The Global Leadership Challenge

J. Stewart Black, Allen Morrison

• Verlag: Routledge
• Jahr: 2020
• ISBN:
  9781000074864
• Auflage: 3
• Thema: Business
• Thema: Business General

This book first examines the phenomenon of global business and then analyzes what is different about global business and, therefore, what is uniquely required to be a successful global leader. It lays out how companies can develop successful global leaders, and what individuals can do to develop themselves into successful global leaders.

Readers will walk away with a clear understanding of how and why globalization of business took place. They will understand what is unique about global leadership compared to domestic leadership. With that insight and through examples, they will come to see what is uniquely required to be a successful global leader. Finally, readers will walk away with clear insights on how they can develop global leaders and what they can do to strengthen their own global leadership capabilities. The book is based on more than 300 interviews with top corporate executives from around the world and across a wide variety of industries, hundreds of surveys, and over 60 years of combined experience.

Top executives will find this book helpful in determining how they can ensure that their firm has the right quality and quantity of global leaders it needs to capture the global growth opportunities before them.

1 The path to globalization

Although globalization may feel like a twenty-first-century phenomenon, humans have been creating an evermore global world for millennia. Ever since humans began communicating with each other, people from different tribes have traded goods and services. In fact, signs of trade predate recorded history. For example, there is considerable evidence of long-distance trade routes to Egypt about 3000 BCE. The military and economic empire of Alexander the Great (356–323 BC), King of Macedonia, stretched from the Straits of Gibraltar to the Tibetan Plateau. Historians credit Niccolò Polo and Maffeo Polo, the father and uncle of Marco Polo, respectively, with opening up Europe and Asia to systemic and dependable international trade around 1260 CE, though Marco Polo is the person most people think of when it comes to these trade routes. Over in the Americas, the ancient Incan civilization built an estimated 25,000 miles of roads connecting much of present-day Chile, Bolivia, Peru, Ecuador, and Argentina. Further north, trade flourished in the Mesoamerican, pre-Columbian region made up today by central Mexico, Guatemala, El Salvador, western Honduras, and Nicaragua, as well as Belize, and northern Costa Rica.

But these are admittedly only regional examples. Some have argued that the first example of true globalization can be traced to September 6, 1522. This was the date on which Ferdinand Magellan’s surviving crew of 18 men (of his original 237-member crew) sailed into the harbor in Seville, Spain after circumnavigating the globe for the first time in the history of mankind. While Magellan is lauded for this achievement, many forget that the explorer himself never made it around the world; Magellan was killed about halfway through the journey after an altercation with natives in the Philippines. Historians point out that Magellan’s second-in-command, Juan Sebastian Elcano, deserves the credit of being the first to circumnavigate the world. After all, it was he who took command of the expedition and sailed the last remaining vessel around the world back to Spain.

Throughout human history, the discovery of distant lands often led to the establishment of new trading routes that brought not only the flow of new products, but also people, ideas, innovations, and philosophies. Whether one points to the first circumnavigation of the globe or the major international trade expeditions by Marco Polo, globalization has been going on—in one form or another—for millennia.

Given that globalization is, in principle at least, not new, several questions spring to mind:

• Is there anything different under the globalization sun today? Or, are the pontificating globalization gurus just trying to put old wine in new bottles, especially when it comes to the topic of global leadership?
• Assuming that some things in fact are new and different about globalization today versus the past, why should we care about them?
• Assuming that there are compelling reasons to care about the new aspects of globalization, what does it take to be an effective leader in the present and the future global world?
• Assuming that certain capabilities can contribute to being a successful global leader, how can we systematically develop those capabilities in ourselves and others?

For us, these are not just idle questions. Rather, they have been the driving force of our research and writing for more than three decades. Consequently, they are the core questions that we address in this book. In this chapter, we take on the question: What path do companies typically follow to globalization and why? In Chapter 2, we examine: What’s new about globalization today versus the past? In Chapter 3, we address the question, “why should we care about globalization?” In Chapters 4–8, we address the question: “What does it take to be an effective global leader?” In Chapters 9–11, we examine the final question: “How can we systematically develop ourselves and others to be effective global leaders?”

