Balancing the global equation - the evolving phenomenon of globalization

By Gautam Banerjee, Executive Chairman, PwC Singapore

Our 1 0th Annual Global CEO Survey reveals that globalization is a powerful and unstoppable force. But it is also a force in transition. Once driven primarily by the flow of financial capital, globalisation is evolving. While still a significant driver, the transfer of financial capital is now perceived as but one of the factors underpinning economic value creation in a global environment. Instead, knowledge, people, culture and the degree to which stakeholders collaborate – both to generate returns and to mitigate risks – are cited in this study as critical on the journey towards globalisation. And we stress the word ‘journey’. There is clear evidence in this study that most CEOs still exhibit a ‘headquarters’ rather than a truly global mindset. For them, globalization remains an aspiration rather than a reality.

What are the opportunities and challenges faced by executives as they move closer to attaining their global ambitions? First, CEOs recognise the substantial potential for growth presented by an ever-increasing base of global consumers. Globalisation offers opportunities for new market penetration, acquisition and innovation. This confidence is tempered, however, by the realities – and risks – of the challenge. These include working within diverse cultures, sharing and building knowledge, nurturing management talent, managing an increasingly dispersed value chain and responding to competition brought on by a new set of global players.

Looking hard at soft assets

CEOs acknowledge that they face real obstacles as they pursue their global strategies. But these are obstacles that have little to do with funding activities or with building adequate plant and equipment. Instead, the challenges of globalisation today are less tangible than they were in the past. Although academics and commentators have long stressed the importance of such issues in the global business environment, this survey reveals the degree to which intangibles have become central to the CEOs’ agendas.

Attracting talent

The management of global talent is a key concern among the participants in our study. The global war for talent is fierce and growing fiercer, a trend verified by PwC’s day-to-day experience working with global organisations. In our view, global companies are undergoing a transition in how people are valued. Once thought of primarily in terms of cost, people in successful global companies are valued as rich sources of talent, skill and diversity, which are critical to the success of the enterprise. The CEOs in our study agree. The shortage of key skills is viewed as one of the main threats to prospects for growth. CEOs say they are also devoting a greater share of resources to protecting themselves against this threat. For example, they acknowledge that they are developing programmes to equip leaders to take active roles in creating a sustainable business environment; that they are identifying, retaining and promoting women; and that they are engaging in social issues as a means of employee recruitment and retention.

Bridging the culture gap

Although globalisation can be a force for reducing the differences between business cultures, it is clear that coping with a diversity of customs and habits remains challenging. While nearly half of the CEOs feel that increased globalisation has significantly diminished cultural differences, nearly as many cite cultural issues and conflicts as the main obstacle with regard to cross-border mergers and acquisitions (M&A). In our own experience, CEOs speak of the increasing need of finding ‘global citizens’ – people who can view business with a truly global mindset and who are flexible enough to deal with uncertainty.

Leveraging knowledge

In our experience working with clients, we have found that there is broad recognition of the need to grow competitive intellectual capital within a rapidly changing environment and to innovate when applying that knowledge. The CEOs in our study see evidence that the global environment presents challenges to the growth of knowledge. For example, CEOs say they are particularly concerned with the lack of control over intellectual property (IP), a concern shared by many of our global clients.

How are such concerns being addressed? At PwC, we believe the conventional legalistic and procedural approaches to IP protection will be replaced by innovative solutions to IP management. Collaboration within a community of stakeholders is, for example a growing trend.

Winning through collaboration

While the survey identifies challenges, it also offers an insight into solutions – solutions that share a common theme. Successful organisations value collaboration highly as a business strategy.

While the CEOs indicate a high level of collaboration among themselves and their value chain partners, we believe that this is just the start of a trend towards using collaboration in a variety of areas of corporate value creation. We view collaboration, for example as a means of mitigating risk, of developing, exploiting and protecting knowledge, of building networks that harness shared expertise and experience within an organisation’s talent pool, and of aligning core values and the needs of local society. In fact, this study of the global CEO community illustrates that large companies in particular are already embracing collaboration in a number of these areas. In short, we believe that collaboration is becoming the catalyst that transforms capital, knowledge and people, into value.

Expanding the playing field: the new global players

While knowledge, people, culture and collaboration are emerging as powerful forces on the global business scene, they are not the only aspects of the global landscape that are changing. Significant change is also at work in the universe of emerging economies.

While the so-called BRIC economies (Brazil, Russia, India and China) will continue to enjoy explosive growth, additional emerging economies such as Indonesia, Mexico and Turkey are joining their ranks. We refer collectively to these countries as the E7 and project that by 2 050, their economies will outstrip those of the current G7 (US, Japan, Germany, UK, France, Italy and Canada). Inflows of foreign direct investment (FDI) into developing economies increased nearly 1 0% between 2 001 and 2 005. This trend is expected to continue to rise in 2 006 as a result of the recent boom in M&A activity.

Harnessing the power of change

Globalisation is not some esoteric concept that can be safely ignored. It is a force that signals change – not only in the participants and beneficiaries of globalisation, but also in the issues that global CEOs face every day. Whether related to M&A activity, to the structure and integration of the global value chain, or to issues of leadership style and focus, globalisation is impacting key elements of the day-to-day activities of today’s corporate leaders.

Flexibility, adaptability and a truly global mindset are all critical attributes of the CEO in today’s business environment. Whether through the adoption of new, potentially collaborative approaches to assessing and mitigating risk, or through the integration of new organizational capabilities for managing a geographically and culturally diverse organisation, the impact of globalisation on the demands on business leaders is profound.

In short, what this study tells us is that globalization is on the march, and that today’s business leaders are confident in, and actively seeking, the benefits it can provide. They are also aware that the path to globalization offers a new set of challenges and opportunities, different from those encountered in the past. So what companies will be the global winners? Only time and additional research will tell. For now, this much is evident: the roadmap to true globalisation is becoming clearer. We hope the results of our study and our analysis of those results will assist organisations as they strive to attain their global aspirations.