Is the world really flat ?

Blue ocean. The world is flat. These are just some of the terms used in the last couple of years to discuss globalization. So if everyone is similar why was Yahoo! struggling in China (and later sold its portal business to Alibaba) ? Why is Volkswagen the leading car company in Europe while General Motors is leading in the US ? Why did Starbucks fail to penetrate Israel and why can’t one find Carlsberg in the US?

I recently read the book “Redefining global strategy” by Pankaj Ghemawat. While other books focus on how global the world is, this book provides a new perspective and discusses why borders still matter. The author takes Walmart as an example of a company whose margins decline as they open stores far from their headquarters in Bentonville.

The book offers a new framework named CAGE. The framework tries to map the gaps between countries into 4 key segments: Culture, Administration, Geography and Economy. For example, if you are a rental company planning to expand into India, you probably want to know that most car owners in India are not really driving their cars, but rather use a driver. Similarly, if you are planning to open a subsidiary in France or Germany you should probably know that it is very hard and costly to fire an employee. The regulatory challenges that Google is currently facing in China can certainly be accounted for administrative challenges, according to Ghemawat.

The approach that Ghemawat is taking to address these challenges is maybe less innovative, or revolutionary if you will, but just to give a glance to some of the approaches suggested to address these gaps:

– Adaptation – use some level of customization to the foreign country’s characteristics, for example, through some external alliances or a common frame with minor customization (Toyota, Honda) .

– Aggregation – extrapolate economies of scale by selling a common product across geographies (IKEA).

– Arbitrage – use the differences among countries to your advantage such as IBM’s establishment of service centers in India to utilize low labor cost, Microsoft’s subsidiary in Ireland to utilize tax benefits or Chanel’s leverage of its Paris presence.

I will not go into all the details in the book, but I suggest reading the book and getting some a fresh balanced perspective on globalization.

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About shanishoham

After 14 years of General Management and incubating/scaling new businesses & organizations for enterprises (established a $55M mobile business and a $100M/400 employees global division), I became an investor Today I’m a board member/mentor with 5 incubators & micro-VCs and involved with many other private & public incubators around the world. I also founded a VC firm named 2020 and I'm a member with a number of angel groups so i get to see & work with many startups, innovation centers and other parties across the ecosystem. I’m an alumnus of the Stanford Graduate School of business - Sloan Master in Management program, a 10 months intensive program for 57 carefully selected experienced Executives and leaders from all around the world.

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