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EDU F ERRER ALCOVE R
Pankaj Ghemawat is one of those rare individuals who combines world-class scholarship
with a deep knowledge of business practice. Redefining Global Strategy tackles the crucial
balance between local and global that will often define success in an increasingly globalized
world economy.
PANKAJ GHEMAWATglobalization and
business strategist, professor, and speaker
works with organizations and policy makers
around the world to help them anticipate and
prepare for economic shifts. He is Global
Professor of Management and Strategy and
Director of the Center for the Globalization of
Education and Management at the Stern School
of Business at New York University and the
Anselmo Rubiralta Professor of Global Strategy
at IESE Business School. He is the author of
numerous influential books, including The New
Global Road Map, World 3.0, and The Laws of
Globalization.
MICHAEL PORTER, Bishop William Lawrence University Professor, Harvard Business School
Pankaj Ghemawats differentiated industry- and company-specific views on globalization offer
essential insights and thought-provoking impulses for todays decision makers. For anyone who
aims to realize the full potential of globalization, it clearly confirms: the world isnt flat!
PROF. DR. ULRICH LEHNER, Chairman of the Supervisory Board, Deutsche Telekom
and Thyssenkrupp AG
International firms have to reflect more deeply on how to coordinate their commitments around
the world. Pankaj Ghemawats pioneering book offers an innovative approach for how to deal
with this critical challenge.
JOSÉ IGNACIO GOIRIGOLZARRI, President, Bankia
Pankaj Ghemawats Redefining Global Strategy has very appropriately identified the world
we live in as only semiglobalized. He builds on this definition to present some very valuable
and innovative frameworks for developing strategies for internationalization and global value
creation. The book offers a comprehensive treatment of one of the most important issues
engaging the business community.
RATAN TATA, former Chairman, Tata Group
For more, visit Ghemawat.com
Follow @PankajGhemawat on Twitter
JAC K E T D E S I G N : STE P H A N I FINK S
HBR.ORG
ISBN-13: 978-1-63369-606-8
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STAY INFORMED. JOIN THE DISCUSSION.
VISIT HBR.ORG
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This book
deserves to be
a bestseller . . .
The Economist
PANKAJ
GHEMAWAT
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REDEFINING
GLOBAL
STRATEGY
SAMUEL J. PALMISANO, former Chairman of the Board and CEO, IBM Corporation
U S$35.00
H A R VA R D B U S I N E S S R E V I E W P R E S S
Pankaj Ghemawat has created an important strategic guidebook for leaders of the globally
integrated enterprises of the twenty-first century. His analytical framework is both visionary and
pragmaticaware of the broad historic trajectories of globalization, but grounded in the real
kinds of decisions business leaders have to make now. His caveats about semiglobalization
provide a salutary reminder that massive change of this kind doesnt happen overnight. By
basing his analysis on real-world case studies and a mastery of economic data, Ghemawat helps
CEOs and leaders make smart decisions on one of the most important challenges we all face.
REDEFINING GLOBAL STRATEGY
and GE Healthcare are adroitly managing crossborder differences. He also shares examples of
other well-known companies that have failed
at this challenge. Crucial for any business
competing across borders, Redefining Global
Strategy will help you make the most of our
semiglobalized world.
MANAGEMENT
GHEMAWAT
(Continued from front flap)
CROSSING BORDERS IN A WORLD
WHERE DIFFERENCES STILL MATTER
NEW TOOLS FOR
SUCCEEDING GLOBALLY
W
hy do so many global strategies
faildespite companies powerful
brands and other border-crossing
advantages? Because a one-size-fits-all strategy
no longer stands a chance.
When firms believe in the illusions of a flat
world and the death of distance, they charge
across borders as if the globe were one seamless
marketplace. But cross-border differences are
larger than we assume. Most economic activity
including trade, real and financial investment,
tourism, and communicationhappens locally,
not internationally. In this semiglobalized
approach, companies can cross borders more
profitably by basing their strategies on the
geopolitical differences that matter; they must
identify the barriers their strategies have to
overcome, and they must build bridges to cross
those barriers. Based on rigorous research,
Pankaj Ghemawat shows how to create
successful strategies and provides practical
management tools so you can:
Assess the cultural, administrative, geographic,
and economic differences between regions at
the industry leveland decide which ones
require attention
Track the implications of the specific bordercrossing actions that will impact your
companys ability to create value the most
Generate superior performance through
strategies that are optimized for the three
As: adaptation (adjusting to differences),
aggregation (overcoming differences), and
arbitrage (exploiting differences)
Using in-depth examples, Ghemawat reveals
how companies such as Cemex, Toyota, Procter
& Gamble, Tata Consultancy Services, IBM,
(Continued on back flap)
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Most of us do not need much persuading that the world is still
round, but Pankaj Ghemawat redefines its circularity. He shows
how companies can benefit from what he calls semiglobalization, while not falling into the traps unwittingly set by those
who talk glibly about our globalized world.
Sir Howard Davies, Chairman, Royal Bank of Scotland
An impeccably researched reassessment of the global business
worldnot as an ideal but as it really is.
Sir Martin Sorrell, CEO, WPP Group
Now things are clear. Nations and cultures will continue challenging the babel-like perspectives of those who see an irresistibly globalizing world. Pankaj Ghemawats refreshing and
thought-provoking book brings us to the real world.
