Understanding your ‘globalization penalty’
Martin Dewhurst, Jonathan Harris, and Suzanne Heywood
Super article on successfully creating and managing global businesses against very strong local players.
Strong multinationals seem less healthy than successful companies that stick closer to home. How can that be?The rapid growth of emerging markets is providing fresh impetus for companies to become ever more global in scope. Deep experience in other international markets means that many companies know globalization’s potential benefits—which include accessing new markets and talent pools and capturing economies of scale—as well as a number of risks: creeping complexity, culture clashes, and vigorous responses from local competitors, to name just a few.Less obvious is a challenge identified by our latest research: global reach seems to threaten the underlying health of far- flung organizations, even highly successful ones...
....To understand what lies beneath their findings, we interviewed executives at 50 global companies. Those interviews, while hardly dis positive, suggested a relationship between organizational health and a familiar challenge: balancing local adaption against global scale, scope, and coordination.Almost everyone we interviewed seemed to struggle with this tension, which often plays out in heated internal debates. Which organizational elements should be standardized? To what extent does managing high-potential emerging markets on a country-by-country basis make sense? When is it better, in those markets, to leverage scale and synergies across business units in managing governments, regulators, partners, and talent?...
...Complicating matters further, our interviews suggested that, for most companies, about 30 to 40 percent of existing internal networks and linkages are ineffective for managing global–local trade-offs and instead just add costs and complexity. Many companies, for example, can’t identify transferable lessons about low-income consumers in one high-growth emerging market and apply them in another. Some struggle to coalesce rapidly around market-specific responses when local entrants undermine traditional business models and disrupt previously successful strategies.
Finally, many executives we interviewed are clearly wrestling with the corporate center’s role in their increasingly globalized institutions. .