Globalization promises substantial advantages like new growth and scale. For some companies, it’s paid off handsomely. But global mania has also blinded many firms to a hard truth: global strategies are devilishly tough to execute.
The landscape has become littered with some of these unfortunates’ remains. DaimlerChrysler and ABN Amro—dismembered and bought up by activist shareowners—are particularly painful examples.
To escape this fate, don’t assume you should go global, say Alexander and Korine. Instead, determine whether a global move makes sense for your firm. Ask:
- Could the move generate substantial benefits?
- Do we have the capabilities (for example, experience in postmerger integration) required to realize those benefits?
- Will the benefits outweigh the costs (such as the complexity that comes with coordinating far-flung international operations)?
A yes to these questions suggests globalizing may be right for you.
The Idea in Practice
Three Questions to Ask Before Going Global
Could the strategy generate substantial benefits for our firm? The global race can lead you to overestimate the size of the prize. Example:
Redland, a U.K. manufacturer of concrete roof tiles, expanded around the world to leverage its technical know-how beyond its home market. But it often sought opportunities in countries (such as Japan) where local building practices provided little demand for concrete roof tiles. Thus, there was no value in transferring its technology to such markets.
Do we have the capabilities needed to achieve those benefits? Companies often lack the skills needed to unlock the coffer holding the prize. Example:
Taiwanese consumer electronics company BenQ’s acquisition of Siemens’s mobile-devices business failed because BenQ lacked integration skills. It couldn’t reconcile the two companies’ incompatible cultures or integrate R&D activities across the two entities. BenQ’s German unit filed for bankruptcy in 2006.
Will the benefits outweigh the costs? The full costs of going global can dwarf even a sizable prize. Example:
TCL, a Chinese maker of TVs and mobile phones, has expanded rapidly into the United States and Europe through acquisitions and joint ventures. It now has numerous R&D headquarters, R&D centers, manufacturing bases, and sales organizations. The cost of managing this complex infrastructure has outweighed the benefits of increased scale—creating large losses for TCL and several of its joint-venture partners.
Three Industries with Particular Globalization Challenges
- Deregulated industries. Formerly state-owned industries (telecommunications, utilities) have globalized after deregulation to spur growth and escape stiffened competition at home. They assume they can use their existing competencies in new markets to achieve cross-border economies. But it’s been difficult, for example, for utilities to optimize electricity flows over uncoordinated grids.
- Service industries. Many service businesses (retailing, insurance) go global to generate growth beyond home markets threatened by foreign rivals. Their strategies hinge on coordination of people or processes—no easy feat. Wal-Mart, for instance, has struggled to get its partner firms and employees abroad to adopt its work methods.
- Manufacturing industries. For automobile and communications equipment makers, for example, global mergers and partnerships seem to offer the size needed to compete against consolidating rivals. But the complexities of integration can cause delays in achieving those gains. These companies thus have become vulnerable to economic slowdowns, which constrain their ability to pay for expansion and consolidation.
