nearer, once we harness its power. Documents, data and video images are immediately available across the world at the cost of a few cents.

There will be the potential for immediate use of information to determine a position in the value chain and to agree on how work is to be divided up to produce a product or a service and to distribute it. Volvo has global knowledge of where every one of its trucks are, and can ensure its smooth running to carry out its mission, so that this real time service is worth more than the original cost of the truck. Similarly the connectivity of every requirement for the daily servicing of a home can be centered in the kitchen, linked, say, by the providers of the washing machine and can be many times more valuable than the washing machine.

The use made of knowledge of customers and their tastes is already a well known aspect of the Internet service.

Network reach

As more and more facilities are provided, the reach of the Internet increases exponentially. Information is turned to action as a number of people are able to ignore national boundaries and deal with each other and look at the same documents, diagrams and pictures at the same time, as if they were in the same room. Much less need for the expense and fatigue of continually flying to yet another meeting.

You can locate almost anything you want by sophisticated searches. You can complete the deal and pay for it, all without moving out of your office or lounge at home. You can attend an auction any day without going to Christies’ and for a wider range of goods. Mobile phones are increasingly being linked to the whole Internet process, so that you can make business decisions while walking the children in the park.

Culture and language

Malmgren calls this facet, "the brake pad on the globalisation bandwagon". There are considerable obstacles to overcome, such as local languages and habits, security concerns, telecoms infrastructure, technology adoption rates and to some extent demographic evolution. They are already being overcome. (I was working on a Czech computer the other day. I pushed for the language menu and ticked EN and behold everything was there in American English.) Already, as he says, our children switch on the computer as naturally as we switch on the light.

As to culture, the use of the Internet has to be flexible enough to recognise various national and local preferences. Payment preferences vary between credit card and bank transfer and cash. All except the cash are capable of Internet handling.

Economies of Scope

The Internet can be used to create bridges between different aspects of a transaction or even of a strategy. One piece of information can serve so many purposes when connected on the Internet. All the various skills involved in a project can be brought together in a moment of time. The people with the skills can be in any continent, even in the Antarctic. Each makes their contribution in real time by word or picture; alternatives are considered. And a new product is born in a miniscule fraction of the time previously taken.

Bids for contracts can similarly be prepared and business won by the very promptitude with which the offer was made. The scope of the coverage involves every angle. Also the scope of link with the various elements of implementation is vast.

The use of the Internet is central to the development of globalisation. It brings the whole globe into one’s office or home while at the same doing likewise for the other participants in a project. That must be globalisation of itself, but it also serves the wider strategic globalisation that is the theme of this book.

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Chapter 5: Global parenting by Marcus Alexander

The Ashridge Strategic Management Centre, of which Marcus Alexander is a director, has been pursuing many aspects of corporate structure and relationships for some years. He and his fellow directors have written a number of books on these themes.

He views globalisation from the perspective of the relationship of the Corporate parent and individual business units in a multibusiness company. By the parent he means the line and staff managers who have responsibilities that go beyond a single unit, spanning different countries or product areas. They will be located in a corporate head office or a divisional HQ. Globalisation means that they have to orchestrate links between units in different countries and to decide on priorities for international expansion.

They may offer a perspective across countries that businesses lack. However, they can also act as a major constraint on effective globalisation if they apply a culture which they subscribe to, but which is inappropriate for a particular country. Most of the employees in a company work in a discrete business which has certain common factors of geography or product, set up as a profit centre. There may be many such businesses in a corporation, whose headquarters has a role of coordinating, in some way, the businesses, so that they serve a common purpose.

The parent sits above the businesses and acts as an intermediary between them and the shareholders, deciding which business proposals to sanction or fund and which managers to appoint or replace. The parents bring costs of its own staff and the time it uses in decision making in consultation with the businesses. To justify its existence, the parent must enable the businesses to perform better than they would without its influence. And to do so much better than any other parent would - to avoid a takeover from a potential parent that thinks it could do better, and is prepared to pay shareholders for the opportunity to do so.

