By Ghemawat, Pankaj
Ivey Business Journal Online , Vol. 72, No. 1
Contrary to popular opinion, the world is not flat. In fact, as this author writes, a company must understand that there are differences between and among countries. In this context, a manager will come to see globalization as an option to be considered rather than an imperative to be automatically taken up. The author offers the ADDING Value Scorecard, which managers can apply to assess the option.
Most managers - 88 percent in a recent online survey I conducted - think of global expansion as an imperative rather than an option to be evaluated. At one level, this can be seen as yet another outlet for expansionary energies once one starts to think of multiple markets rather than just a single one. But at another level, one can argue that expansionary excesses distinguish how most people think about global strategy - as strategy for a company operating in multiple countries - from how they think about corporate strategy for a company operating in multiple lines of business. Cross-border expansion commands wider support and is conceived as optimally proceeding farther than cross-business expansion. For example, 64 percent of the respondents in my survey agreed that "The truly global company should aim to compete in all major markets," whereas there is no comparable presumption in terms of competing in all major lines of business (not within most advanced, open economies, at least).1
The intent of this article is to counteract such biases, not only by pointing out the problems with them (the principal focus of the next section) but also but by providing an actionable alterative, namely a framework for valuing cross-border moves (the topic of the section on the ADDING Value Scorecard).
Global expansion: An imperative or an option?
Writers on the globalization of business rarely examine the question of why, if at all, so many follow the urge to globalize. Although there are several reasons for this, perhaps the most important is the widespread tendency to believe in an apocalyptic scenario in which globalization erases borders or, in popular parlance, flattens the world. If true, this would obviate the question of "Why:" Think of a blue ocean submerging a flat world and encouraging expansion into all major markets simply because they are there. But talk of a borderless world turns out, upon examination of the data, to be so much globaloney.2
A second reason for believing that the world is flat is that, since the late 1980s, much of the literature on globalization written from a business perspective has focused on concerns related to how, and not why: how to link far-flung units, build global networks, find and train global managers, create truly global corporate cultures.3 Furthermore, to the extent that the literature does deal with global strategy as opposed to global organization, it mostly focuses on achieving global presence: entering the right markets, making the right acquisitions, or choosing the right alliance partners.4 I should add that this bias appears to apply to MBA strategy curricula as well as to research and writings for practitioners.5
The two broad biases above are probably reinforced by a third - a sense that cross-border moves are so complex and uncertain that they need to become acts of faith. This can be seen as an extension of the tendency to do detailed cost-benefit analyses of small decisions in single-country strategy but to simply throw up one's hands and surrender to animal spirits in making large decisions. Or as Parkinson put it in his Law of Triviality, "The time spent on any item of the agenda will be in inverse proportion to the sum involved."
Whatever the precise reasons, executives in global companies or wannabes often spout slogans rather than substance when asked for their reasons for globalizing operations. Verdin and Van Heck have compiled a confection of these that would be funny if they weren't so familiar:6 "Our home market is too small. …