As we will explain in more detail in Chapter 4, the answers to these questions across all the chapters of this book are based on years of systematic field research which we have conducted, and on a combined experience base of over 60 years working as consultants with companies and their senior leaders trying to understand and meet the challenges of globalization and global leadership. Based on this significant foundation of research and practice, we hope that you will find the answers to these key questions both rigorous and relevant; we believe you will.

Common globalization path

In addressing the question of what’s new under the globalization sun, we have developed a simple but robust framework that helps put the globalization of businesses in context. While on a micro level the details of every company’s globalization journey are unique, at a more macro level, our research shows that most companies follow a general path. The simplicity and power of the framework and the commonality of the paths stem from the fact that there are two fundamental mechanisms (trade and investment) by which all leaders can grow their companies outside their home markets.

First, you can move things (e.g., components, finished products, knowledge and ideas, people, etc.) from one place to another to create and capture value. For convenience, we label this movement “trade.” For example, you can produce a car in country A, put it on a boat, ship it, and sell it in country B. Or, you can develop an algorithm in one country and create additional value by using it in another country. Or, as another example, you can take a leader from France and move her to Singapore, a new location, where she can apply her skills and capabilities and create and capture value for your company.

Second, you can make financial investments directly in a foreign locale to build up capabilities abroad. For convenience, we label this activity “investment.” Economists often refer to this as “foreign direct investment” and usually measure it only in the money invested, but our view is broader. Certainly, you can invest financially in a foreign country, but you can also invest human capital, social capital, and so on in foreign markets and these investments are no less important or valuable. In the case of financial capital investments, instead of exporting the car to country B, you can invest in building a factory in country B and manufacture it locally. As another example, you can invest in building up leadership capabilities in an overseas locale. Or, you can invest money, time, and talent in building an R&D lab in a foreign land. In summary, you can build up a variety of capabilities in various parts of the world through a variety of investments.

Each of these two mechanisms (i.e., trade and investment) constitutes axes in a two-dimensional framework. The two dimensions are conceptually independent and do not need to move in unison or opposition. Furthermore, the actions in moving up or down each axis have advantages and disadvantages. They require different allocations of resources and management attention. In theory, companies could emphasize or deemphasize each dimension to any degree and in any sequence they wanted. Thus, where a company sits in this two-dimensional space could vary depending on the choices of emphasis or deemphasis by its leaders and the position could change over time.

Five-stage globalization model

Despite this independence and a myriad of possible positions and routes, our research and experience show that the majority of companies follow a common path through this two-dimensional space. As we examined the collective pattern across companies, we discovered that this commonality did not happen by chance but was the outcome of fundamental economic and psychological drivers that were strong enough to largely trump industry, country, company, or leader differences. The outcome is a 5-Stage path to globalization depicted in Figure 1.1. In the subsequent subsections, we describe the nature of each stage and the drivers that tend to move companies from one stage to the next.

Figure 1.1 Five stages on the path to Globalization.

Stage 1: domestic birth and focus

Until just recently, it was virtually impossible for a firm to be born “global.” Instead, firms started in a given country and usually spent much of their life, and certainly their early years, in their “birth country.” To appreciate this, you only need to look at today’s largest firms. Most were born 30, 40, and some over 100 years ago. For example, if you take the Fortune Global 500, which is a list of the largest 500 companies in the world by revenue, virtually every one of them started in a particular country many decades ago. For example, Disney was born in the USA in 1923; Michelin was started in France in 1888; Toyota was founded in Japan in 1937; Siemens was established in Germany in 1847. Even 50 years after each company was started, every one of them still had more than 80 percent of its assets and employees based in its home market.

