Ever since Thomas Friedman announced that the world is flat in his eponymous book that celebrates globalization, the movers and shakers of the business world have grabbed the phrase and thrown it into countless speeches and PowerPoint presentations. But is the flat world a reality or a myth?
Harvard Business School’s Pankaj Ghemawat has taken on Friedman’s flat-earth claim in a new book, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter. He doesn’t actually say that globalization is a myth, but that “we continue to live in a semi-globalized world, one where differences between countries and regions continue to matter”, as he told an interviewer.
So, Ghemawat is not living in denial. He doffs his hat to the defining trend of our times, but is merely sceptical about some of the grander claims about the death of distance and the obliteration of borders. And rightly so.
Ghemawat offers what Friedman doesn’t: numbers. Ghemawat points out that long-term international immigrants were a larger proportion of the total population in 1900 compared with 2005. Capital inflows as a percentage of the global economy is lower today than during the first wave of globalization at the end of the 19th century. Foreign direct investment is only 10% of total global investment. Even more interestingly, he says: “There is general agreement that the international share of total Internet traffic is decreasing rather than increasing. This calls into question the other common myth that even if the world isn’t quite flat today, it will be tomorrow.”
Many of these bits of data should not surprise economists and more thoughtful business leaders, who understand that there is a home-country bias in economies and businesses. Forget corporate decisions. Researchers have shown that even equity fund managers who handle footloose capital tend to be significantly biased towards domestic equity. The world is an intricate mesh of the global and the local.
All this is of significance to global businesses—and to Indian companies that are trying to build global businesses. There is little doubt that the world is far more global than it was, say, 25 years ago. That’s a no-brainer. But there are nuances in the way the world has globalized, the inevitable creases on a world that is flatter than before, but not tabletop flat as some would like us to believe.
Local regulations, cultures and institutions matter. So do economic factors such as whether the country that you are investing in is part of a trade bloc. It is why global companies have an India strategy and a China strategy, though within the confines of an overarching global strategy. It is the reason that a company such as Wal-Mart Stores, Inc. had to design different sourcing and entry strategies in the two countries.
None of this is surprising. Even a purely domestic retailer will have different merchandising in its New Delhi and Chennai outlets.
Yet, at the same time, there are early signs that organizations are becoming truly global. The Wall Street Journal reports in its 19 November edition that a few global companies, such as Chinese computer maker Lenovo Inc., are building multiple headquarters. Consulting firm Accenture Ltd has no headquarters at all. But then there are counter-trends, such as the growing popularity of local search engines or the rise of regional free-trade agreements.
While Friedman has done a tremendous service in popularizing the fact that globalization has benefited mankind, the sweeping generalizations are not exactly fertile raw material for designing corporate strategy.
The real world is far more complex—and that’s what makes it so interesting.
Are companies not sensitive enough to the nuances of globalization? Write to us at firstname.lastname@example.org