How Do Multinationals Keep Up with Globalization?
The pace of business is accelerating, as technology opens up new possibilities and emerging markets provide new growth and opportunity. McKinsey’s Dominic Barton describes how firms can effectively prepare for the migration to a faster-paced future.
by Ted O’Callahan
The version of globalization that turned China into the world’s factory and created enough cargo for 560 million shipping container trips, annually, looks to have peaked. But, while global trade in goods has stalled, the next iteration of globalization has arrived, with an explosion of new technologies and new global companies originating from, and aimed at, emerging markets.
The McKinsey Global Institute forecasts that by 2025, 45% of billion-dollar-plus companies will be based in emerging markets, up from 17% in 2010. In 2015, the International Telecommunication Union reported that 3.2 billion people had access to the internet, 2 billion of them from developing countries. More than half of the world’s population is expected to have access to the internet by the end of the decade.
“This digital era will dwarf what has occurred,” said John Chambers, former CEO and current executive chairman of Cisco. Cloud, mobile, big data, the internet of things—they are all potentially transformative tools. But the technology itself is the easy part of this new environment, Chambers said. “The hard part is, how do you change your organizational structure? How do you change your culture to be able to think in terms of outcomes for your customers?”
The velocity and breadth of change means that multinational organizations with centralized hierarchies can’t effectively respond to constant change and uncertainty, according to a report from DeLoitte. The new circumstances are driving firms to “reassess the entire architecture of relationships both within and across institutions.” Everything involved in getting work done—the physical environment, the technology, and the management structures—need to be reimagined.
Illustration by Roberto de Vicq de Cumptich
Dominic Barton, global managing director of McKinsey, talked with Yale Insights about how multinationals should approach today’s globalization. “The metabolic rate has just gone up for everything,” Barton said. “Competition comes out of nowhere; product life cycles are getting shorter. With the information, the connectedness, the computing power, the data, things just are moving at a faster pace, so you have less time to react.” Organizations must respond rapidly, because “a problem in some part of the world quickly ricochets across the system.”
The “system”—the markets that companies need to pay attention to—is quickly expanding as more countries are taking leading roles in the global economy. “Any organization that is global is thinking about their footprint,” Barton said. “Are they in the right markets? Do they have the right people? Where should your headquarters be? Or how many headquarters should you have?”
The focus for growth has shifted to emerging markets, so global firms must be prepared with the right capabilities for those markets. “There are implications for how you build your organization to be able to be agile, to go after opportunities but also be resilient,” Barton said. Firms don’t have to be directed from a global headquarters. Instead they can create hubs that serve as centers of excellence. The hubs are located not in the historic power centers but where they make sense today. “Our mining center of excellence is not in New York or in London. It’s in Australia,” Barton noted. Teams working on a complex project can pull in people from multiple centers to assemble the required industry, sector, or geographic expertise. Then the team disperses when the work is complete.
The continually changing structure needs to have people who can thrive in this new model. “You have to be able to pick people who you know are going to be able to work in these environments,” Barton said. Those who do thrive grow quickly because they are facing challenges that are not in any playbook. They are open minded but tough, willing to set ambitious goals knowing there will be volatility, Barton said. “You have to have people who are comfortable absorbing shocks, dealing with crazy stuff, being calm, having a strong set of values but also knowing that things in Turkey may work differently from the way they work in South Africa.”
And as established multinationals adapt to this rapidly changing, more distributed phase of globalization, Barton expects some of the best practices that shape organizations to come from emerging-market firms. Their decision making tends to be faster and they can have a longer-term focus, he noted. “We’re going to learn a lot from the emerging-market multinationals."