Advice to Execs: `Think Globally'
Business leaders looking to position their companies for the next century will take advantage of innovative technologies, new management techniques, and new trade opportunities in the Pacific Rim and Europe to develop winning strategies. So say the experts quoted by the Monitor for this special section on the `Global Frontiers of Business.'
BOSTON — FOR business, the frontier is the globe. Business executives and business-school professors often talk about ``globalization.'' Peter Drucker, professor of management and social science at Claremont Graduate School, has told corporate officials, ``If you don't think globally, you deserve to be unemployed, and you will be.''
``The global marketplace surely has arrived when villagers in the Middle East follow the Gulf war on CNN [Cable News Network], via Soviet government satellite, and through a private subsidiary of a local government enterprise,'' notes Murray Weidenbaum, an economist at Washington University in St. Louis. ``Both public and private business are involved and they are located in three different continents.''
More than half the products manufactured in the United States have one or more foreign components. Half of all imports and exports - foreign trade - are transacted between domestic companies and their foreign affiliates or foreign parents. Foreign operations of US-owned companies account for more than $1 trillion in annual sales worldwide, four times the total export of US-made goods.
Robert Reich, an economist at Harvard University, maintains that globalization has gone so far that the managers of supranational corporations feel little allegiance to the nation of their headquarters.
``In the global enterprise, the bonds between company and country ... are rapidly eroding,'' he writes in the latest issue of the Harvard Business Review. ``Instead, we are witnessing the creation of a purer form of capitalism, practiced globally by managers who are more distant, more economically driven - in essence more coldly rational in their decisions, having shed the old affiliations with people and place.
``Today corporate decisions about production and location are driven by the dictates of global competition, not by national allegiance.''
In his new book, ``The Work of Nations'' (Knopf), Professor Reich goes further: ``We are living through a transformation that will rearrange the politics and economics of the coming century. There will be no national products or technologies, no national corporations, no national industries. There will no longer be national economies, at least as we have come to understand the concept. All that will remain rooted within national borders are the people who comprise a nation. Each nation's pri mary assets will be its citizens' skills and insights.''
Some say Reich has exaggerated, that the nationality of a corporation still matters. Another Harvard professor, Michael Porter, writes in his massive tome, ``The Competitive Advantage of Nations'' (Free Press): ``As globalization of competition has intensified, some have begun to argue a diminished role for nations. Instead, internationalization and the removal of protection and other distortions to competition arguably make nations, if anything, more important. National differences in character a nd culture, far from being threatened by global competition, prove integral to success in it.
``The home base is where strategy is set, core product and process development takes place, and the essential and proprietary skills reside. The home base is the platform for a global strategy in the industry in which advantages drawn from the home nation are supplemented by those from an integrated, worldwide position.''
Certainly business, using modern technology, is bringing together the world's peoples, whether they like it or not. It was business that turned the US from a conglomeration of states and regions into a nation. It is business that today is unifying Europe into the European Community.
Further, it is business that is turning English into the main international language. When the directors of Asea Brown Boveri (ABB) meet, they speak English, despite the fact that the $25 billion company is the result of a merger of Swedish and Swiss companies and its headquarters is in Zurich. Though the company has 240,000 employees in dozens of nations, the official company language is English.
``Technology and economics are outpacing our traditional way of thinking about international politics,'' Mr. Weidenbaum says. ``The standard geopolitical map is out of sync with the emerging business and economic map.''
Reich says governments are still struggling to catch up to global business managers. He advocates the creation of an ``Office of the United States Investment Representative,'' or USIR, paralleling the US Trade Representative. Instead of negotiating international trade deals, this new office would negotiate international investment issues.
At present, Reich says, states and cities bid keenly for investments in plant and equipment, granting various tax breaks and subsidies. They become ``easy pickings'' for global managers. Partly as a result, corporations contributed only 16 percent of local government revenues in 1989, compared with 45 percent in 1957. The concessions to companies make it more difficult for states and cities to finance education and infrastructure, he says.
Reich's USIR would preempt by federal law the separate state and local laws that authorize their officials to offer investment incentives. It would bargain for only those global investments that would likely provide maximum benefits to the US and guide the investments to locations that would do the most good. ``It would put America on an equal footing with other large nations and emerging trading blocs that are already bidding effectively for global investment,'' he writes.
Reich also suggests a GATT (General Agreement on Tariffs and Trade) for direct investment in plant and equipment. GATT establishes rules for global trade. The new institution would establish international rules by which nations bid for global investment and processes for settling disputes over such bids. Without such rules, Reich says, wealthy nations can always outbid poorer ones.
Mr. Porter cautions: ``One nation's firms need not succeed only at the expense of another.'' The competition between nations is not a zero-sum game, where what one wins the other loses, he says. ``World economic prosperity depends on rapid innovation by advanced nations, which creates new products and cedes relatively less-productive activities to developing nations.''
That means what blesses one nation economically can also bless other nations. Prosperity there promotes prosperity here.
``Technology has liberated us from the zero-sum game of traditional economics,'' writes Paul Zane Pilzer in ``Unlimited Wealth: The Theory and Practice of Economic Alchemy'' (Crown). ``We live today in a world of effectively unlimited resources, a world of unlimited wealth.''