Michel Camdessus, former Managing Director,
International Monetary Fund
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Redefining
Global
Strategy
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Redefining
Global
Strategy
Crossing Borders in a World Where
Differences Still Matter
Pankaj Ghemawat
HARVARD BUSINESS REVIEW PRESS
BOSTON, MASSACHUSETTS
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Library of Congress Cataloging-in-Publication Data
Names: Ghemawat, Pankaj, author.
Title: Redefining global strategy : crossing borders in a world where differences still
matter / by Pankaj Ghemawat.
Description: Boston, Massachusetts : Harvard Business Review Press, [2018] | With a
new prefaceTitle page. | Includes bibliographical references and index.
Identifiers: LCCN 2017051986 | ISBN 9781633696068 (hardcover : alk. paper)
Subjects: LCSH: International business enterprisesManagement. | Strategic planning. |
Intercultural communication.
Classification: LCC HD62.4 .G474 2018 | DDC 658.4/012dc23 LC record available
at https://lccn.loc.gov/2017051986
ISBN: 978-1-63369-606-8
eISBN: 978-1-63369-607-5
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To Anuradha
Who has helped me understand that globalization
does not mean forgetting where Im from
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Contents
Foreword
Acknowledgments
New Preface
Introduction
Part One
ix
xi
xiii
1
Value in a World of Differences
1
Semiglobalization and Strategy
9
2
Differences Across Countries
33
The CAGE Distance Framework
3
Global Value Creation
65
The ADDING Value Scorecard
Part Two
4
Strategies for Global Value Creation
Adaptation
107
Adjusting to Differences
5
Aggregation
139
Overcoming Differences
6
Arbitrage
169
Exploiting Differences
7
Playing the Differences
197
The AAA Triangle
8
Toward a Better Future
219
Getting Started
Notes
Selected Resources
Index
About the Author
231
247
249
259
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Foreword
I F I R S T M E T Pankaj Ghemawat in September 1978, when I was look-
ing for a very talented undergraduate to help develop a course for the
then-nascent Harvard Negotiation Project. Ghemawat stood out on account of his international orientation as well as his intellectual gifts and
curiosity. Working with him for a year confirmed my initial sense that he
would go on to do great things.
I watched with interest as Ghemawat sped through his undergraduate
and PhD degrees at Harvard in a total of six years. I was pleased when he
decided to go consult after receiving his PhD. And I was delighted when
he was recruited by Michael Porter to join the Harvard Business School faculty at age twenty-three. He went on to become the youngest professor ever
granted tenure at Harvard Business School, on the strength of a body of
distinguished work on sustainability and competitive dynamics, particularly Commitment, which is my favorite book of his. Or was, until this one.
Redefining Global Strategy is based on a decade of immersion in the strategies of global enterprises. This research has already resulted in a stream of
articles in the Harvard Business Review, of which the two most recent are
Regional Strategies for Global Leadership (December 2005), which received HBRs award for the best article published that year, and Managing
Differences: The Central Challenge in Global Strategy, which was published as the lead article in March 2007. But it is only in this book that
Ghemawat fully elaborates and explores the implications of his core proposition: that frontiers matter. Our age, he says, is not one of completeor
even near-completeglobalization. Rather, the state of the world is more
appropriately characterized as semiglobalization.
Ghemawats notion of semiglobalization contradicts the current fanfare about frontiers subsiding and creating a flat world in which people
find both work and opportunity without being constrained by their location. For Thomas Friedman, the most prominent purveyor of this view,
flatness is forced primarily by technology. For Ted Levitt, writing more
than twenty years before Friedman, it was the result of a demand-side
force, the convergence of tastes. And then there are other variants on this
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x
Foreword
broad vision. But they all naturally lead to an emphasis on size, and on
one-size-fits-all strategies.
Ghemawat is not persuaded. I imagine him, like Galileo Galilei before
the Inquisition, unable to keep from saying, But it does move around the
sun! In other words, a flat world may be rhetorically appealing to some,
but extensive empirical observation and analysis suggest that cultural, political, and geographic barriers between countries still loom largeand
have a major influence on global strategy.
If Ghemawat stopped there, he would simply have reminded us that
the world is a complex place and that strategic leadership is difficult.
But he is interested in providing actionable knowledge about global strategies that actually work. So Redefining Global Strategy gives the reader
coherent, powerful frameworks for thinking about the ways in which
borders matter and for evaluating cross-border moves. And perhaps even
more importantly, it develops an array of strategies for dealing with such
differencesstrategies that go well beyond one-size-fits-all.
This array of strategies is particularly appealing to me because in twenty
years as a strategy consultant, I have seen many companies fail precisely
because they forgot the distinction between size and strategy. However,
strategy, which was invented both as a word and as a discipline in the battles of Marathon and Salamis between the Persians and the Greeks, is the
art and science of overcoming the advantage of size. Strategy is meant to
allow for victory of the small over the large, and the few over the many,
at least sometimes.
Ghemawats concept of semiglobalization not only fits with this broad
view of strategy, it also gives us the tools to advance successful globalization. As the founder of the consulting firm Panthea, and as the senior
executive adviser on strategic leadership to Booz Allen Hamilton, I am
proud that my two firms have recognized the value of these ideas. Their
initial reception by Booz Allen clients has been enthusiastic, and we expect that they will help us better understand the worldand change it for
the better.
