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October 15, 2007
A non-flat world
From Harvard Business School Professor Pankaj Ghemawat comes the idea of semiglobalization (see Businesses Beware: The World Is Not Flat — HBS Working Knowledge):
The data clearly indicate that national borders still matter. I group the differences that they demarcate into 4 areas: those related to cultural (language, customs, religion, ethnicities, etc.), administrative/political (laws, trading blocs, colonial ties, currency, etc.), geographic (physical distance, lack of land border, time zones, climates, etc.), and economic (income levels, cost of natural resources, financial resources, human resources, infrastructure, information, etc.). It is important to take a broad view of such differences, to figure out the ones that matter the most in your industry, and to look at them not just as difficulties to be overcome but also as potential sources of value creation.
In other words, you can't treat the world as a homogenized market.
I like the story of Coke, because through to the late 1990s, under CEO Roberto Goizueta, it bought into and based its global strategy on the globalization apocalypse that was popular then, the globalization of markets (rather than production), because customers everywhere were supposed to increasingly want the same products and services. As a result, Goizueta embarked on a strategy that involved focusing resources on Coke's megabrands, an unprecedented amount of standardization, and the official dissolution of the boundaries between the U.S. organization and the international one.
10 years later, Coke's strategy under CEO Neville Isdell looks very different. Coke is now focused on learning from Japan—where it reportedly offers more than 200 products but makes more money than in any other major international market—for insights into how to pursue the broader objective of injecting more variety into the Coke system. The strategy is no longer always the same one: In big emerging markets such as China and India, Coke has lowered price points, reduced costs by indigenizing inputs and modernizing bottling operations, and upgraded logistics and distribution, especially rurally. And the official boundaries between the U.S. and international organizations have been restored-recognizing the fact that Coke faces very different challenges in the United States than it does in most of the rest of the world since per capita consumption is an order of magnitude higher in the United States.
Coke is therefore a cautionary tale of a company getting carried away with globaloney and paying for it—but is apparently managing to weather the storm. Other companies that went through a similar set of wrenching changes might not have the kind of strategic cushion associated with the world's most valuable brand name. It is generally better for them to ponder the lessons in my book than to seek to experience them all: Offline learning is a lot cheaper than online learning in this context.
Production may be increasingly global (and that is Friedman's real tale in The World is Flat) but markets are local. Years ago, we called this global-localization -- glocalization. Apparently, this mixture of global production and local markets is still one of the hardest lesson to learn in the I-Cubed Economy.
Posted by Ken Jarboe at October 15, 2007 3:30 PM
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