In their early years, these firms focused on competing and growing at home. This turns out to be true for most companies. After all, if companies don’t concentrate on competing where they are born, they are unlikely to survive long enough to compete, let alone thrive and grow, somewhere else. However, as companies focus on their home market and are successful there, they can start to run into growth limits. For example, if you are a top executive at Gillette and after 50 years of growth at home since the company’s founding in 1901, you have secured 70 percent of your home razor market and you still want to grow, it is natural that you would start to think about expanding internationally and, therefore, consider moving out of Stage 1. In fact, the faster the company executives want to develop the firm and the smaller the home market, the greater and earlier will be the catalyst to leave Stage 1. However, even if the company resides in a country with a large domestic market, eventually as the home market matures and saturates, growth rates decline. Granted, to reach this point of diminishing growth can take decades. For example, Hong Kong-based Hutchison Whampoa traces its roots back to the merger of Hutchison International (started in 1877) and Hong Kong and Whampoa Dock (founded in 1863). In early 2020, it was the largest operator of ports in the world, but its big international expansion efforts didn’t begin until the mid-1990s. The conglomerate’s A.S. Watson subsidiary, now the world’s largest retailer of health and beauty products with over 15,000 stores, took 140 years before it began to expand out of its home in Hong Kong.

This early focus on growing in one’s home market and sustaining this local focus for many years is quite natural and, therefore, common. Leaders can grow their companies easiest in environments they know best and are the most proximate; the most familiar and proximate market in any company’s early history is its home or birth market. Even in small home countries like Hong Kong, the opportunity to grow at home can last many years or decades. In large countries, such as the USA, China, Japan, and Germany, companies can contentedly stay in Stage 1 and grow at home without ever considering international expansion. But in countless cases, at some point in the company’s history, domestic economies simply don’t provide the scale opportunities or the size to meet ongoing growth ambitions. Once domestic opportunities begin to restrict growth, many company executives, especially those of public companies, start to think about leaving Stage 1 for more growth opportunities elsewhere.

Stage 2: export focus

Accepting that domestic growth rates at some point are likely to diminish and become unsatisfactory to leaders if they remain in Stage 1, why do most leaders decide to move from a domestic focus to exports? Why don’t they jump straight into making big investments in foreign markets? In our research, we have identified two principal forces that move most companies from Stage 1 (domestic focus) to Stage 2 (exports). One force is mostly grounded in economics and the second is grounded primarily in psychology.

Economic drivers

The economic driver of moving from Stage 1 to 2 is fairly straightforward. For manufactured goods with any degree of economies of scale, exporting can help firms get full utilization out of existing capacity. This, in turn, allows firms to lower per-unit costs, increase margins, and make more money. However, we need to stress that for most firms, the increased profits do not primarily come from the exports. Yes, exports bring greater revenue and with that hopefully increased profits. However, the greatest capture of profit from the improved margins generated by the greater capacity utilization and economies of scale provided by exports comes from domestic sales.

Let us illustrate this briefly with the case of Toyota. When Toyota started to move into exports in the early 1960s, domestic sales were many times greater than exports. Therefore, the increased capacity utilization and enhanced margins that exports provided to all the cars Toyota produced had the greatest profit accrual for the cars Toyota sold in Japan. It is simple math. For example, in 1965 Toyota produced 490,088 vehicles. Of that total, 477,642 were sold domestically and 12,446 were made in Japan but sold as exports overseas. Whatever improved economies of scale and margins the 12,446 export vehicles provided, that value got multiplied by 477,642 for domestic sales and by only 12,446 for export sales. And this doesn’t consider the added costs of building and maintaining export sales.

Conversely, if Toyota had gone straight to building a factory abroad, say in the USA for example, the economies of scale, capacity utilization, margin benefits, etc. could not have been applied to or been captured in Toyota’s domestic sales; they would have been limited to the production and sales out of their new factory in the USA. This is partly why Toyota didn’t invest in building a car factory outside of Japan for more than 25 years after it started exporting cars.

As we already pointed out, early in the process of moving out of Stage 1, domestic sales are always larger, usually much, much larger, than sales outside the home market. Therefore, moving from Stage 1 directly into Stage 3 or Stage 4 by investing directly in foreign markets typically doesn’t make as much economic sense as pushing for exports (i.e., moving into Stage 2). In addition, unless a company’s products have terrible value-to-weight ratios, such as bricks or cement, the savings captured through economies of scale typically are much larger than the shipping and other transaction costs associated with exporting. When a company relies on huge ma...

Inhaltsverzeichnis

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgments
• 1 The path to globalization
• 2 It’s a global world
• 3 Globalization’s impact
• 11 Intersection your career stage and leadership development
• Index