Nikos Mourkogiannis
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Acknowledgments
B E H I N D T H I S B O O K is a personal journey from a small city in India,
to Indiana, back to India, then to Cambridge, Massachusetts, and recently
to Barcelona. Professionally, I began to work on the ideas in this book in
the mid-1980s, soon after I had joined the Harvard Business School faculty, when I wrote an early analytical piece on global strategy with Mike
Spence, one of my thesis advisers.
My interest in imbuing my work on strategy with a cross-border perspective was whetted further by a study on Indias competitiveness that
Mike Porter and I undertook in the mid-1990s for the Confederation of
Indian Industry. Shortly after, I was fortunate enough to take over Mike
Yoshinos Global Strategy and Management course at HBS, which provided an opportunity to synchronize research, course development, and
writings for practitioners on this topic. I have now been focused on issues
related to globalization and global strategy more or less full time for the
better part of a decade. This phase of the journey has yielded about fifty
case studies and papers, this book, and sundry supporting materials such
as a CD on globalization, my Web site (which also lists most of my work
to date), and material for several ongoing projects.
I am particularly grateful to the Harvard Business School, which, under
Deans Kim Clark and Jay Light, has generously supported this program of
study for almost a decade. IESE Business School, under Dean Jordi Canals,
has been a wonderful place to put the finishing touches on this book. I am
also deeply indebted to the Harvard Business Review, where Tom Stewart,
David Champion, and others have helped shape and support my attempts
to communicate with practitioners. And, of course, thanks to Harvard
Business School Press for its work on this book, with particular gratitude
to Melinda Merino and Brian Surette for their counsel. Thanks also to my
agent, Helen Rees, for guiding me, and to my editor, Jeff Cruikshank, for
helping shape a jumble of complex ideas into a book.
My other, mostly content-related, debts are too numerous to acknowledge, including, as they do, learning from scores of colleagues, from the
hundreds of executives Ive interviewed, and from the thousand-odd
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xii
Acknowledgments
students with whom Ive worked through the concepts discussed hereas
well as from many excellent writings, not all of which can be cited here.
Still, I must specifically thank people who have generously read and provided comments on recent drafts of part or all of this book: Steve Altman,
Amar Bhide, Dick Caves, Tom Hout, Don Lessard, Anita McGahan, Nikos
Mourkogiannis, Jan Oosterveld, Richard Rawlinson, Denise Rehberg, Jordan Siegel, and Lori Spivey. My long-time assistant at Harvard, Sharilyn
Steketee, did some of the research for the chapters, read through them,
and managed the multiple incarnations of the manuscript. I am also indebted to Ken Mark and Beulah DSouza for able research assistance. And
last but most important, thank you to my wife, Anuradha Mitra Ghemawat, for the reason explained in the dedicationand for many more.
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New Preface
A D E C A D E H A S P A S S E D since the original release of Redefining Global
Strategy, and I could not be more pleased with how the ideas contained
in this volume have stood the test of time. The material in this book is,
arguably, even more important today than when the first edition came
out. Back in 2007, the common wisdom was that globalization was racing
ahead, flattening borders and erasing the effects of distance. As I write
this new preface, in 2017, many business leaders suspect that globalization has stalled or perhaps even suffered a reversal. This has prompted
rising interest in international strategies designed for a world where borders, geographic distance, and other differences between countries still
constrain international activitythe central theme of this book.
One reason that Redefining Global Strategy has remained so relevant
is that expectations about globalization have long tended to overshoot
realityin both directions. The flat-world euphoria that prevailed a decade ago was so much removed from reality that I have debunked it as
globaloney.1 And more recently, proclamations that globalization is dead
and multinational firms are in retreat also seem exaggerated.2 When I
wrote this book, I anticipated such oscillations and made sure that my
recommendations could withstand them. In the final chapter, I predicted:
Looking forward, levels of cross-border integration may increase, stagnate, or even suffer a sharp reversal if the experience between and during
the two world wars is any indication of the possibilities. But given the
parameters of the current situation, it seems unlikely that increases will
anytime soon yield a state in which the differences among countries can
be ignored. Or that decreases could lead to a state in which cross-border
linkages can be forgotten about.
This book helps firms develop strategies to succeed in a world where
international opportunities and threats are key items on the strategy
agenda, but the markets in which most companies compete are still far
from completely integrated. I refer to this sort of worldwhich prevailed
in 2007 despite so much hype to the contrary and still prevails today
as semiglobalized. As this book elaborates, semiglobalization opens up far
more interesting strategic opportunities for firms than would be available
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xiv
New Preface
in a world where globalization is either negligible or complete. And after
devoting substantial effort in the years since this book was first published
to tracking globalization trends in the DHL Global Connectedness Index
and elsewhere, I am even more confident that the world will remain semiglobalized long into the future. In 2016, I even wrote an academic book
about how the effects of borders and distance are so reliable that they
underpin two scientific laws: the law of semiglobalization and the law of
distance.3
Somewhat less gratifying from an academic perspective, but another
reason why this book remains so relevant, is that most business leaders
are still unaware of how globalized the world really is and what that implies for international strategy. In 2017, I conducted a survey of managers
in three advanced economies (Germany, the United Kingdom, and the
United States) and three emerging economies (Brazil, China, and India).
