In April of 2006, IBM’s then CEO Sam Palmisano outlined his vision for the 21st century global corporation in an article published in Foreign Affairs, - The Globally Integrated Enterprise. The transformation of IBM into one of the world’s leading global enterprises is among Palmisano’s biggest accomplishments during his tenure as IBM’s CEO, from January of 2002 to December of 2011. He has continued to pursue his interest on the subject over the past year by organizing the Center for Global Enterprise (CGE). The CGE is a private, nonprofit research institution devoted to the study of the contemporary corporation, globalization, economic trends, and their impact on society. It was recently launched with Chris Caine - former head of IBM’s global public policy programs, - as its president.
Today, most everyone agrees that globalization, - along with the emerging digital age with which it’s closely intertwined, - is transforming just about all aspects of economies and societies around the world. While globalization has been with us for a long time, we are still learning how to deal with its implications in its present, Internet-driven incarnation.
Globalization was beginning to gather steam in the early to mid-2000’s as business was recovering from the aftermath of the dot-com bubble. Broadband Internet was becoming ubiquitous and interconnecting countries around the world, helped along by all the fiber optic cables that communications providers went deeply into debt to lay out during the bubble. The world was waking up to the growing economic power of emerging markets and the BRICs in particular, especially with the publication of The World is Flat in April of 2005, Tom Friedman’s best-seller that did so much to explain the transformative powers of globalization and digital technologies. This was the environment around the time that Palmisano’s Foreign Affairs article came out.
Next came the 20th century multinational corporation, which spread beyond its home base by building national subsidiaries in countries around the world. Those local subsidiaries tended to have control over sales, manufacturing and other business functions, while the parent company continued to perform such tasks as R&D and product management. The multinational model enabled the corporation to hire local talent and better understand customer requirements in the various countries in which it operated. But it led to redundant overhead expenses as each country developed its own, often incompatible back-office processes.
Palmisano argues that the globally integrated enterprise (GIE) is the corporate model of the future, operating in an increasingly seamless way across national boundaries and locating its operations wherever it makes the most sense in terms of talent, resources and cost. Major improvements in the Internet and other information technologies over the past decade, as well as the rise of standards in IT and operations have made it much more feasible to share business services, regardless of where they are being performed.
Over the past couple of decades we have seen a significant reduction in the barriers to trade and investments among countries. Every business now operates in an intensely competitive marketplace, making it mandatory that it pay more attention to costs, quality and opportunities for innovation and differentiation than ever before. These technological and economic forces are leading companies to carefully examine their global operations, as it’s no longer feasible to be performing duplicate, non-standardized tasks in each country where they do business.
But, along with the opportunities for improved productivity and quality come many challenges, which the CGE intends to address through research and educational programs. As summarized in its website:
“The Center for Global Enterprise (CGE) is focused on fostering a clear and more nuanced understanding of globally integrated enterprises - both the benefits and any disruptive change - while also developing an operational and practical roadmap for these enterprises. We will meet these objectives through a number of initiatives, which will include constructive collaboration with a diverse set of stakeholders, convening a broad spectrum of leaders, developing and scaling management science and leadership training around GIEs, pursuing applied research related to global integration, and reviewing scholarship on globalization. We want our work to deepen awareness of what it means to be a global enterprise, a global citizen and global leader in the 21st century, while also enabling more effective global policies and business practices.”
One of the biggest benefits of globalization has been the rising living standards in much of the world. A recent study by the US National Intelligence Council looking at the key global trends in the 2030 timeframe identified these rising living standards as their top megatrend. The fastest economic growth is now taking place in emerging and developing economies, resulting in significant reductions in poverty and a growing middle class around the world. The study points out that “significant numbers of people have been moving from well below the poverty threshold to relatively closer to it due to widespread economic development. . .” and that “middle classes most everywhere in the developing world are poised to expand substantially in terms of both absolute numbers and the percentage of the population that can claim middle-class status during the next 15-20 years.”
But, globalization and rapidly advancing technologies are also leading to serious economic dislocations in the US and other advanced nations, which have been going through a painful period of slow growth, middle-income stagnation and persistent unemployment. This is partly a result of companies having to adapt to the structural changes in the economy by embracing information technologies to significantly improve their productivity, as well as leveraging globalization to lower their supply chain costs while pursuing business opportunities in the faster growing emerging economies.
A number of leading economists, such as NYU professor and Nobel Prize recipient Michael Spence, have been warning that the marketplace on its own cannot solve the jobs problem in advanced economies. Moreover, doing nothing is not a viable option, as it could eventually lead to an outbreak of protectionism in the US and other countries experiencing serious employment problems, setting in motion an escalating set of reciprocal trade actions and political conflicts.
“Market forces operating in the global economy are powerful,” writes Professor Spence. “It is not reasonable to define the challenge as resisting or overriding them.” Rather, we need innovative growth-oriented strategies that rely on close cooperation between the public and private sectors, including investments “in physical capital (infrastructure), institutions, human capital, and the knowledge and technology underpinnings of the economy. These investments generally have the effect, in advanced and developing countries alike, of raising the return to private investment, causing the latter to expand in scale and scope and employment along with it.”
Operating in the Next Phase of Globalization: Promise or Peril?, an essay in the CGE website, reminds us that we cannot take for granted the current trend toward global economic integration.
“It was exactly a century ago that the world was described as being on the cusp of a new era of peace and prosperity. But that lofty vision was brutally snuffed out a year later, with the start of a war that stifled the process of global integration for decades to follow. One of the lessons from that episode is the need to identify vulnerabilities and address them before they metastasize. The first step in that process - as well as the most important step - is to pursue rigorous research that will deepen the understanding and the value of the Globally Integrated Enterprise - both among the enterprises themselves as well as the broader public. . .”
“The globalization of business, and the broader integration of the global economy, has enabled billions of people to realize a standard of living that is without precedent in human history. Building on this ongoing progress calls for recognizing the many ways in which the world has been transformed and then pinpointing the business practices, leadership styles, and innovations that will help unleash even greater opportunity and prosperity.”
The Center for Global Enterprise has its work cut out for itself as it addresses these really tough and important challenges. I wish Sam and Chris, - with both of whom I’ve worked closely over a number of years, - much success in this new endeavor.
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