Business globalisation on the rebound

The report Winning in polycentric world draws on two sources of original research: Ernst & Young’s Globalization Index, which measures the world’s 60 largest economies according to their degree of globalization relative to their GDP, and survey of more than 1000 senior business executives worldwide, conducted in late 2010, canvassing their thoughts on globalization.

Ernst & Young CEO John Ferraro says business opportunities are now distributed more evenly around the world than at any time in history. The convergence of market potential between the developed and emerging world means the number of markets that multinationals must consider as “strategic” has increased.

Turley contends that to be long-term winner in this new globalised world, companies must essentially operate at multiple speeds in order to fit their strategies to both fast-growth and slow-growth markets. “Success in the former requires rapid-fire decision-making and the capacity to experiment, learn and (achieve) scale at speed. For large multinationals, this may require rethink of reporting lines in order to bypass bureaucracy and maximise agility. Developed markets, on the other hand, will require different approach, which is more dependent on efficiency and incremental growth.”

Success requires companies to focus on four priorities Turley concludes: Corporates will have to first redefine global and local, second develop “polycentric” approach to innovation, third rethink relationships with government, and fourth build leadership teams with strong global experience.

The survey of over 1000 business leaders suggests mixed picture in how far corporates are currently engaging with these four priorities. Executives are already rethinking their approach to innovation in emerging markets. Currently, the companies surveyed conduct relatively small proportion of their R&D in emerging markets, despite the importance of these economies to their growth prospects. But, over the next five years, this will change. The proportion of respondents that will conduct more than one-quarter of their R&D in emerging markets will almost treble in Western Europe and more than double in North America. Nearly 30% of companies will spend more than quarter of their R&D investment in emerging markets five years from now.

Understanding the political environment, and how it might affect the company’s ability to do business, has become core competence for global corporates. And yet, according to the survey, companies pay relatively small amount of attention to policy as part of their investment decisions. The only aspects of government policy that more than half of respondents consider to be influential when planning an investment are economic growth projections and tax rates.

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