I asked the participants to estimate several of the globalization metrics
covered in chapter 1. The average manager thought the world was five
times more globalized than it really is! And the evidence on how much
harm such globaloney does has also mounted since the initial publication
of this book. My recent surveys show that managers who have perceptions of globalization that are more exaggerated are more likely to make
some common errors in international strategy. And at the societal level,
my surveys show that more globaloney is associated with more anxiety about globalizations alleged harmful side effectseffects that I put
into perspective in my 2011 book, World 3.0: Global Prosperity and How to
Achieve It.
As changes in the globalization environment prompt firms to reexamine their international strategies, the material in Redefining Global Strategy
provides a powerful complement to the content of my 2018 book, The
New Global Road Map: Enduring Strategies for Turbulent Times (also from
Harvard Business Review Press). The new book builds on this one but does
not repeat the same material. Redefining Global Strategy is, as indicated by
its title, devoted entirely to strategy, and so it explains my international
strategy frameworks at much greater length. The New Global Road Map,
in contrast, examines how globalization is evolving over various time
frames, and it discusses implications that extend beyond strategy. The
new book also examines choices about where to compete, how to organize, and how to engage better with society.
Redefining Global Strategy is organized in two parts. Part one introduces
the concept of semiglobalization and two key frameworks for thinking
about value creation and value capture in a semiglobalized world. More
specifically, chapter 1 debunks globaloney-induced myths and grounds
the book in a more realistic sense of globalization. Chapter 2 articulates
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New Preface
xv
the CAGE (cultural, administrative, geographic, and economic) distance
framework, which has come to be widely used and illustrates its power
in business analysis. Chapter 3 provides a scorecard for thinking through
how international moves create or destroy value. The ADDING Value
scorecard encompasses six elements: adding volume or growth, decreasing costs, differentiating or increasing willingness to pay, improving industry attractiveness or bargaining power, normalizing or optimizing risk,
and generating knowledge and other resources and capabilities.
Part two is organized around three fundamental strategies that firms
can employ in a semiglobalized world: adaptation, aggregation, and arbitrage (AAA strategies). Chapter 4 covers adaptation strategies, suggesting a wide array of levers and sublevers that firms can use to adjust to
differences across countries. Chapter 5 discusses aggregation strategies,
which focus on overcoming some cross-country differences to achieve
more economies of scale or scope. Chapter 6 focuses on arbitrage strategies, which treat differences as a source of, rather than a constraint on,
international value creation. Chapter 7 brings these three strategy archetypes together and examines how firms should think about combinations
and trade-offs across them. Chapter 8 concludes with a short step-by-step
guide to help firms apply the key learning points from this book.
To recap, this book articulates a global strategy approach that is
grounded in a clear recognition of the persistent differences across countries and the challenges these differences pose for multinational firms.
The idea is to help businesses cross borders profitably by seeing the world
as it really is, rather than engaging in wishful thinking. To achieve this
objective, the book embodies what might be called the three Rs. First,
it is readable because of its unified point of view, its conciseness, and
its use of numerous examples. Second, the book is relevant for business
policymakers because I have written it around their needs (although it
may also interest leaders in the public sector and others seeking to understand cross-border business) and have kept the discussion grounded
in reality by focusing on value creation and capture. Also important in
this regard is the ease with which companies from different parts of the
world can customize the frameworks presentedwhich suggests some obvious follow-up exercises. In particular, the tools available on my website
at Ghemawat.com can help practitioners customize and apply this content. And third, the book is rigorous in the sense of drawing on research in
a variety of fieldsincluding international economics, industrial organization, business strategy, and international businessas well as extensive
interactions with business leaders. So use it to your advantage!
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Introduction
M Y F I R S T I N T E R N A T I O N A L case-writing experience, in the early
1990s, had me visit a Pepsi plant in the strife-torn Indian state of Punjab.
Given the political environmenta low-grade civil warmany workers
were militants who arrived at the plant each day toting their AK-47s.
Pepsi had set up a system whereby these could be checked in and then
retrieved at the end of a shift. Absolutely no AK-47s inside the building, the
HR director explained forcefullyintroducing me to the large differences
with which international business must contend.
This sense of differences has been sharpened by the years I have spent
since then working on globalization and global strategy. As a result, instead of focusing on market size and the illusion of a borderless world,
this book reminds managers that if their businesses want to cross borders
successfully, they need to pay serious attention to the sustained differences between countries in developing and evaluating strategies. And it
provides them with the insights and tools necessary to do so.
To illustrate this perspective on globalizationor what I call semiglobalizationIll use football as a metaphor.1 U.S. readers may be disappointed that the kind of football that I have in mind is what they refer
to as soccer, but that itself makes a useful point about the differences between countries. Although football is supposed to be a global phenomenonformer UN secretary general Kofi Annan noted enviously that more
countries belong to FIFA, footballs governing body, than to the United
Nationsits hold on sports fans is very uneven, and the United States
constitutes the single largest exception to its general appeal.2
That said, the game has come a long way since English villagers began
kicking around pigs bladders in the Middle Ages. Football began to spread
internationally during the heyday of the British Empire, but the sports
globalization went into reverse in the interlude between World Wars I and
II, as authorities restricted the international transfer of players.
