Global Organisations

The Economist recently reported that “companies in developed countries do themselves nothing but harm if they fail to think globally” (Schumpeter, “Bumpkin bosses,” 10 May 2014). The focus of the article was that despite the global credentials of many organisations, the C-Suite executives tend to remain not only local but parochial in perspective; and as a consequence, opportunities are often lost (from emerging markets worth $20 trillion by 2020 according to McKinsey). Citing a study by Bain & Co, Western companies with subsidiaries in emerging markets increased their profits there by an average of 15%; however comparable companies from those emerging markets were increasing their profits in the same period by 23%. So what seems to be the problem?

Only 12% of the CEOs from Fortune 500 companies hail “from a country other than the one in which the company is headquartered.” Those companies that do have a “foreign” CEO tend to have up to 50% of senior managers who are also “foreign”; those that don’t have only 10% equivalent. The relative parochialism can “impose huge costs in terms of reduced creativity, missed opportunities and cultural blundering.” Worse, things look bleak for the future: it is becoming more difficult to recruit high potentials abroad who tend to look at these statistics and hence prefer to work for local companies; and simultaneously the proportion of expats overseas in the biggest multinationals in the biggest emerging markets is reducing (56% to only 12% in the 10 years to 2008). So, what to do?

Here’s what global organisations can do to make sure they really act global, along with further considerations (“et alors”):

Global Organisations

The Economist suggests three things an organisation should do to avoid the “evils” of parochialism:

Move Managerial Functions

By moving location, parochialism can be avoided. Proctor & Gamble relocated its global cosmetics and personal-care unit from Cincinnati to Singapore; General Electric moved its X-Ray business from Wisconsin to Beijing; and Schneider Electric moved its CEO from France to Hong Kong.

Move Managers to Headquarters

By increasing the proportion of “foreign” managers, parochialism can be reduced. The article refers to Bertelsmann as posting “successful local managers” to head office for a few years; and Daimler-Benz has “decreed that half the participants in its programmes for young high-flyers must come from outside Germany.”

Move Managers to Emerging Markets

By getting managers out to emerging markets, managers can become more cosmopolitan which will help the organisation be more multinational in outlook and behaviour. IBM and FedEx are cited as encouraging their executives to provide consulting services to emerging-world subsidiaries. 

Et alors

These are all good ideas and many multinational organisations already do all of the above; yet the corporation still might not be achieving its full global potential. It’s not what you do or where you do it, it’s also how you do it. Many “international” organisations with one principle headquarter tend to be “ethnocentric” in nature, viz: “centred on the culture of origin of the enterprise (head office) which keeps all the principal authority (centre of decisions) and distributes its values to the entirety of Group subsidiaries. Communication is principally by instruction from the head office to the subsidiaries and head-office management occupy key posts in the subsidiaries.” (O. Meier (2008, 3rd ed.), “Management Interculturel. Strategie, Organisation, Performance.”)

Moving managers out from head office to emerging markets can actually maintain the parochialism; as can moving foreign talent to head office and then simply returning them to their country of origin. To defeat parochialism and to truly benefit from being global, managers should not be thinking of a career centred on any one particular head office: instead all talent should be moved in all directions. If your head office is in the USA and there are worldwide subsidiaries including (say) China, the organisation needs to think beyond just sending Americans to China and vice versa; instead the Americans might go to China and then somewhere else – likewise the Chinese might go somewhere else first without passing by head office and or keep on rotating. Only then will the company start to be truly global both in outlook and behaviour!