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In GLOBALITY: Competing with Everyone from Everywhere for Everything, authors Harold L. Sirkin, James W. Hemerling and Arindam K. Bhattacharya contend that the old model of globalization is evolving into a new phase in which “challengers” from rapidly developing economies such as Brazil, Russia, India and China (the famous BRICs) are competing with incumbent Western giants and growing at a staggering 30% per year. The book was published last June.

PROFILE

SIRKIN is a Senior Partner and Global Leader of the Operations Practice, of The Boston Consulting Group in Chicago. He has 27 years with the consulting firm and extensive experience in operations across a wide range of topics, industries and geographies. Hal is a recognized expert on the subjects of globalization, innovation, operations and change management. In 2007, he coauthored the book Payback: Reaping the Rewards of Innovation (Harvard Business School Publishing). His latest book, GLOBALITY: Competing with Everyone from Everywhere for Everything, was published by Business Plus, a division of Hachette Books, in June 2008. Outside of BCG, Hal serves on the board of the Illinois Technology Development Alliance, which works with entrepreneurs to create high-growth technology companies. He earned an MBA from the University of Chicago (first in his class) and a BS from the Wharton School (summa cum laude).

INTERVIEW by Jorge Nascimento Rodrigues

Hal Sirkin: «We call this phase that came after globalization – globality, where the companies from the developing world compete with those from the developed world.»

Q: Do you think we are seeing a shift in globalization? If so why and since when?

HS: Globalization was primarily about companies from the developed world, primarily the US, Western Europe and Japan looking to the developing world to produce products and services for them at significantly lower cost because of very low (less than €1 per hour) wage rates.  This allowed these developed world companies to be more competitive in their home markets causing them to gain market share.  The developing world was just a source of low cost production. However, about six or seven years ago, we began to notice a fundamental shift in globalization.  Some of the companies in the developing world that the developed world companies “outsourced” their production, call centers and IT services, began to produce products and services to sell directly in the developed world.

Q: What happened then?

HS: Their developed world customers had taught them how to produce and develop products that met the standards required by the developed world customers at lower costs than the companies that they were selling them to.  These developing world companies decided that they could make more money and get control of their own destiny, if they went direct.  They wanted to have their own brands.  They wanted to be multinationals themselves rather than being dependent on others.

Q: And what consequences for the global system?

HS: We call this phase that came after globalization – globality, where the companies from the developing world compete with those from the developed world.  It has and will continue to alter the balance of competition in the world and will allow billions of people in the developing world to raise their standard of living – often from abject poverty to the early stages of consumerism. This is why we say companies will be competing with Everyone from Everywhere for Everything.

Q: Can we talk of a new wave of multinationals from the old “Third World”?

HS: Yes, a significant portion of what we used to call the “third world” we now call the “rapidly developing economies” (RDEs).  We are seeing companies from these RDEs expanding from their countries of origin to become multinationals.  There are literally hundreds of companies that are becoming multinationals.  Three or four years ago, we began to identify these companies and create a list of the 100 important multinational companies from the rapidly developing economies -The BCG 100 Global Challengers.  We continue to do this and should release the next version in January.

Q: In Capitalism History, in different times, we had other surges from the less developed countries.

HS: Of course, this is not the first time that we’ve seen a wave of companies from the developing world reaching markets in the developed world. In the late 1800s and early 1900s, the United States was a rapidly developing economy that created companies that had significant cost advantages and challenged companies in European countries.  In the 1960s and 1970s, we saw companies like Toyota, Honda and Sony from Japan do the same.  We saw this also repeat in Korea in the 1990s.

Sirkin: «Now when a Chinese or Indian company designs cars for the US or European markets, they can outsource the styling of their products, so they can meet the needs of the developed world consumers to automotive styling shops in Los Angeles, Rome or Paris. »

Q: What’s the difference now?

HS: What’s different here is the size of the potential wave and the conditions under which this is taking place.  The 14 rapidly developing economies account for more than 3 billion people which is twenty times the size of the population of Japan (120 million people.  So we should expect many times the number of companies like Sony, Toyota and Honda that we saw from Japan’s progress from rapidly developing to developed world. We also expect that this will take place faster.  The internet has lowered the cost of long-distance communications to almost nothing and increased the quality of those communications.  It also makes it easier to get access to all the world’s knowledge and find suppliers and customers anywhere in the world.  For example, when Toyota shipped its first cars to the US, they were viewed as a joke, they may have met the needs of the Japanese consumer in the 1960s, but they didn’t met the needs of the American consumer.  Now when a Chinese or Indian company designs cars for the US or European markets, they can outsource the styling of their products, so they can meet the needs of the developed world consumers to automotive styling shops in Los Angeles, Rome or Paris.  Additionally, our transportation system – both sea and air - is both faster and more efficient than it was in the 1960s.   All of this means we will see change take place faster than we have ever seen.