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2
Introduction
The years after World War II saw escalating international rivalry, particularly around the World Cup. In the late 1950s and early 1960s, Real Madrid
emerged as the first great European club, with player
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EDU F ERRER ALCOVE R
Pankaj Ghemawat is one of those rare individuals who combines world-class scholarship
with a deep knowledge of business practice. Redefining Global Strategy tackles the crucial
balance between local and global that will often define success in an increasingly globalized
world economy.
PANKAJ GHEMAWATglobalization and
business strategist, professor, and speaker
works with organizations and policy makers
around the world to help them anticipate and
prepare for economic shifts. He is Global
Professor of Management and Strategy and
Director of the Center for the Globalization of
Education and Management at the Stern School
of Business at New York University and the
Anselmo Rubiralta Professor of Global Strategy
at IESE Business School. He is the author of
numerous influential books, including The New
Global Road Map, World 3.0, and The Laws of
Globalization.
MICHAEL PORTER, Bishop William Lawrence University Professor, Harvard Business School
Pankaj Ghemawats differentiated industry- and company-specific views on globalization offer
essential insights and thought-provoking impulses for todays decision makers. For anyone who
aims to realize the full potential of globalization, it clearly confirms: the world isnt flat!
PROF. DR. ULRICH LEHNER, Chairman of the Supervisory Board, Deutsche Telekom
and Thyssenkrupp AG
International firms have to reflect more deeply on how to coordinate their commitments around
the world. Pankaj Ghemawats pioneering book offers an innovative approach for how to deal
with this critical challenge.
JOSÉ IGNACIO GOIRIGOLZARRI, President, Bankia
Pankaj Ghemawats Redefining Global Strategy has very appropriately identified the world
we live in as only semiglobalized. He builds on this definition to present some very valuable
and innovative frameworks for developing strategies for internationalization and global value
creation. The book offers a comprehensive treatment of one of the most important issues
engaging the business community.
RATAN TATA, former Chairman, Tata Group
For more, visit Ghemawat.com
Follow @PankajGhemawat on Twitter
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PANKAJ
GHEMAWAT
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REDEFINING
GLOBAL
STRATEGY
SAMUEL J. PALMISANO, former Chairman of the Board and CEO, IBM Corporation
U S$35.00
H A R VA R D B U S I N E S S R E V I E W P R E S S
Pankaj Ghemawat has created an important strategic guidebook for leaders of the globally
integrated enterprises of the twenty-first century. His analytical framework is both visionary and
pragmaticaware of the broad historic trajectories of globalization, but grounded in the real
kinds of decisions business leaders have to make now. His caveats about semiglobalization
provide a salutary reminder that massive change of this kind doesnt happen overnight. By
basing his analysis on real-world case studies and a mastery of economic data, Ghemawat helps
CEOs and leaders make smart decisions on one of the most important challenges we all face.
REDEFINING GLOBAL STRATEGY
and GE Healthcare are adroitly managing crossborder differences. He also shares examples of
other well-known companies that have failed
at this challenge. Crucial for any business
competing across borders, Redefining Global
Strategy will help you make the most of our
semiglobalized world.
MANAGEMENT
GHEMAWAT
(Continued from front flap)
CROSSING BORDERS IN A WORLD
WHERE DIFFERENCES STILL MATTER
NEW TOOLS FOR
SUCCEEDING GLOBALLY
W
hy do so many global strategies
faildespite companies powerful
brands and other border-crossing
advantages? Because a one-size-fits-all strategy
no longer stands a chance.
When firms believe in the illusions of a flat
world and the death of distance, they charge
across borders as if the globe were one seamless
marketplace. But cross-border differences are
larger than we assume. Most economic activity
including trade, real and financial investment,
tourism, and communicationhappens locally,
not internationally. In this semiglobalized
approach, companies can cross borders more
profitably by basing their strategies on the
geopolitical differences that matter; they must
identify the barriers their strategies have to
overcome, and they must build bridges to cross
those barriers. Based on rigorous research,
Pankaj Ghemawat shows how to create
successful strategies and provides practical
management tools so you can:
Assess the cultural, administrative, geographic,
and economic differences between regions at
the industry leveland decide which ones
require attention
Track the implications of the specific bordercrossing actions that will impact your
companys ability to create value the most
Generate superior performance through
strategies that are optimized for the three
As: adaptation (adjusting to differences),
aggregation (overcoming differences), and
arbitrage (exploiting differences)
Using in-depth examples, Ghemawat reveals
how companies such as Cemex, Toyota, Procter
& Gamble, Tata Consultancy Services, IBM,
(Continued on back flap)
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Most of us do not need much persuading that the world is still
round, but Pankaj Ghemawat redefines its circularity. He shows
how companies can benefit from what he calls semiglobalization, while not falling into the traps unwittingly set by those
who talk glibly about our globalized world.
Sir Howard Davies, Chairman, Royal Bank of Scotland
An impeccably researched reassessment of the global business
worldnot as an ideal but as it really is.
Sir Martin Sorrell, CEO, WPP Group
Now things are clear. Nations and cultures will continue challenging the babel-like perspectives of those who see an irresistibly globalizing world. Pankaj Ghemawats refreshing and
thought-provoking book brings us to the real world.
