Management

A New Era for Global Enterprise


A New Era for Global Enterprise

Photograph by Gallery Stock

Adapted from Re-Think: A Path to the Future

I graduated from college in 1973 and started work at IBM (IBM) shortly thereafter. At the time, no one talked of a “global economy.” The U.S. and other developed countries in Western Europe were dominant—accounting for about half of global gross domestic product. The term “emerging markets” didn’t exist (it wasn’t coined until 1981), primarily because those countries weren’t seen as “emerging.” They were poor, many of them saddled with ineffective leaders pursuing misguided policies and with large populations that were then viewed more as a burden than a benefit. They were the “debtor” nations. There was little reason to expect the status quo to change.

But it did. Perhaps the most compelling evidence of the change appeared in a Financial Times article published almost exactly 40 years after my graduation from Johns Hopkins University. The article took note of a historic development: “In 2013, for the first time … emerging economies will produce the majority of the world’s goods and services.” The article pointed out that the label “emerging” will become irrelevant as emerging markets’ share of world output rises to 55 percent by 2018.

I don’t think anyone in 1973 could have predicted this transformation. It certainly would have been unthinkable to me.

To those who knew me as a Baltimore native, who did not make any foreign trips with my parents, did not speak a foreign language, and stayed in the city for college and a first job, my advocacy for a new approach to global business might seem puzzling. Even within IBM, it was more than a decade before any of my work had an international dimension.

But growing up in Baltimore did give me an appreciation for the world beyond America’s
shores. The city has always been home to one of the busiest ports in the U.S. and a hub for international trade. I saw how the port helped give Baltimore—often thought of as a down-on-its-luck provincial city—energy and resilience.

Those impressions were reinforced years later when I moved to Tokyo in 1991. While it has little in common with “Charm City” (as Baltimore dubbed itself in the mid-1970s), I saw how trade and investment influenced Tokyo; it was becoming more open to people and products from beyond its shores.

My time in Baltimore and Tokyo, coupled with my global travels for IBM, shaped my thinking about the global era we’re in today. I came to see a commitment among political and business leaders in emerging markets to discard past practices in the interest of developing a large middle class. Equally important, I came to see that the best ideas could come from anywhere—and that they often came from outside traditional channels. Every company—indeed, every country—can fall prey to groupthink, which has a corrosive effect as it stifles the innovative impulse that’s so essential to progress.

We are in the midst of the first truly global era in human history. It is an era in which the volume of people, products, services and—perhaps most important—ideas circulating around the world is greater than ever before. Global competition has intensified in tandem with the world becoming more connected. Businesses, workflows, transactions, and billions of individuals are becoming linked together in countless ways, unleashing new insights about the way the world works.

The fundamental question for companies—particularly those in developed markets—is not whether to compete globally, but how to compete globally. In earlier eras (pre-1992, for example) companies might have simply shifted production to low-wage countries. But it’s unlikely their investment in these countries would have focused on developing local talent or producing goods that could be sold to local populations.

Today the evolving model is the globally integrated enterprise, which refers to companies that are truly “global” (as opposed to “multinational”) in their management and their operations. In this model, work is organized in fundamentally different ways. It calls for different skills and behaviors, more collaboration, greater focus on a multiplicity of cultural differences, and less hierarchy.

Rather than maintaining separate supply chains in different markets, for example, there is one supply chain, and it’s global, not just for products, but also services, capital, ideas, and intellectual property. Similarly, human capital is thought of not in terms of countries and regions and business units, but rather how to manage and deploy it as one global asset.

Fundamental to excellence in the global era will be the ability both to adapt to change and—even more important—to see changes coming and position yourself to benefit from them. Rather than asking, “What will the global era do to me?” a better question is, “How can I get work and investment to flow to me?”

The answer comes from understanding the three forces that lead work to flow across the global network and economy. The first force is simple economics, which is driven by cost and profit potential, but also differentiation. While low-cost labor was the initial reason so much work moved to such places as India, China, and Latin America, a number of other factors are now driving investment decisions. Why did Rolls-Royce (RR/:LN) decide to have its jet engine parts, which are used for assembly in Europe and Asia, manufactured in Virginia? Why is Airbus (EAD:FP) building a $600 million assembly plant in Alabama? Why did foreign investment in U.S. manufacturing increase from $270 billion in 2007 to $493 billion in 2012? In all these cases, the decisions are not based solely on cost. This isn’t a “race to the bottom”—it’s a race for differentiation.

That speaks to the second principle of the global era: the growing value of expertise. In a world where the means of production and distribution are increasingly available to anyone, the only true differentiator is to have unique valueAirbusideas, skills, talents, or resourcesAirbusthat can be continually refined.

The third force is openness: open technology standards, open trade, and openness to new ideas and new ways to work. Open approaches provide a level playing field, which stimulates competition, nurtures collaboration, and sparks innovation. Open standards are particularly important, as they free companies from the work of building labor-intensive platforms and thus are great enablers of scale.

We are at an historic inflection point, with people throughout the world seeing institutions (both public and private) being disrupted through global integration.

But when a historic shift is underway, though not fully understood, there’s a need to explore the implications, identify the pressure points, and map out a path forward. That’s the reason for the Center for Global Enterprise.

If I learned one lesson from my 39 years at IBM, it was that the longer you wait to implement change, the harder it is to implement it—and the less effective it’s likely to be. In the global era, the changes are going to come faster, they’re going to come from countries—and especially cities—throughout the world, and they’re going to be more transformative than in the past.

Palmisano is founder and chairman of The Center for Global Enterprise. He was chairman, president and chief executive officer of IBM from 2003 to 2011. Matt Rees is co-author of Re-Think: A Path to the Future

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Companies Mentioned

  • IBM
    (International Business Machines Corp)
    • $161.95 USD
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  • RR/:LN
    (Rolls-Royce Holdings PLC)
    • $858.5 GBp
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