Management August 6, 2010, 2:06PM EST

Do Multinationals Really Understand Globalization?

The ability of global companies to leverage global opportunities is surprisingly shallow

Story Tools

IBM (IBM) recently released two important reports on the rapidly changing global business environment: the 2010 CEO Study, which is based on interviews conducted with more than 1,500 chief executive officers worldwide; and the Global Student Study 2010, which is based on a survey of more than 3,600 graduate and undergraduate students worldwide.

Taken together, the studies compare side by side the value system, mindset, and management style of current-generation CEOs with those of the Millennials (aka Generation Y) who are poised to become future leaders. As we studied them carefully, we found a big discrepancy between the Millennials' view of globalization and its impact on organizations and that of present CEOs.

Most CEOs surveyed by IBM expect their business environment to get increasingly complex in coming years, driven by tectonic shifts in the macroeconomic environment: 76 percent of CEOs foresee a swift shift of economic power from the West to developing markets. We can't agree more: The Organization for Economic Cooperation & Development (OECD) forecasts that the global share of gross domestic product (GDP) for developed economies will drop from 60 percent in 2000 to 43 percent in 2030. As a result, businesses will soon be operating in what we call a polycentric world—where Western centers of economic and geopolitical power will be interconnected with new centers of growth and influence in Asia, Africa, and South America.

The Task at Hand

A polycentric world is inherently complex due to its extreme diversity. Consider this: The already 250 million-strong Chinese middle class is expected to double in size in the coming decade and one global worker in four will be an Indian by 2020. The result? A massive increase in the diversity of the customer base and workforce of multinationals on a scale they have never experienced before. To effectively serve such a highly heterogeneous customer base and manage a highly multicultural employee base, CEOs of many multinationals will need to fundamentally redesign their monocultural (read: Western) and ethnocentric organizations. They will need to learn to juggle multiple business models, organizational practices, management structures, and even leadership styles in order to harness the growing diversity in the unpredictable global business environment.

Unfortunately, CEOs seem to underestimate the task at hand. Only 23 percent of CEOs surveyed believe that globalization will have a big impact on their organization in the next five years. Worse: While many Western CEOs claim that 50 percent to 60 percent of their future growth will come from emerging economies like India and China, another study shows that only 2 percent of their senior leadership currently hails from those fast-growing regions. This means that 98 out of 100 senior execs in Fortune 500 firms are defending obsolete business models in the old monocentric world (read: the U.S.), whereas only two of them are trying to restructure their organization for growth and success in the new polycentric world!

On the other hand, 55 percent of the Millennials that IBM surveyed expect globalization to massively change organizations in the future—and seem eager to contribute to those changes. After all, Millennials already live in a polycentric world and are fully aware of its extreme diversity—with their friends on Facebook and online gaming sites spanning multiple continents. As such, these culturally malleable Millennials welcome and celebrate the growing diversity in the globally interconnected business environment and are confident they can navigate through its complexity by leveraging their social networking skills and by focusing on continual learning.