How to Be a Truly Global Company

During the high-growth years between 1992 and 2007, the globalization of commerce galloped at a faster pace than in any period in history. Now, amid the chronic unemployment and financial crisis fall out, some observers wonder whether globalization needs a time-out.

The problem is not globalization, according to strategy + business authors C.K. Prahalad and Hrishi Bhattacharyya, but the way our current institutions are set up to respond to this new demand.

The time has come to embrace a new business model that encompasses both the established advantages of industrial markets and the opportunities of emerging economies. Instead of struggling to apply a Western business model everywhere, you can adopt a business model that treats decentralization, centralization, current practices and potential disruptions not as trade-offs but as complements.

Companies can accomplish this only with a more comprehensive business model that (1) customizes their products and services in hubs around the world, (2) unites business units around a platform of proprietary knowledge and the building of competencies and (3) arbitrages their operating models to gain cost-effectiveness, productivity and efficiency.

An Operating Model without Trade-offs
Some companies are already following these three imperatives, pursuing all of them simultaneously. Only with the full operating model can a company gain the benefits of decentralization, centralization and outsourcing without making compromises.

• Customization. The key to this imperative is to deliver products and services in a locally competitive way. That means they must satisfy the needs and wants of diverse customers, in terms of features, affordability and cultural affinities.
• Uniting around a platform of competencies. This means aligning your entire global company with a common core purpose, a body of proprietary world-class knowledge and the competencies that distinguish your company from all others. The core purpose must be understood equally in all functions and geographies of the corporation.
• Arbitrage. The final imperative involves gaining effectiveness and reducing cost by finding less expensive materials, manufacturing processes, logistics systems, fund sourcing or infrastructure. Most companies have addressed this tactically, by offshoring back-office work or moving manufacturing to locations with lower-cost labor.

Bringing the Elements Together
Some companies recognize the benefits of customization: they are moving into new geographies through gateway countries. A growing number of companies are uniting around platforms of competencies. And, of course, many companies practice arbitrage. But until they join the few pioneers that combine these three elements, most companies will not get the full payoff of the new operating model.

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