Conditions for successful parenting

Three conditions for successful parenting are:

  • Improvement opportunities that the business could not realise by itself. Globalisation may generate a range of new opportunities for the parent to add value.
  • The parent must possess skills that help to realise its targeted opportunities unusually well. These distinctive parenting characteristics should be particularly well suited to exploit the type of opportunity it is targeting, eg global sourcing, without creating a bureaucracy or imposing inappropriate constraints on business choice.
  • The parent must avoid simultaneously destroying significant value in other respects. The parent must have a feel for the business such that it is aware of what would be a misfit with the critical success factors in a specific business, eg imposing a form of e-business which would impede the needs of a particular business.

The parent must be aware of the variety of needs different businesses require and not impose one with which it is familiar, but which would not be appropriate - such as reporting processes which may focus on the wrong issues or procedures which worked well elsewhere, but would not be suitable here.

Opportunities for successful parenting

Parenting opportunities come from globalisation in five main areas:

  • Access to growth opportunities in ‘new’ markets; they may have a clearer overview of developments in a given country or region.
  • Access to new sourcing opportunities; a skilled parent with contacts in many countries can help its businesses alter their sourcing flows rapidly to take advantage of a situation.
  • Exposure to new threats in existing markets; they might have better awareness of competitor activities or threat of substitutes.
  • Need for networking and knowledge transfer across geographical boundaries. This has to be carried out with awareness that what is useful in one situation may not be in another. Tastes vary even in areas where the basic need is the same.
  • Need for global servicing of customers with the parent helping businesses to learn what this might mean for them and readiness to change in an appropriate way.

The parent needs to understand how globalisation may alter the critical success factors of a given business. The parent’s own cultural orientation can also act as a blinker to the needs of operations in very different parts of the world. The parent itself may need to learn new skills and attitudes in order to capitalise on new opportunities emerging and to support the changing critical success factors in a business.

Globalisation certainly creates positive new parenting opportunities, but that does not guarantee that the parent will be good at realising them. "Successful global parenting is as much about knowing which battles to fight as it is about fighting hard in any particular battle."

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Chapter 6: Managing global partnerships and alliances by Roger Pudney

Roger Pudney considers that alliances and partnerships can:

  • be a major strategic weapon to provide extension and growth.
  • constitute a significant source of collaborative learning.
  • create much faster access to new market places.
  • block major competitors through the uniquely close relationship with partners.

The investment involved in penetrating new markets with new technologies or new products is so significant that no one organisation could do it on its own.

A working definition of what makes the difference between a high performing alliance and an ordinary alliance is provided. The word ‘partnership’ is used to describe a high performing genuinely mutual relationship, producing significant added benefits to all parties involved. Partnerships can include customer supplier chains, joint ventures (legally set up as separate legal entities, with shared equity), extensive strategic alliances, internal alliances between different parts of the same company, as well as mergers and acquisitions. Not all of these which exist in business necessarily merit the description of 'partnerships'.

The SCOPE model

Roger proceeds to share his SCOPE model which offers five components for a successful partnership which will achieve significant mutual added value:

  • Strategic - shared vision/strategy and objectives; long term commitment/real investment; complementary strengths/competences.
  • Culture and chemistry - managing culture fit/diversity; shared values; personal relationships; each partnership handmade.
  • Organisation and operations - top level commitment; integrating the partners; internal partnerships; cascading partnerships.
  • Performance review - mutual evaluation of performance; information exchange/data links; open communication; supporting systems.
  • Equality - behaving as equals; patience and tolerance; trust; innovating together.

On Strategy, the partners should focus on making the best use of the overlapping core competences of each of them, focus on joint key objectives and have clear idea of priorities.

On Culture, avoid old values of aggression, fear, resentment, dislike, blame, self-interest. Develop co-operation, understanding, friendship, respect, joint problem solving, growing together. Counsels of perfection! But possible.

On Organisation, work with opposite numbers as partners throughout the partner organisations; be ready to learn all the time, including from suppliers and even from competitors.

On Performance review, agree on measurement criteria, perhaps using the balanced scorecard, which includes non financial metrics. Review should also consider "how are we getting on with each other?"

On Equality, this should be explicit from the start - no junior partners.

