Slow Economy, Advancing at Warp Speed

Conventional wisdom says the recession has dealt globalization a setback. In fact, the recession seems to be accelerating its pace

By Harold L. Sirkin

When economic historians analyze the Great Recession that began in December 2007, they are likely to discover that the pace of globalization accelerated during the slowdown.

The recession has thrown virtually everything up for grabs: entire companies, divisions, specific assets, markets, market share. And companies from all corners of the globe fortunate enough to have the wherewithal have been expanding, launching new products, purchasing assets. Other companies have been making strategic changes to position themselves to increase their global footprints.

Rather than setting it back, the Great Recession is pushing globalization forward—encouraging and in some cases forcing companies to make decisions and take actions that may have been delayed in more normal times.

Consider Procter & Gamble (PG), whose household brands include Tide detergent, Gillette shavers, and Pampers diapers. This summer, Procter & Gamble installed a new CEO, Bob McDonald, who's looking to double the company's annual sales over the next 15 years. McDonald plans to accomplish this ambitious goal mostly by increasing sales in Africa, Asia, and Latin America.

Going After Emerging Markets

"There's no question that the basic demographics are going to take the center of gravity of our business to Asia, to Africa—where the people are, where the babies are being born," the Associated Press quoted McDonald as saying.

Royal Philips Electronics, the Dutch company, has also made a "strategic decision to scale up" its presence in emerging markets, especially its health-care business in India. Ditto Panasonic, which plans to cut back on many product features, according to company officials, so it can significantly reduce prices for low-end consumers.

PepsiCo (PEP) has announced plans to invest $1 billion over four years in China to build six new plants (one of which already has opened), to expand its sales and distribution network, and to develop more products tailored to local tastes.

Microsoft (MSFT), meanwhile, is looking to increase its presence in India, launching several new products designed explicitly for that market, including "language interface packs in 12 Indian languages." LG Electronics has similarly moved more aggressively into India, telling reporters earlier this year that it expects to increase sales there some 15% this year—despite the economic slowdown.

M&A Strategies

For other companies, expansion is coming through acquisition. Far Eastern International Bank, for example, recently agreed to purchase American International Group's (AIG) Taiwan credit-card business. China Petroleum & Chemical, or Sinopec, recently agreed to buy the Swiss energy exploration company Addax Petroleum, giving Sinopec access to oil reserves in Africa and the Kurdish region of Iraq. Tata Consultancy Services recently acquired Citibank's (C) business-processing outsourcing unit in India. And Finland's Ruukki Group has announced plans to purchase the Australian platinum mining company Sylvania Resources.

The list is extensive. Oracle (ORCL), for example, made no single major acquisitions during fiscal 2009, but the company has nevertheless spent a reported $1.2 billion "buying other companies and assets during the period," according to MarketWatch.

The advance of globalization is not being driven entirely by growth-hungry companies on the prowl for well-priced acquisitions. Some companies are taking an organic route, working with companies within the rapidly developing economies to build new businesses and capitalize on the growth opportunities.

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