Committing to a global mindset is only the first step in globalization. Just because the owner is committed to going global, there is no guarantee that the rest of the organization will follow along. Samsung’s Chairman Lee declared a “Second Foundation” in 1987, but found the group had made little progress six years later in moving towards global competitiveness. To commit the organization to globalization, Lee divested businesses, shook up management and made bold public declarations to global leadership in electronics.

Decisive actions to give the global mindset teeth serve several purposes: They convince employees and external stakeholders that top executives mean business, and that globalization is not simply the management fad of the month. Commitments trigger a sense of crisis, but also that management has a way forward. Finally, these Continue reading "Good to global: Give your commitment teeth"

Making the leap from local player to a global firm often takes the better part of a decade. Owners and executives take the first step by committing to a global mindset. Many executives still view the world from the vantage point of their corporate headquarters. This mindset resembles  the route maps found the in-flight magazine of local airlines, that places Chicago, Taipei, or Helsinki in the center of the globe with routes emanating outward in all directions. Only a small fraction of the planet’s population, however, sees the world in the same way. While your company may be doing very well against local rivals, the performance gap relative to global leaders may be enormous.

Entry into the global economy and WTO accession in particular are forcing managers in many emerging markets to develop a new mental map of the world. There are a few concrete steps they can take to accelerate this process. First, they can simply take a field trip to more developed markets to understand how they are viewed outside their home country. In February 1993, Samsung’s Chairman Lee convened a meeting of 23 senior executives of Samsung Electronics in Los Angeles. Before the meeting began, Continue reading "Good to global: Committing to a global mindset"

My last post discussed how Samsung went from a good local competitor to a great global one. Many executives dream of following in Samsung’s footsteps by moving onto the global stage. Successful globalization, however, depends on a firm’s domestic market position, timing, and the owners’ preferences and time-horizon. Before they take the plunge, executives should consider the following questions.

1) Do you have a strong domestic base? Going global is expensive-companies must invest in brand, technology, and distribution. They often incur losses while cracking new markets. A secure home-market position can provide the funds for global expansion. Today, the average Japanese, US, or European multinational produces more than two-thirds of its output at home, generating the profits to fuel expansion abroad. Many governments favor their domestic champions. The Korean government provided low cost funds and allowed domestic concentration among leading firms like Samsung, for example, while Mexico’s government has granted Telmex a near monopoly in telecommunications, which provided the company with the funds to acquire companies outside Mexico.

2) Are you under attack at home? Fighting a two-front war–protecting a home market while expanding Continue reading "Are you ready to go global?"

The rise of emerging market champions is good news, in contrast, for the entrepreneurs and executives who lead firms in developing countries, who draw inspiration from the success of firms like Mittal or AmBev. Inspiration alone is not enough. Executives and owners of emerging market firms must also understand how they can take their firm from a good local player to a globally-competitive firm.  My next few posts will introduce a framework, based on this research, describing the steps that firms such as Mittal, CEMEX, Infosys, and others followed in their rise to global leadership. I will use the case of Samsung to illustrate the framework.

From metal hut to global powerhouse

South Korea in the mid-1980s was a developing country with a per-capita gross domestic product one-sixth that of the United States. The Samsung Group, while large by Korean standards, was small in global terms. Nor was Samsung a significant player in the global electronics industry. Only a few years earlier, Samsung had entered the consumer electronics industry when it produced its first microwave oven in a corrugated metal hut. When switched on, the first prototype microwave melted, and required extensive rework before Samsung could secure a small order as a sub-contractor to a Panamanian customer.

Today, Samsung is a global leader in more than fifty electronic product categories, was number two in terms of US patents granted in 2008, with a brand among the twenty most valuable in the world (ahead of Apple, Pepsi, Continue reading "Good to global: Samsung’s rise"

In October 31, 1989 Mitsubishi Estate bought a controlling stake in the Rockefeller Group, owner of iconic buildings including Rockefeller Center and Radio Center Music Hall. The acquisition, for many, underscored the inevitable rise of Japan Inc. In the preceding decade, best-selling books like Clyde Prestowitz’ Trading Places: How we are Giving Our Future to Japan and How to Reclaim It and Ezra Vogel’s Japan as Number One confidently predicted that Japan Inc. would dominate wide swaths of the global economy by the 1990s.   Instead, Japan lost a decade, and Japan Inc lost its luster.

In the past few years, firms from emerging markets have acquired high-profile firms. Mittal Steel bought Arcelor, while the Brazilian-Belgian brewer InBev acquired Anheuser Busch. Many North American and European managers reassure themselves that the rise of emerging market firms will repeat the Japan Inc story–initial success, followed by massive hype that ends in a fizzle. The analogy to Japan Inc is reassuring, but deeply flawed.  This comparison ignores the underlying sources of advantage enjoyed by the best emerging Continue reading "Emerging market champions: Comfortable myths and harsh realities"

Turbulent markets create opportunities in three distinct ways: Churning markets introduce new resources into the economy, enable innovative combinations of existing resources, and stimulate novel consumer demands. New opportunities resemble the creation of a new dish in cooking, which arises from a new ingredient, a new recipe for combining familiar ingredients, or a shift in tastes.

Opportunities from new ingredients. In the sixteenth century, European explorers discovered unimagined ingredients in the New World, including the tomato. Italians initially thought tomatoes poisonous, and limited their use to decorative plants. Neapolitan chefs experimented with the new fruit, which thereafter became a staple of Italian cuisine. This new resource enabled previously inconceivable sauces, including Puttanesca, Bolognese, and Marinara.

The business analogue occurs when new resources enter the market. Resources include both hard assets (oil reserves or real estate, for example) and intangible assets Continue reading "Opportunities out of turbulence"

Turbulence produces threats and opportunities. Readers will nod their head in agreement with this statement in principle. Yet when thrust into a volatile situation, most people most of the time will fixate on risks and walk right past opportunities strewn along their path.

My last post described how students analyzing the steel industry in 1999 fixated on the risks of expanding into emerging markets and overlooked the opportunities. Most steel executives during the 1990s looked at the industry with the same risk-tinted glasses, viewing every change as a threat–globalization meant low-price imports while technological innovation would disrupt their established processes. A 2002 report by the consulting firm BCG concluded that “capitalism alone cannot solve [the] problem” of chronic losses in the steel industry. The report did not once mention Lakshmi Mittal, who had created a multi-billion Euro steel empire by exploiting opportunities in the world’s most volatile markets.

A focus on the downside of turbulence extends well beyond steel. In 2009, the World Continue reading "Seeing beyond threats to opportunities"

It was a cool autumn evening in 1999, and Lakshmi Mittal listened as a team of MBA students painted a grim picture of the turbulence roiling the steel industry. Mittal had agreed to judge a case competition at the London Business School, where teams of finalists vied to analyze the success of his steel empire (including the private firm LNM and a public corporation Ispat International), and make recommendations to the firm’s founder and CEO.

Mittal’s success was undeniable. Since starting with a single steel mill in Indonesia in 1976, Mittal had built Continue reading "Blinded by turbulence"