Guidance is given on how to manage the personal relationships of a partnership; they could apply to any business situation (but even more so here):

  • Shared sensitive information.
  • Shared understanding of accountabilities and roles.
  • Clear mutual review process.
  • Share concerns (real and perceived).
  • Open access to partners.
  • Meet promises.
  • Avoid dominant behaviour.
  • Welcome constructive challenge.
  • Be open to learning from partner.
  • Admit mistakes.

Most of these factors are basic common sense, but common sense is perhaps uncommon. It is important to agree on purpose and attitudes from the start and then you and they may have a major weapon for the achieving of results from a globalisation strategy.

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Chapter 7: Global marketing by H. David Hennessey

David Hennessey describes how the global marketing process starts with a global opportunity analysis of which the first stage is a screening process:

  • A screening process starts to gather relevant information on each potential country and filter out the less desirable from our company’s point of view. Don’t waste time on countries that look doubtful.
  • Use macro economic factors for further screening; the country may be too small to justify investment or personal disposable incomes may not be sufficient to make the country attractive.
  • Screen for market size and acceptance rate for a product like the one you wish to offer.
  • Screen for microeconomic variables, such as ease of entry, cost of entry and profit potential, eg how many families have television sets is a good hint.
  • Screen for profitability. How much investment would be needed to get how much market share.

The web is a good source of information on many of these issues and web sites are listed.

Finally one may visit the countries that still look promising after the screening, though this is costly and you should have a firm reason to do so at this stage.

Global marketing strategies

David continues by looking at global marketing strategies, which cannot necessarily be replicated from country to country in detail, but should provide a common global logic. Consumer habits vary and must be taken into account, leading to an element of decentralisation in decision making.

Global strategies may be on the basis of product categories or market segments, and within these there will be variations, such as making premium products in one location and low cost in another, or making smaller watches for Japanese smaller wrists.

Brand names obviously need some consistency in order to represent brands, but they have to carry into all the languages. Sometimes there are happy coincidences such as Coca-Cola which means tasty and happy in Chinese. Some companies choose a name which has no meaning in some or all of the languages, such as LEXUS or PAMPERS.

Advertising has to be conditioned by the culture or prejudices of countries, so that a talking dog would be an insult to Muslim susceptibilities; for them it is taboo to touch a dog, but it’s a food delicacy in Asia. Similarly pricing details have to take into account country conditions which makes difficult the job of keeping some kind of wordwide uniformity between prices. Foreign exchange variations complicate this still further.

Distribution channels are much affected by country or regional situations. You may have to circumvent a local channel which aims to keep you out, or buy a local alternative or form a local joint venture. Or you may use the Internet to go direct to customers. All this is not fulfilling completely the objective of a global marketing strategy. Looking at the market globally means being clear where common practices are possible across parts of the market with shared costs and thinking even about variable approaches against the background of a world picture and a global mindset.

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Chapter 8: Managing global customers by H. David Hennessey

A global customer is defined as an account that is strategically important to a supplier, operationally active on multiple continents and globally co-ordinated in its purchasing. This excludes accounts that operate in only one area of the world, and those that operate in multiple areas, but think and buy locally.

This chapter asks:

  • What factors are driving customers to become global? Gain an in-depth understanding of a customer’s source of competitive advantage and economies of scale.
  • How can the potential of global account management be evaluated? There has to be a balance between what the customer wants in local supply services and the lower price which global servicing would be expected to produce.
  • What is a global account management programme? It involves the co-ordination of supplier and account interactions; supply chain interactions, product/service interactions, and terms and pricing.
  • How can a company determine which customers to serve globally? Size, technology leadership, growth rate, profitability are among the criteria. The number of global accounts will be only a minority of all accounts served.
  • What do customers want from global suppliers? Sufficient resources and management attention; pricing consideration; consistency.
  • How can a global account plan be developed? It begins with an industry analysis to determine where you can add value to the customer.
  • What are the barriers to a successful global account programme? Failure on either side to fulfil the above criteria.
  • What is the impact of the new economy on global account management? On-line exchanges on the Internet are the way forward in the world. The World-wide Retail Exchange is an example. Global account managers will require skills in the e-commerce area to obtain results while remaining differentiated from competitors.
  • What is considered best practice in global account management? Get an executive champion; measure customer satisfaction and act on findings; training in global account management; account planning a priority; set up incentives that reward; constant communication internally and externally.