Michel Camdessus, former Managing Director,
International Monetary Fund
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Redefining
Global
Strategy
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Redefining
Global
Strategy
Crossing Borders in a World Where
Differences Still Matter
Pankaj Ghemawat
HARVARD BUSINESS REVIEW PRESS
BOSTON, MASSACHUSETTS
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Library of Congress Cataloging-in-Publication Data
Names: Ghemawat, Pankaj, author.
Title: Redefining global strategy : crossing borders in a world where differences still
matter / by Pankaj Ghemawat.
Description: Boston, Massachusetts : Harvard Business Review Press, [2018] | With a
new prefaceTitle page. | Includes bibliographical references and index.
Identifiers: LCCN 2017051986 | ISBN 9781633696068 (hardcover : alk. paper)
Subjects: LCSH: International business enterprisesManagement. | Strategic planning. |
Intercultural communication.
Classification: LCC HD62.4 .G474 2018 | DDC 658.4/012dc23 LC record available
at https://lccn.loc.gov/2017051986
ISBN: 978-1-63369-606-8
eISBN: 978-1-63369-607-5
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To Anuradha
Who has helped me understand that globalization
does not mean forgetting where Im from
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Contents
Foreword
Acknowledgments
New Preface
Introduction
Part One
ix
xi
xiii
1
Value in a World of Differences
1
Semiglobalization and Strategy
9
2
Differences Across Countries
33
The CAGE Distance Framework
3
Global Value Creation
65
The ADDING Value Scorecard
Part Two
4
Strategies for Global Value Creation
Adaptation
107
Adjusting to Differences
5
Aggregation
139
Overcoming Differences
6
Arbitrage
169
Exploiting Differences
7
Playing the Differences
197
The AAA Triangle
8
Toward a Better Future
219
Getting Started
Notes
Selected Resources
Index
About the Author
231
247
249
259
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Foreword
I F I R S T M E T Pankaj Ghemawat in September 1978, when I was look-
ing for a very talented undergraduate to help develop a course for the
then-nascent Harvard Negotiation Project. Ghemawat stood out on account of his international orientation as well as his intellectual gifts and
curiosity. Working with him for a year confirmed my initial sense that he
would go on to do great things.
I watched with interest as Ghemawat sped through his undergraduate
and PhD degrees at Harvard in a total of six years. I was pleased when he
decided to go consult after receiving his PhD. And I was delighted when
he was recruited by Michael Porter to join the Harvard Business School faculty at age twenty-three. He went on to become the youngest professor ever
granted tenure at Harvard Business School, on the strength of a body of
distinguished work on sustainability and competitive dynamics, particularly Commitment, which is my favorite book of his. Or was, until this one.
Redefining Global Strategy is based on a decade of immersion in the strategies of global enterprises. This research has already resulted in a stream of
articles in the Harvard Business Review, of which the two most recent are
Regional Strategies for Global Leadership (December 2005), which received HBRs award for the best article published that year, and Managing
Differences: The Central Challenge in Global Strategy, which was published as the lead article in March 2007. But it is only in this book that
Ghemawat fully elaborates and explores the implications of his core proposition: that frontiers matter. Our age, he says, is not one of completeor
even near-completeglobalization. Rather, the state of the world is more
appropriately characterized as semiglobalization.
Ghemawats notion of semiglobalization contradicts the current fanfare about frontiers subsiding and creating a flat world in which people
find both work and opportunity without being constrained by their location. For Thomas Friedman, the most prominent purveyor of this view,
flatness is forced primarily by technology. For Ted Levitt, writing more
than twenty years before Friedman, it was the result of a demand-side
force, the convergence of tastes. And then there are other variants on this
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x
Foreword
broad vision. But they all naturally lead to an emphasis on size, and on
one-size-fits-all strategies.
Ghemawat is not persuaded. I imagine him, like Galileo Galilei before
the Inquisition, unable to keep from saying, But it does move around the
sun! In other words, a flat world may be rhetorically appealing to some,
but extensive empirical observation and analysis suggest that cultural, political, and geographic barriers between countries still loom largeand
have a major influence on global strategy.
If Ghemawat stopped there, he would simply have reminded us that
the world is a complex place and that strategic leadership is difficult.
But he is interested in providing actionable knowledge about global strategies that actually work. So Redefining Global Strategy gives the reader
coherent, powerful frameworks for thinking about the ways in which
borders matter and for evaluating cross-border moves. And perhaps even
more importantly, it develops an array of strategies for dealing with such
differencesstrategies that go well beyond one-size-fits-all.
This array of strategies is particularly appealing to me because in twenty
years as a strategy consultant, I have seen many companies fail precisely
because they forgot the distinction between size and strategy. However,
strategy, which was invented both as a word and as a discipline in the battles of Marathon and Salamis between the Persians and the Greeks, is the
art and science of overcoming the advantage of size. Strategy is meant to
allow for victory of the small over the large, and the few over the many,
at least sometimes.
Ghemawats concept of semiglobalization not only fits with this broad
view of strategy, it also gives us the tools to advance successful globalization. As the founder of the consulting firm Panthea, and as the senior
executive adviser on strategic leadership to Booz Allen Hamilton, I am
proud that my two firms have recognized the value of these ideas. Their
initial reception by Booz Allen clients has been enthusiastic, and we expect that they will help us better understand the worldand change it for
the better.
