Beyond buzzwords - defining 'globalization'
"Globalization" is the buzzword of the '90s. It dominates business and economic discourse. But what exactly constitutes a "global" organization? And is there any evidence to measure the extent to which globalization is taking hold?Skip to next paragraph
Subscribe Today to the Monitor
One company that has gone global is the electrical engineering conglomerate Asea Brown Boveri Ltd. ABB moved its headquarters from Stockholm to Zurich in 1990, changed its working language to English, installed a board of directors representing seven nationalities, and broadened its staff of 171 to include 19 nationalities.
Yet even with all these efforts toward globalization, more than half of ABB's $37 billion annual sales remain confined to Europe. ABB illustrates the globalization phenomenon to date: It is more a concept than a reality. To become truly global, a company must globalize every activity. By definition, globalization means providing high-value products and services from around the world that are designed by talent from many countries for markets all over the globe.
Many companies have succeeded in one or more of these areas. But in a study of the world's 100 largest multinational corporations, we identified an emerging "globalization divide."
We evaluated these companies on an "index of globalization" based on three criteria: sales outside the parent country, non-home based assets, and the number of different employee nationalities. If in at least two of these three categories, a company had a 50 percent ratio, it was classified as "global."
Our study found less than half of these multinational corporations could indeed be classified as "global." (Our study was based on data compiled by the Center for Transnational Corporations, a part of the United Nations Conference on Trade and Development.)
We also identified a clear geographic pattern: 8 of the 10 most global corporations are European; and among the 10 least global corporations, 5 are American, and 4 are Japanese. Of the 28 US firms surveyed, only 10 - about 36 percent - met the "globalization" criteria, while all Dutch and Swedish companies met them. From Britain, 90 percent of the corporations were considered global, 75 percent of Canadian companies, 55 percent of French companies, and 50 percent of German companies qualified as "globalized."
This is evidence that globalization is the wave of the future. With all the talk about globalization, today most multinational corporations are "flag planters," colonial outposts of basically domestic companies with some plants, or mines, or sales organizations in a few foreign lands. This limited approach is necessary because globalization doesn't happen overnight.
With markets in a number of industries in the US, Western Europe, and Japan already saturated, multinational corporations have to seek alternatives for growth. But opportunity exists. With the liberalization of economies among developing nations becoming an acceptable growth route, and efforts by the World Trade Organization, many large markets in the developing world have emerged. Many corporations have chosen to establish manufacturing facilities abroad - mostly requiring unskilled tasks. But the output of these plants is mostly shipped to the developed countries; only a small portion is sold locally or in neighboring developing nations.
Developing countries benefit from this relocation by increased employment and more exports, while the multinationals, themselves, are better able to compete in mature markets because they've reduced costs.
This process is nothing new. Being "global" so far isn't different from what we've called "international," "multinational," or "transnational" in the past.
But ultimately, to take full advantage of developing markets, multinational corporations will have to become "global" as we define it. It will require drastic changes in ways of doing things. Today's large corporations will have to transform themselves into global institutions without national affiliation. General Electric should cease to be a US company, so should Nestl cease to be Swiss, and Toyota Japanese.
Imagine the change in perspective this will require. It won't be easy - corporations are greatly influenced in their outlook and activity by the culture of the society in which they start.
It may take a few decades, but corporate globalization will be a necessity. Corporate chiefs may well know this, but their progress is slowed by the cultural limits and the real difficulties involved in becoming truly global.
Perhaps by the start of the 22nd century, there will be global enterprise unhindered by national heredity, registered and operating under worldwide rules and regulation, following a global code of conduct. For now, the globalization of business has a long way to go.
* Subhash C. Jain is a professor of marketing and director of the GS Capital Global Learning Center at the University of Connecticut's School of Business Administration, in Storrs, Conn. Piotr Chelminski is a doctoral student in marketing at that school.
(c) Copyright 1999. The Christian Science Publishing Society