GLOBALISATION : Daniel Di Filippo What's driving globalisation?

New Zealand Management, Jun 23, 2006 by James Nelson

What were your topline findings?

Global terrorism can't stop globalisation. Neither can corruption, political instability, trade barriers or protectionism. Across the board and without regard to industry focus, companies both large and small, in the developed world and in developing countries, are vigorously pursuing globalisation strategies to achieve their business objectives. Even over-regulation, perceived by the majority of CEOs responding to our survey as the greatest challenge to globalisation, cannot stem the urge to globalise.

If you ask the question whether globalisation is exclusively the province of large Organisation for Economic Co-operation and Development (OECD) companies that achieve their objectives by unfairly exploiting their emerging-market counterparts. Or whether it's primarily a cost-cutting measure that eliminates jobs and drains resources from the developed world. Casual observers and conventional thinkers might, at least to a certain extent, answer yes to both suppositions. But the CEOs we surveyed paint a different picture.

From their responses, it is clear that companies in emerging market economies are full participants in, rather than victims of, globalisation. It's also clear that cost cutting is not the primary driver of globalisation. Overwhelmingly, the CEOs participating in our survey said they are globalising primarily to attract new customers and to service existing customers rather than just to cut costs. In other words, from their perspective, globalisation is a positive force driven by a desire to achieve positive objectives.

In a broad context that includes business, government and social activism, globalisation is a hot topic that is being heatedly discussed. When monitoring that discussion, one finds a fair number of both proponents and detractors. However, among the CEO population specifically, a significant majority sees globalisation as a positive development. Of course, CEOs recognise that there are constraining factors that could impede globalisation's progress.

But on balance, nearly two-thirds of the CEOs surveyed, regardless of region or income, are positive about the impact that globalisation will have on their businesses over the next three years.

In this year's survey, we decided to focus on four emerging economies as drivers of globalisation: Brazil, Russia, India and China, the so-called BRICs economies. China is already a major player in world trade, and India is also becoming increasingly significant in such areas as computer software and back-office processing.

Although smaller than either China or India, both Brazil and Russia have experienced accelerating growth in recent years. More important, these economies are poised for significant long-term growth. As Goldman Sachs, the originator of the BRICs acronym, notes: "If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025, they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050."

These findings are mirrored by our own recent research, which suggests that what we call the E7 economies (the BRICs plus three other large, fast-growing emerging economies: Indonesia, Mexico and Turkey) could be around 25 to 75 percent larger than the current G7 by 2050.

So, the BRICs economies in particular are benefiting from globalisation?

Clearly, the BRICs economies are experiencing the benefits of globalisation. The explosive growth predicted for these economies is enabling them to engage in the same globalising activities as their OECD peers. No longer perceived as underdogs, they are rapidly becoming full-fledged global competitors.

The benefits of this symbiosis between the OECD and emerging economies helps to explain why globalisation has become such an irresistible force, a phenomenon of which all companies in emerging economies should take note. These benefits also provide a compelling reason why the challenges to globalisation noted by the CEOs in our survey should be taken very seriously.

Globalisation is a positive force. How-ever, either as a phenomenon or as a strategy, globalisation does not exist in a vacuum. Along with the benefits come consequences both positive and negative. Those consequences can best be summarised in a single phrase: increased complexity. Complexity and its impact on value are significant challenges that globalisation poses. For CEOs engaged in globalisation, managing those challenges is a critical task.

Do CEOs see the benefits of globalisation continuing to grow year by year?

While generally in agreement about the positive impact of globalisation on their organisations, the CEOs' optimism increases as the time horizon lengthens. In the near term (the next year), 58 percent of respondents say that globalisation will have a somewhat or very positive impact on their organisations.

However, over three years, that number increases by five percent, to 63 percent. This increase in optimism is paralleled by a decrease in the number of CEOs who view the question neutrally. The data suggest that the CEOs recognise that as the relative size of the emerging economies increases over time, so too does the positive market opportunity those economies represent.