The rise and fall of globalisation

I just stumbled across a nifty new Google tool called the Google Labs Books Ngram Viewer, which allows users to compare the occurence of particular words or phrases over time within the enormous repository of scanned books with Google land.

I thought an International Business readership might be interested in the rise and fall of some of our most important terms over recent decades (click on the graphs for larger versions and the full search parameters).

Here’s globalisation:

And with the US spelling, and also capitalised (i.e. globalization, Globalization, Globalisation):

The latter graph is for a longer timeframe (right back to 1900). Both figures show the steep rise in the use of the term from the late 1980s (coinciding with a surge in foreign direct investment and increasing numbers of newly multinational firms).  A plateau and then decline in usage around 2003 is certainly noticeable.  I’m guessing the phenomenon has become much less discussion-worthy as the various features (greater connectedness, trade, investment etc) became more commonplace (or perhaps less controversial).

Here are the various single word versions of multinationals (since 1960):

It is quite surprising that the term rose considerably earlier, but did not grown along with globalisation. The two-word versions look very similar:

International business, global strategy, multinational strategy, transnational strategy all peaked around 1990 too. Global strategy had the most substantial dropoff, reflecting perhaps the splintering of terminology and concepts to more fine-grained conceptualisations of competitive advantage:

Foreign direct investment rose up through the literature from the early 1970s, shot up in the mid-1980s, but fell in this millenium:

What other terms should we look at?

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Have you heard of Anadarko? (Guest post from T.Osegowitsch)

My colleague Tom Osegowitsch suggested I write about this topic.  I countered with an offer to host him as a Guest Blogger.  So here is Tom:

Have you heard of Anadarko?

Chances are you haven’t. Yet Anadarko is a company currently involved in the largest oil spill in US history. The reason why you haven’t heard of them is because they do not have the iconic status and size of BP in the oil industry. BP (65%) and Anadarko Petroleum (25%) are co-owners (along with Mitsui of Japan, at 10%) of the ill-fated oil well presently gushing in the Gulf of Mexico.

BP is serving as the lightning rod for the public’s outrage. Its executives were hauled before Congress for a grilling. In the face of harsh criticism, the company has suspended its dividends, cut scheduled investments and liquidated some $US10bn in assets so as to establish a $US20 billion compensation fund. In an unprecedented move, BP has just been asked by the US Department of Justice to notify it of any “corporate restructuring, reorganisation, acquisitions, mergers, joint ventures, sales, divestments or disbursements” to counter the possibility that the oil giant could limit its liability.

In the meantime, co-owner Anadarko, a US-based company, has just paid out its July dividends and affirmed that it will continue to do so in September and December. And the company has by and large escaped the public and politicians baying for blood.

You might think BP was the operator of the sunken Deepwater Horizon rig which triggered the oil spill, and Anadarko, as the passive investor, should be spared. In fact, the rig was operated by neither. Transocean, a US company which recently relocated to Switzerland, was the owner and operator of the oil rig. Unless you have been following the disaster closely, you probably haven’t heard of them either.

In recent years, leading companies have had to shoulder a disproportionate share of the blame for misdeeds, acts of negligence or just bad luck. Irrespective of whether accusations are justified, the point is that they tend to hit industry leaders hardest, on account of these firms’ iconic status and market share. More generally, it seems that industry leaders are held to much stricter standards than the minnows.

This would seem to be an increasingly prominent yet largely overlooked source of diseconomies of scale, the notion that firm size – beyond a certain point – leads to an increase in average unit costs. Complexity is one frequently cited source of such diseconomies: as firms grow in size, managing a multitude of different operations and locations requires disproportionate coordination efforts which nudge unit costs upward. The higher standards expected of industry leaders (in the wake of a disaster or more generally) would seem to be another, growing source of such diseconomies.

Telstra has for a long time been viewed as the 600 pound gorilla in the Australian telecoms industry. The company’s dominant market share (mostly a legacy of its former monopoly status) make them a popular target of criticism from customers, suppliers, rivals and regulators. The same goes for Microsoft which in some circles is portrayed as a satanic force. Dealing with complaints, countering criticism and “setting the record straight”, as well as fighting law suits can be taxing on company resources and management time. Industry leaders are often singled out and held accountable for their entire industry. Activists of all kinds know that going after the “soft target” at the top of the industry is the quickest and most efficient way to affect change, thus elevating the leader’s costs.

Source: Frank Wright

Even companies previously embraced by the public are in danger of a backlash once they become sufficiently dominant in their industry. Google comes to mind. Even Teflon-coated Apple has recently come in for criticism in some circles for its powerful position on account of iTunes and/or its association with supplier Foxconn.

Market-leading size and position are often the ultimate objective of company strategies. Firms would do well to remember that such exalted positions are precarious. As Icarus discovered, the wings that allowed him to escape from his island prison also led him too close to the sun and, ultimately, his downfall.

Andre’s addition: I would throw in the disproportinate attention paid to Nike‘s (and, as Tom highlights, more recently Apple’s) outsourced labour practices as another version of this. Similarly McDonald’s seems to receive much greater scrutiny on the ‘healthiness (or not)’ front than do smaller (i.e. less successful) burger vendors.

