The global market is likely to account for 80 per cent of world GDP by 2030 and no business is in any doubt of the importance of looking beyond national boundaries. But what is behind globalisation and how should HR chiefs respond to it? Jane Lewis defines the phenomenon and identifies the key issues for the profession
Given how ubiquitous globalisation is as a concept it is strange that so much confusion should surround it. We don’t know how it should be defined, whether it exists in the present or is still a future state, much less whether it is a good or bad thing. But as the demonstrations at last month’s meeting of the IMF and World Bank in Prague made clear, the activity of multinational companies across the globe is an issue that continues to exercise public indignation as much as it excites academic debate.
"Globalisation is a hollow word, there is generally no understanding of what it means," claimed Jacques Manardo, European chairman of Deloitte Touche Tohmatsu recently. But his company’s new name tells its own story. However much the revisionist pundits might argue that globalisation has not properly come of age: that national systems of business, labour relations, finance and production are not yet under siege after all, it is clear for all to see that we are living in a period of unprecedented international activity.
International joint ventures and mergers and acquisitions are so much the norm that perceptions of success in business transcend national barriers. There is a general understanding that you no longer have to be an established conglomerate with an iconic consumer brand to seek a global presence.
A good indicator of the activity this is generating at what used to be considered grass roots level, is the surge of "going global" seminars and forums being staged by events organisers. Middling-sized UK companies might not yet have formulated the final details of their international strategies, but few intend to be left behind in a global market predicted by Mckinsey consultants to account for some 80 per cent of world GDP by 2030.
Meanwhile, the number of workers across the world who owe their livelihoods to foreign employers continues to rise. US corporations employ more than 60 million overseas workers, and figures are also rising among European and South East Asian employers. More than half of Matsushita Electric’s employees are located outside the host country, and the same is true of the Dutch giant Philips. Many Persian Gulf countries employ more foreign-born workers than their native populations.
The long-term causes of this shift have been well-rehearsed. But John Micklethwait and Adrain Woolridge, authors of A Perfect Future: the Challenge and Hidden Promise of Globalisation, cite three main engines driving the latest burst of energy. First, the ready availability of capital across international borders. Second, the arrival of a network technology robust enough to allow easy communication and information flow. And, finally, a degree of standardisation in management. "The internationalisation of businesses practices has had its own momentum and is also accelerating," they claim.
This "standardisation", if it is true, lends weight to the popular view that by globalisation we do not mean true internationalism, so much as a worldwide espousal of the US way of doing things. "What we’re experiencing is not just globalisation, but the Americanisation of the world economy," argued Martin Sorrell, chairman and CEO of the global media group WPP in a recent interview. "You see it in every industry. The strongest global franchises belong to companies that have a strong franchise in the US." He claims this hegemony will continue so long as the US remains the prime shaper of how the Internet determines future competition across industry sectors.
But, as Sorrell concedes, history teaches us how quickly established ideas about global markets can be overturned. You need only look at the predictions of a decade ago to see the point. Then, it was widely assumed that the 21st century would belong to the Japanese and the South East Asian tiger economies, in addition to a collection of dominant global brands.
But that was before the real impact of technological change made itself felt. If the free global markets that companies dream of are still some way off, there is no doubt that pattern of trade is already shifting radically in favour of the underdog. If nothing else, the free-flow of knowledge will ensure that backward nations are able to leapfrog decades of development in a few years.
Similarly, the "one size fits all" model of international expansion so successfully adopted by earlier US pioneers is also under threat.
"In the old multinational models, companies would replicate their business across the world," says Christopher Crosby, European managing director of TMA, a consultancy specialising in implementing the people side of globalisation. "But the successful companies now are those who will adapt their practices. Companies are moving towards much more of a joint venture approach."
This is partly out of sheer market pragmatism. "The original idea of globalisation…was that companies could basically apply the same marketing methods everywhere because customers were becoming more and more alike," says Sorrell. "In fact, I believe that consumers are more interesting for their differences. No more than 15 per cent of the business that we do at WPP is truly ‘global’ – if by global you mean we use the same marketing methods throughout the world."
This is also a lesson being rapidly assimilated at Coca-Cola, which was recently shunted off the Top Global Brand podium by Microsoft, and is taking a more localised approach to its operations. "We haven’t been good marketers for some years," conceded UK and Ireland head of operations Tom Long in a recent interview. "We have found that a centralised structure didn’t let our people experiment. The company had gone for efficiency in scale, but the way to be big is by being small." In Coca-Cola’s case what this means in practice is buying into Malvern Water in the UK, while majoring on tea in Japan.
It is also rapidly becoming de rigeur to stress the moral imperative of adopting a localist approach. As Unilever global HR chief André van Heemstra explains, "We like to refer to ourselves as a multi-local international. It’s part of our value system to behave in Rome as the Romans – to show a deep respect for local culture."
This new style of international management nonetheless imposes significant difficulties on companies struggling to achieve a balance between two different extremes. On the one hand they need to act as global players, on the other as canny local operators. "The global/local paradox is huge," claims Crosby. "Effective global management is about managing the paradox of that situation."
And nowhere is this more apparent than in the HR function. According to one US commentator, the question of hiring and retaining the right people across multiple territories is the challenge that most preoccupies internationally-minded CEOs, and many believe they are still working in the dark. While most concede that quality of people is the factor most likely to lead to sustainable success, fewer than one in six believe their companies are doing a good job in developing this resource. As Vance Kearney, head of HR at Oracle EMEA, concludes, "Eventually access to technology will become universal: all products and tools will become commodities. So what’s the differentiator? It has to be the quality of the people."