Q: In the G 12 (the G20 less the G8 big incumbent guys), which countries do you think has the most globalized multinationals? Only the BRICs group?

HS: While the BRICs dominate the list, it is more than just the BRICs.  Of the BCG 100 Global Challengers in 2008, 41 come from China, 20 from India, 13 from Brazil and 6 from Russia.  However, 7 come from Mexico, 3 from Turkey, 2 from Thailand and 2 from Malaysia.  I expect that we will see a higher percentage coming from the non-BRICs in our next issues of BCGs 100 Global Challengers.

Q: If you would choose two or three case studies from this wave of new multinationals, which ones you would consider the most interesting?

HS: In Globality, we mention more than 200 companies and cover many in depth, so it’s very hard to choose only two or three.  But let me give it a try: BYD, a Chinese manufacturer of  NiCad  batteries for mobile phones; Tata, the Indian conglomerate with more than 20 billion Euros in turnover; and  Embraer, the Brazilian company that has become the #1 manufacturer of regional jets.

Sirkin: « The new multinationals are serious competitors.  In some cases, they have become number one in their industries. They are no longer challengers because they are now the leaders in their industries.»

Q: Do you think the new multinationals are serious competitors for the incumbents? In which sectors or segments do you think this competition has greater impact?

HS: Yes, the RDE multinationals are serious competitors.  In some cases, they have become number one in their industries.  For example, Goodbaby, the Chinese manufacturer of baby strollers and other baby products, is the largest manufacturer of baby strollers world wide with a 28% (largest) share of the US market and more than 400 million households use their products.  Embraer, the Brazilian manufacturer of regional jets, is the #1 manufacturer of regional jets.  Vale (CVRD), the Brazilian mining company, is the #1 producer of iron ore and pellets and Cemex, the Mexican cement manufacture, is the #1 producer of ready-mix.  These companies are more than serious challengers.  They are no longer challengers because they are now the leaders in their industries.

Sirkin: « The incumbent multinationals can learn a lot from the new ones – basically because the new ones have identified new business models and new ways of doing business. »

Q: What can the incumbent multinationals from the West and Japan learn with these new multinationals?

HS: The incumbent multinationals can learn a lot from the new ones – basically because the new ones have identified new business models and new ways of doing business.  This has happened for two major reasons: first they had little resources to work with (and as we say in the US, necessity is the mother of invention), so they were forced to find creative ways to do things to compete and secondly, they did not know “the way to do things” and therefore invented their own ways which in many cases turned out to be better. In Globality, we identified seven struggles (see BOX) that the new multinationals are facing which provide lessons for the incumbents. In each one of these struggles, incumbents can find lessons that the challengers have/are learning and can adopt them to their companies to improve their performance.  Doing this well and doing this early creates substantial opportunities for the incumbents who can serve the billion people in the rapidly developing world who are moving from abject poverty to consumerism who are looking to companies to provide them with new goods and service and who are likely to trust developed world brands .  (It’s important to note that the combined population of the US, Western Europe and Japan is less than a billion people.  So this new market represents a massive growth opportunity over the next 20 years).

BOX

7 LESSONS FROM THE «STEALTH» COMPETITORS

1) Minding the Cost Gap.

2) Growing People

3) Reaching Deep into Markets

4) Pinpointing

5) Thinking Big, Acting Fast and Going Outside

6) Innovating with Ingenuity

7) Embracing Manyness

Q: What was the most interesting feedback you received from readers of your book?

HS: We’ve gotten a lot of very positive feedback on the book, but perhaps the most interesting comes from CEOs in the US, Western Europe and Japan, as they recognize the magnitude of the wave of competitors that they are being to see and the challenges that they face.  They recognize that companies, for the most part, can not survive by just being local (unless they are small) and have to be global players.  They recognize that they have to take seriously companies from what they used to call the “third world” as competitors. Seeing major companies understand and act on both the potential challengers and the opportunities in these rapidly developing markets is both interesting and very satisfying.  Globality is more than the title of a book – it’s the reality of business.