Nikos Mourkogiannis
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Acknowledgments
B E H I N D T H I S B O O K is a personal journey from a small city in India,
to Indiana, back to India, then to Cambridge, Massachusetts, and recently
to Barcelona. Professionally, I began to work on the ideas in this book in
the mid-1980s, soon after I had joined the Harvard Business School faculty, when I wrote an early analytical piece on global strategy with Mike
Spence, one of my thesis advisers.
My interest in imbuing my work on strategy with a cross-border perspective was whetted further by a study on Indias competitiveness that
Mike Porter and I undertook in the mid-1990s for the Confederation of
Indian Industry. Shortly after, I was fortunate enough to take over Mike
Yoshinos Global Strategy and Management course at HBS, which provided an opportunity to synchronize research, course development, and
writings for practitioners on this topic. I have now been focused on issues
related to globalization and global strategy more or less full time for the
better part of a decade. This phase of the journey has yielded about fifty
case studies and papers, this book, and sundry supporting materials such
as a CD on globalization, my Web site (which also lists most of my work
to date), and material for several ongoing projects.
I am particularly grateful to the Harvard Business School, which, under
Deans Kim Clark and Jay Light, has generously supported this program of
study for almost a decade. IESE Business School, under Dean Jordi Canals,
has been a wonderful place to put the finishing touches on this book. I am
also deeply indebted to the Harvard Business Review, where Tom Stewart,
David Champion, and others have helped shape and support my attempts
to communicate with practitioners. And, of course, thanks to Harvard
Business School Press for its work on this book, with particular gratitude
to Melinda Merino and Brian Surette for their counsel. Thanks also to my
agent, Helen Rees, for guiding me, and to my editor, Jeff Cruikshank, for
helping shape a jumble of complex ideas into a book.
My other, mostly content-related, debts are too numerous to acknowledge, including, as they do, learning from scores of colleagues, from the
hundreds of executives Ive interviewed, and from the thousand-odd
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xii
Acknowledgments
students with whom Ive worked through the concepts discussed hereas
well as from many excellent writings, not all of which can be cited here.
Still, I must specifically thank people who have generously read and provided comments on recent drafts of part or all of this book: Steve Altman,
Amar Bhide, Dick Caves, Tom Hout, Don Lessard, Anita McGahan, Nikos
Mourkogiannis, Jan Oosterveld, Richard Rawlinson, Denise Rehberg, Jordan Siegel, and Lori Spivey. My long-time assistant at Harvard, Sharilyn
Steketee, did some of the research for the chapters, read through them,
and managed the multiple incarnations of the manuscript. I am also indebted to Ken Mark and Beulah DSouza for able research assistance. And
last but most important, thank you to my wife, Anuradha Mitra Ghemawat, for the reason explained in the dedicationand for many more.
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New Preface
A D E C A D E H A S P A S S E D since the original release of Redefining Global
Strategy, and I could not be more pleased with how the ideas contained
in this volume have stood the test of time. The material in this book is,
arguably, even more important today than when the first edition came
out. Back in 2007, the common wisdom was that globalization was racing
ahead, flattening borders and erasing the effects of distance. As I write
this new preface, in 2017, many business leaders suspect that globalization has stalled or perhaps even suffered a reversal. This has prompted
rising interest in international strategies designed for a world where borders, geographic distance, and other differences between countries still
constrain international activitythe central theme of this book.
One reason that Redefining Global Strategy has remained so relevant
is that expectations about globalization have long tended to overshoot
realityin both directions. The flat-world euphoria that prevailed a decade ago was so much removed from reality that I have debunked it as
globaloney.1 And more recently, proclamations that globalization is dead
and multinational firms are in retreat also seem exaggerated.2 When I
wrote this book, I anticipated such oscillations and made sure that my
recommendations could withstand them. In the final chapter, I predicted:
Looking forward, levels of cross-border integration may increase, stagnate, or even suffer a sharp reversal if the experience between and during
the two world wars is any indication of the possibilities. But given the
parameters of the current situation, it seems unlikely that increases will
anytime soon yield a state in which the differences among countries can
be ignored. Or that decreases could lead to a state in which cross-border
linkages can be forgotten about.
This book helps firms develop strategies to succeed in a world where
international opportunities and threats are key items on the strategy
agenda, but the markets in which most companies compete are still far
from completely integrated. I refer to this sort of worldwhich prevailed
in 2007 despite so much hype to the contrary and still prevails today
as semiglobalized. As this book elaborates, semiglobalization opens up far
more interesting strategic opportunities for firms than would be available
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xiv
New Preface
in a world where globalization is either negligible or complete. And after
devoting substantial effort in the years since this book was first published
to tracking globalization trends in the DHL Global Connectedness Index
and elsewhere, I am even more confident that the world will remain semiglobalized long into the future. In 2016, I even wrote an academic book
about how the effects of borders and distance are so reliable that they
underpin two scientific laws: the law of semiglobalization and the law of
distance.3
Somewhat less gratifying from an academic perspective, but another
reason why this book remains so relevant, is that most business leaders
are still unaware of how globalized the world really is and what that implies for international strategy. In 2017, I conducted a survey of managers
in three advanced economies (Germany, the United Kingdom, and the
United States) and three emerging economies (Brazil, China, and India).