Can anyone think of further examples (particularly Australian)?

I’m clicking to Westfield

Aussie shopping centre powerhouse Westfield (the world’s biggest shopping centre operator) announced a curious brand extension last week. The firm is reportedly planning to use its website as a virtual shopping mall, hosting e-commerce interfaces for a variety of retailers (with fashion being the rumoured kick-off).

So, is this a good move for Westfield?

As I’ve argued elsewhere, Westfield has five particularly powerful competencies: (i) property selection; (ii) redevelopment; (iii) financing; (iv) retailer relations; and (v) branding and marketing . The first three have no relevance to this venture, so the firm is only left with retailer relations and branding/marketing.

Source: Daniel Austin (d)Not

The retailer relations is partially about Westfield’s capacity to offer a more extensive suite of locations relative to rivals and the resultant bargaining power they wield as a landlord. It is also about Westfield’s extensive monitoring of tenant sales and sophisticated contracting processes.

Westfield already carries some information about tenants on their website, and because of their prominent landlord status can certainly attract the attention of these firms. I would be stunned if any of the retailers would grant Westfield exclusive rights to host/direct traffic to their e-commerce portal. Indeed, e-commerce is a substitute to the physical interface, and a mechanism these retailers can use to more effectively negotiate with Westfield as a landlord. Westfield will need to tread much more carefully in these e-relationships.

The counterbalancing angle may spring from the final competency – branding/marketing. Westfield was a global pioneer of using a common brand for their malls (indeed, my post title reflects the reported source of this brainwave – a founder heard a shopper saying they were “heading to Westfields”, and saw the scope for differentiation).

It may well be the case that online shoppers welcome the ‘browsing’ capacity of a virtual Westfield mall. New/small retailers with limited capital to expand their bricks and mortar footprint across Westfield’s 119 malls, may relish being next door to Zara, The Gap and Gucci on the Westfield website. It may also be a mechanism for virtual internationalisation. This could be a chance for Aussie retailers to test the waters in the US, UK and NZ without crossing an ocean. Presumably solely e-commerce retailers could also tap into this spillover effect. Getting this right could also extend consumer awareness of Westfield beyond their current whitebread Anglo markets.

The big challenge is making the site sticky enough. Westfield will need to fill the competency gap in build a user interface that is engaging, exciting and innovative. If they don’t get it right quickly someone could easily build a rival (Google perhaps?).

The uspide for Westfield is that there isn’t much downside here. I wouldn’t think there is an enormous investment required here. It is just a mechanism to augment an already profitable business (and perhaps distract some investors from the firm’s exposure to property price and finance risk).

Verdict? Interesting experiment that could conceivably secure some first mover/network effect advantage.

The force of Google

I’m getting a little obsessed with the Hungry Beast graphics videos.

Here’s a fantastic one on the many tentacled creature which is Google:

Ignoring the comparisons therein to said firm’s possible resemblance to Luke Skywalker’s father, it does prompt an examination of what exactly Google is good at (i.e. where its core capabilities lie).

Is it “enabling efficient information access”? “Data sorting and transformation”? “Communication facilitation”?

Is it something as workmanlike as “server optimisation” or “coding”?

How vague can we be while still assisting strategy formulation: “Opportunity recognition?”

Given their relatively rare (for .coms) ability to actually make money out of all this, principally through advertising, perhaps we should be just as focussed on their “salesmanship”?

These are important, but slippery questions for strategic analysis.  As the firm continues to diversify (i.e. build an empire), watch these capabilities develop and morph.

A quick example of local adaptation

It’s always fun to find examples of multinationals adapting their products for host markets. Such adaptation (a.k.a. local responsiveness) is one of the key choices such firms face (along with decisions regarding the extent to which resources and activities will be shared/integrated)

The recent 40th birthday of Sesame Street reminded me of their expansion efforts. Actually, Google’s adapted logos showcasing the very familiar characters alerted to me the anniversary.

The list of logos Google used is indicative of the adaptativeness of the Sesame Street creators (once known as the Children’s Television Workshop – now called Sesame Workshop). There were different Muppets featured on Google’s page in Belgium, the Netherlands, Israel, India, South Africa and Mexico.

India’s character’s (above) include Boombah, “a hedonistic, vegetarian lion who believes he is descended from one of India’s historic royal families” and Chamki, “a schoolgirl dressed in the uniform of an Indian government school [who] is the only Sesame Muppet to practice a martial art”. The show is called Galli Galli Sim Sim on the subcontinent, and is predominantly in Hindi.

It isn’t surprising that a company targeting children has made such substantial alterations to meet the needs of overseas markets. Making the show understandable (i.e. in a local language) and relevant (reflecting these kids’ experiences) is the only way the show would achieve its aims (it is worth noting the firm here is a not-for-profit). But I like it because its a fun example.

Oh, and of course, we shouldn’t ignore that Google also adapts its interface for host country audiences…

Any other quirky examples out there?