Implementing a global account programme requires a radical change for most organisations. It can involve changes to organisational structure; measurement systems; reward systems; order processing systems and much more. It also requires a demand for a global account approach from the customer, whose cooperation is needed if both are to gain the added value they hope for.

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Chapter 9: The global pharmaceutical industry by Malcolm Schofield

This is a fascinating case study of an industry - wide approach to globalisation. A case study requires attention to detail which a summary can only partly reflect. So here pre-eminently there is no substitute for working through the case study in full.

The study begins with a review of historical milestones and evolutionary trends, from Galen in the second century AD, via aspirin and penicillin, to a vast industry involved in health care and life sciences as well as actual pharmaceuticals. It considers briefly the evolution of corporate parenting roles and global/local tensions, consolidation/convergence through mergers, acquisitions, partnerships and alliances, parallel global influences in commerce and communications, and product development, branding and life cycle management.

It goes on to answer a series of questions with practical examples to lead towards an answer: Some of the answers leave much scope for further discussion, but it helps to have a clear awareness of the questions:

  • Is focus inevitable? How to exercise the choices between ethical portfolios and over the counter offerings, or should life sciences predominate?
  • What sort of businesses are we in and how would we aim to be different in the future? 'Pure' pharmaceuticals are in the business of 'fighting, treating and preventing human disease through drug based therapies'. But others will stress life style therapies. Some also include consumer products of considerable variety.
  • Who features in the 2000 league table of strategic intent? A league table is given. A commentary points out how market leadership will be sectionalised, so that GlaxoSmithKline is overall top, but also market leader in respiratory and anti-infectives.
  • Who are the more focused of the players? This is a question for the global parent, to make the right choices and allocate the right resources. It is better for the customer as well as the companies if there are six companies concentrating on central nervous systems rather than sixteen.
  • What are the ideal size and focus for long term success? Companies vary in the attention given to development, but creative, discovery opportunities must be there, with free thinkers given space. Long term efforts must not be thrown off course by occasional 'off strategy' opportunities such as the accidentally discovered Viagra. The cash is welcomed but the future is still what matters.
  • What matters in the organisation development of a global company? Focus is needed when a merger is contemplated to drive the business forward and to consider and plan for it in an orderly way, for which a shopping list is provided.
  • Is there a think global, act local dilemma? As the need to address, treat and eliminate disease is largely global, discovery and development are likely to be centralised. Contact with the patient, physician and healthcare provider is, in contrast, local and selling is decentralised.
  • Where are future investment and effort best applied? There are contradictions. Too much attention may be devoted to licensing, mergers and even to scientific discovery. The number of drugs that make it to the client are limited. There are too many candidates queuing at the pre-clinical door for capacity in a development process that is very likely over organised, over staffed, over complicated and externally over regulated.
  • If corporate obesity is the condition, what is the ideal treatment? The contradictory forces are considered. Capturing the essence of discovery, never losing sight of value for the customer and being smarter and cleverer in development are the best foundations. Having to spend over a billion dollars to achieve a successful new drug, eclipses all other problems and being ready with something to replace drugs which are nearing the end of their patented life is of the essence.
  • Is there a simpler solution? Further questions are offered rather than answers. The choice of therapeutic areas is implicit in most of them.
  • What can be done as a better alternative to improve the ratio of development costs and sales revenues? There are three overlapping components to manage, both independently and sequentially: pre-clinical development from patent to target market profile (TMP) selection; pre-regulatory approval from choice of first indication to new drug application; pre-marketing activity from TMP to launch. The role of the champion is crucial.
  • What are the likely future trends and their probable impact on industry structure and growth? There will be the influence of the lower cost of the off patent drugs, though branding may extend the popularity of a known drug rather than its generic substitute. But with people living longer there will still be a demand for a wide range of drugs to be developed. Fitting in to the crisis problems of the cost of health care, world-wide, is never going to be out of sight. Niche strategies may increase, with thinking small before the giants lessen their fixation on blockbusters may be the way ahead for smaller companies.
  • Will there be any major breakthroughs in treatment and disease containment? The human genome programme is cause for optimism, offering the prospect of a better quality of life for life limiting diseases such as chronic asthma and multiple sclerosis, and even an eventual cure for killer diseases, for which only palliative care is available at present. These further developments demand that the management of the industry do not remain fixed in the approaches which have served them well in the past; continual adaptation is crucial.

