The World's Not So Flat After AllBy CIOinsight | Posted 10-01-2007
The World's Not So Flat After All
The world is still round, says Pankaj Ghemawat. Globalization is a real and powerful force, but the sameness of business around the planet is often overstated, argues Ghemawat, a professor of global strategy at IESE Business School in Barcelona and professor of business administration at Harvard Business School. His new book, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter (Harvard Business School Press, September 2007), measures the differences and similarities between countries, and considers ways businesses can profit by acting on both. In this excerpt, Ghemawat lays out his thesis and its impact on Google.
Differences between countries are larger than generally acknowledged. As a result, strategies that presume complete global integration tend to place far too much emphasis on international standardization and scalar expansion. While it is important to take advantage of similarities across borders, it is also critical to address differences. In the near and medium term, effective cross-border strategies will reckon with boththat is, with the reality I call semiglobalization.
We are positively awash in books on globalization. Between the mid-1990s and 2003, the rate of increase in globalization-related titlesmore than doubling every eighteen monthssurpassed the celebrated Moore's Law! But they all tend to assume (or predict) nearly complete internationalization. I disagree strenuously, but on the basis of data rather than opinion. Most types of economic activity that can be conducted either within or across borders are still quite localized by country.
Technologies and standards do enable connectivity and collaboration at a distance, and that is important. It is also likely that the separation of where certain services can be performed from where they are delivered will matter a great deal. Nevertheless, it's a gross exaggeration to jump from these kernels to proclaiming the "death of distance" based on improving communications technologies. Look at information technology services, which are often cited as an illustration of technologically enabled globalization. A total of 2 percent or 11 percent of such workdepending on whether one looks at the total potential market or only the immediately addressable part of itis currently offshored. Or for an even more net-centric example that helps explain barriers at borders as well as exemplifying their effects, consider Google.
The company boasts of supporting more than 100 languages and, partly as a result, has recently been rated the top global Web site. But Google's reach in Russiacofounder Sergey Brin's country of originwas only 28 percent in 2006, versus 64 percent for the market leader in search services, Yandex, and 53 percent for Rambler, two local competitors that account for 91 percent of the Russian market for ads linked to Web searches. Google's problems reflect, in part, linguistic complexities: Russian nouns have three genders and up to six cases, verbs are very irregular, and the meaning of words can depend on their endings or the context. In addition, local competitors have adapted better to the local context by, for example, developing payment mechanisms through traditional banks to compensate for the dearth of credit cards and online payment infrastructure. And though Google has doubled its reach since 2003, this has required setting up a physical presence in Russia and hiring engineers there, underlining the continued importance of physical location.
Google's highly publicized travails with Chinese censors illustrate a different set of reasons that borders continue to matter: Governments have become more adept at creating closed national networks and enforcing local laws (aided, in part, by Internet geographic identification technologies that continue to improve). Nor is it just totalitarian governments that flex their muscles in such ways. Many experts view the success of the French government's 2000 effort to restrict sales of Nazi memorabilia by Yahoo! as the key legal precedent in this regard. And the intervention that has probably had the biggest economic impact is the U.S. government's 2006 ban on online gambling.
Business decisions cannot be made on either a country-by-country basis or on the one-size-fits-all-countries basis.
Reprinted by permission of Harvard Business School Press. Excerpted from Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter, Copyright © September 2007 (304 pages, $29.95); All Rights Reserved.