Join Anil Gupta for an in-depth discussion in this video What is a global company?, part of Global Strategy.
- Ask 10 different executives, what is a global company, and chances are that you will get 10 different answers. Some might say that a global company is one that pursues customers in all major economies, in particular the Americas, Europe and Asia. Others might say that you are not really global unless you produce locally what you sell locally. Yet others might suggest that real globalization is when your corporate headquarters is globally dispersed and your top team consists of different nationalities.
There are two problems with these perspectives regarding the nature of a global company. First, each overlooks the fact that globalization is a multi-dimensional concept, that like the proverbial elephant can never be understood fully from just one perspective, be it market presence, production basis, top management team, or any other. Second, each definition overlooks the fact that globalization can range from low to high, and is not a binary variable with only two values, global or non-global.
I would argue that globalization should be viewed as a four dimensional concept. That is, a company can be more or less global along each of four dimensions. Globalization of market presence, globalization of supply chain, globalization of capital base, and globalization of corporate mindset. The first dimension, globalization of market presence, refers to the extent to which a company is targeting customers in all major markets throughout the world.
Even within the same industry, globalization of market presence can range from relatively low to very high. For example, Walmart generates about a third of its revenues from outside the U.S. In contrast, Target and Sears generate 100 percent of their revenues from within the U.S., and none whatsoever from foreign markets.
The second dimension, globalization of supply chain, refers to the extent to which the company is using optimal locations for the performance of various activities in its supply chain. A company can have a fairly local or regional market presence, and yet have a highly globalized supply chain, or vice versa. For example, Target has retail stores only in the United States, however its supply chain is extremely global.
In other words, although Target is not very global in terms of market presence, it is very global in terms of the supply chain. The third dimension, globalization of capital base, refers to the extent to which the company is tapping into optimal sources of capital on a worldwide basis. Baidu, China's leading internet search company, illustrates that a company can be quite local in terms of market presence and supply chain, and yet have a highly globalized capital base.
Baidu's market base and operations are centered primarily in China, yet the company is listed on the U.S. based NASDAQ. Baidu can benefit from a listing on NASDAQ in several ways. Access to global investors, greater international visibility, enhanced ability to use stock options to attract top talent, and enhanced ability to make stock-based acquisitions.
Last but not least, globalization of corporate mindset refers to the extent to which the corporation as a collective reflects an understanding of diversity across cultures and markets, coupled with an ability to integrate across this diversity. A company's corporate mindset depends on the mindsets of the individuals who lead the enterprise, as well as the organization that determines how these people interact and make decisions.
General Electric is a good example of a company with an increasingly global mindset. All GE business are managed through a global line of business structure, investment opportunities are identified on a global basis, corporate leaders are pushing hard to globalize the intellect of the company, and the composition of the leadership itself is becoming increasingly diverse in terms of nationalities.
To sum up, the next time you think about what is a global company, or how global your own company is, remember that this question needs to be answered in terms of four dimensions. Number one, globalization of market presence, two, globalization of the supply chain, three, globalization of the capital base, and four, globalization of the corporate mindset.
This course is aimed at helping managers learn how to maximize the benefits while minimizing the costs and risks associated with global expansion. Anil K. Gupta, Michael Dingman Chair in Strategy and Globalization at The University of Maryland's Smith School, and one of the world's leading experts on global strategy, outlines the logic of global strategy and the questions you need to address in order to globalize your company's market presence and leverage global resources.
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- Why go global?
- Prioritizing across the world's markets
- Designing entry strategies
- Frugal innovation
- Leveraging global resources
- Cultivating a global mindset