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Chapter 10: Faces of globalizations by Sarah Burns, Piero Dell’Anno, Samreen Khan and Alex Poppleton.

A team of consultants with six different nationalities among their parents appropriately have the last word in this book.

This chapter is enjoyable and challenging, but a headache to summarise, because the summariser is acutely aware that the debate resists mere summary. It is interesting that after having pursued so many pathways into making globalisation work, we are, at the end, faced with questions such as does globalisation neglect the ethical issues? Is it overglamorised? Is the shift of power away from the nation state to the corporation dangerous?

The glamour of world travel on a continuous basis appeals to some managers, but commercially many of such corporations are more like tourists picking up scraps of information. Globalisation is seen as a way of spreading capitalism, that assumes it is inherently superior and enlightened. Investment is good and the investor should be privileged, ignoring the local distortions they may create.

The assumption that the G7 or G8 nations remaining at the top of the ladder will increase the wealth of rest remains to be proved. Globalisation assumes that economic growth is good even for the poor; they will be benefitted by growth enhancing policies of the rule of law, fiscal discipline and openness to international trade. Issues like these are briefly debated with a view to making our consciences more sensitive to the impact of our commercial activity.

The place of unrelenting pursuit of shareholder value is disputed, including the question of whether the old style shareholder holding, which used to spread ownership widely, has been superseded by institutional shareholders who have no direct personal interest in the companies or countries that create their wealth as long as the wealth keeps flowing in.

Inbuilt assumptions that what globalisation can provide is superior to the products and way of life of less sophisticated societies are questioned, along with the benefit from the export of Western individualism to areas which are more built on community values. Likewise our view of the superiority of rationality over intuition is placed under some doubt.

Migrants are enterprising in their efforts to better themselves, but although Western capitalism honours enterprise, it condemns this kind of enterprise and shuts the door, even though the world’s only superpower was built on it. Paid employment is the corner stone of globalisation, but unpaid family work, so important in the less sophisticated parts of the world, is devalued by comparison. There is a whole mindset which believes in our own superiority. It is this that our authors want to prize us out of, even though they recognise that there are no quick fixes.

The webs of globalisation - production, consumption and finance - bring economic benefit to one third of the world’s population. The rest are, at best, left out or, at worst, marginalised or hurt.

The power of the global corporations to blackmail governments is illustrated. "We will leave if you don’t give us privileges and that will add to your problems, including unemployment." The power of the media is also commented upon, particularly that giving people too much information can be as powerful as withholding it. Globalisation means that even underdeveloped parts of the world are still being hit with thousands of message from Western capitalism every day. This disturbs cultural norms and creates discontent.

Dahrendorf is quoted as saying that globalisation today means that "competition is written in capital letters and solidarity in lower case". It is also pointed out that we all have divided hearts. We share the perspective which deplores many of the influences at work in the world, but in our daily work we are caught up in taking steps, large or small, which perpetuate them.

We may be encouraged to take another look at our personal responsibility by considering the way in which globalisation is eating into the family life and the sweeter things of life, for those who manage it at all levels, while they toil long and jet all over the world, leaving their children to regard them us as occasional visitors or strangers.

"A debate which has been dominated by extremists at the ends of the spectrum. The free marketeers versus the radical anti-capitalists is turning into a serious discussion that merits everyone’s attention. We can now choose to see globalisation, not as an irresistible force to which we must either submit or resist, but rather as a process which can be influenced and shaped." Thus our authors close their chapter and the book, adding that as global managers and workers we are active participants, whose actions can, through our work in international and global organisations, influence what is happening, extending beyond the confines of our company’s success into the social, economic and environmental fabric of our society.

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