I asked the participants to estimate several of the globalization metrics
covered in chapter 1. The average manager thought the world was five
times more globalized than it really is! And the evidence on how much
harm such globaloney does has also mounted since the initial publication
of this book. My recent surveys show that managers who have perceptions of globalization that are more exaggerated are more likely to make
some common errors in international strategy. And at the societal level,
my surveys show that more globaloney is associated with more anxiety about globalizations alleged harmful side effectseffects that I put
into perspective in my 2011 book, World 3.0: Global Prosperity and How to
Achieve It.
As changes in the globalization environment prompt firms to reexamine their international strategies, the material in Redefining Global Strategy
provides a powerful complement to the content of my 2018 book, The
New Global Road Map: Enduring Strategies for Turbulent Times (also from
Harvard Business Review Press). The new book builds on this one but does
not repeat the same material. Redefining Global Strategy is, as indicated by
its title, devoted entirely to strategy, and so it explains my international
strategy frameworks at much greater length. The New Global Road Map,
in contrast, examines how globalization is evolving over various time
frames, and it discusses implications that extend beyond strategy. The
new book also examines choices about where to compete, how to organize, and how to engage better with society.
Redefining Global Strategy is organized in two parts. Part one introduces
the concept of semiglobalization and two key frameworks for thinking
about value creation and value capture in a semiglobalized world. More
specifically, chapter 1 debunks globaloney-induced myths and grounds
the book in a more realistic sense of globalization. Chapter 2 articulates
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New Preface
xv
the CAGE (cultural, administrative, geographic, and economic) distance
framework, which has come to be widely used and illustrates its power
in business analysis. Chapter 3 provides a scorecard for thinking through
how international moves create or destroy value. The ADDING Value
scorecard encompasses six elements: adding volume or growth, decreasing costs, differentiating or increasing willingness to pay, improving industry attractiveness or bargaining power, normalizing or optimizing risk,
and generating knowledge and other resources and capabilities.
Part two is organized around three fundamental strategies that firms
can employ in a semiglobalized world: adaptation, aggregation, and arbitrage (AAA strategies). Chapter 4 covers adaptation strategies, suggesting a wide array of levers and sublevers that firms can use to adjust to
differences across countries. Chapter 5 discusses aggregation strategies,
which focus on overcoming some cross-country differences to achieve
more economies of scale or scope. Chapter 6 focuses on arbitrage strategies, which treat differences as a source of, rather than a constraint on,
international value creation. Chapter 7 brings these three strategy archetypes together and examines how firms should think about combinations
and trade-offs across them. Chapter 8 concludes with a short step-by-step
guide to help firms apply the key learning points from this book.
To recap, this book articulates a global strategy approach that is
grounded in a clear recognition of the persistent differences across countries and the challenges these differences pose for multinational firms.
The idea is to help businesses cross borders profitably by seeing the world
as it really is, rather than engaging in wishful thinking. To achieve this
objective, the book embodies what might be called the three Rs. First,
it is readable because of its unified point of view, its conciseness, and
its use of numerous examples. Second, the book is relevant for business
policymakers because I have written it around their needs (although it
may also interest leaders in the public sector and others seeking to understand cross-border business) and have kept the discussion grounded
in reality by focusing on value creation and capture. Also important in
this regard is the ease with which companies from different parts of the
world can customize the frameworks presentedwhich suggests some obvious follow-up exercises. In particular, the tools available on my website
at Ghemawat.com can help practitioners customize and apply this content. And third, the book is rigorous in the sense of drawing on research in
a variety of fieldsincluding international economics, industrial organization, business strategy, and international businessas well as extensive
interactions with business leaders. So use it to your advantage!
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Introduction
M Y F I R S T I N T E R N A T I O N A L case-writing experience, in the early
1990s, had me visit a Pepsi plant in the strife-torn Indian state of Punjab.
Given the political environmenta low-grade civil warmany workers
were militants who arrived at the plant each day toting their AK-47s.
Pepsi had set up a system whereby these could be checked in and then
retrieved at the end of a shift. Absolutely no AK-47s inside the building, the
HR director explained forcefullyintroducing me to the large differences
with which international business must contend.
This sense of differences has been sharpened by the years I have spent
since then working on globalization and global strategy. As a result, instead of focusing on market size and the illusion of a borderless world,
this book reminds managers that if their businesses want to cross borders
successfully, they need to pay serious attention to the sustained differences between countries in developing and evaluating strategies. And it
provides them with the insights and tools necessary to do so.
To illustrate this perspective on globalizationor what I call semiglobalizationIll use football as a metaphor.1 U.S. readers may be disappointed that the kind of football that I have in mind is what they refer
to as soccer, but that itself makes a useful point about the differences between countries. Although football is supposed to be a global phenomenonformer UN secretary general Kofi Annan noted enviously that more
countries belong to FIFA, footballs governing body, than to the United
Nationsits hold on sports fans is very uneven, and the United States
constitutes the single largest exception to its general appeal.2
That said, the game has come a long way since English villagers began
kicking around pigs bladders in the Middle Ages. Football began to spread
internationally during the heyday of the British Empire, but the sports
globalization went into reverse in the interlude between World Wars I and
II, as authorities restricted the international transfer of players.
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2
Introduction
The years after World War II saw escalating international rivalry, particularly around the World Cup. In the late 1950s and early 1960s, Real Madrid
emerged as the first great European club, with player
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