Few would argue that we live in a global world. Yet, exactly what we mean by “global” varies widely depending on whom you are talking to and what you are talking about. Globalization can mean simply that a company has offices outside their home country and sells their products and services in other countries. There may be little communication or sharing across these offices, but the company is operating globally nonetheless. On the other hand, globalization can mean that a company offers one global service or product to the world, and each of the country offices serve as conduits to the local market. And, of course, global can also mean anything along the continuum between these two extremes.
Likewise, few would argue against the assertion that the world is becoming increasingly more global. Yet there is a growing awareness of greater instability and uncertainty in the world than ever before. The current financial crises with subprime interests rates in the U.S., the political instability in the Middle East and Asia, the growing imbalances between the rich and poor, and global warming are some of the factors affecting our world and causing some retrenchment – some people might even say breakdown – in globalization.
According to Pankaj Ghemawat, global strategist, Harvard professor, speaker, and author, too many people are spouting off about the flattening of the world, the death of distance and the disappearance of differences across countries. These rantings are what Ghemawat calls “globaloney” – the illusion of a borderless, flat world and hence the tendency to overestimate the extent of and process of globalization. The fact is that most economic activity – including direct investment, tourism, and communication – happens locally, not internationally. In addition, the differences across countries and cultures are larger than many people realize. Ghemawat goes on to explain that in our “semi-globalized” world, one-size-fits-all strategies don’t stand a chance. Instead, companies must expect cross-border differences and be able to reconcile the discrepancies in a way that makes sense for them based on their culture, business goals, and current state of international development.
The problem is that globalization isn’t easy – in fact it’s downright complicated. Cross-border integration, various languages, multi-cultural communication, diverse people, organizations, and business practices make understanding and managing the process of globalization a difficult task – difficult, but not insurmountable. To be successful we have to think about globalization as a process – a journey to a final destination of complete cross-border integration that we may never reach, or not reach within this century. So the questions we should be asking ourselves is how global should we be? What are the important areas of the HR function to make global and what areas should be left local or regional? How do we reconcile the seemingly paradoxical differences across countries and businesses?
Ghemawat offers an approach he calls the AAA Triangle which focuses on strategies optimized for adaptation (adjusting to differences), aggregation (overcoming differences), and arbitrage (exploiting differences). The three A’s represent three distinct types of global strategy that companies can pursue. Adaptation seeks to improve performance by maximizing the company’s local presence. Aggregation is a way for companies to expand beyond their home country, delivering economies of scale by emphasizing regional and global operations; this involves standardizing product and service offerings and grouping together development and production processes. Finally, Arbitrage is the exploitation of differences between national and regional markets, often by shifting separate parts of the operations in different places, for example, call centers in India, manufacturing plants in China, and research and development offices in Poland.
What is your company’s global strategy? What are you doing in HR to support it?
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