INTOUCH : It’s not a flat world!

Biff out the notion of flat globalised world. International business is more partitioned than many of us care to admit.
That’s according to professor Alan Rugman, who was in Auckland recently as part of the University of Auckland Business School’s Dean’s Distinguished Speakers Series. Rugman has spent years fossicking through big companies’ annual reports trying to unearth their global aspirations.
He’s director of research at the Henley Business School, University of Reading, in the UK. His research shows that even Fortune 500 companies, the giants of international business, stick surprisingly close to home. To Rugman’s mind, truly globalised firm makes at least 20 percent of its sales in each of the three regions of Europe, North America and Asia. They score less than half of their sales on home turf.
Yet, that’s not what the Fortune 500 are doing.
“It’s pretty surprising. These are our global enterprises. They are our best bet to be global firms and yet only nine of them are pulling it off. These Fortune 500 firms average 77 percent of their sales in their home regions. They’re not truly global players.
“The typical large firm is home-region oriented. It’s not global firm. They’re getting the benefits of integration and scale by growing in their home market.”
Arguments used to centre around whether business should be local or global. “I say it’s regional versus global,” says Rugman, “and you can forget global.”
Even Walmart, the world’s largest firm, he says, makes 80 percent of its sales in the US. “And most of its overseas sales are in Canada or Mexico: they are not globally dispersed. Walmart has business model that has not succeeded in going to Europe or Asia.”
Now emerging Chinese companies are heading down the same track. Rugman’s research shows China’s 37 firms in the Fortune 500 list average ‘more like 90 percent of their sales in their own region’.
“So where are these global firms? Well, apparently they’re in book called The World is Flat by Thomas Friedman. It’s one of the funniest books ever written.
“According to Thomas Friedman, globalisation starts in 1492 [when Christopher Columbus set sail, opening trade between the Old and New Worlds]. Only an American could start history in 1492.”
Rugman concedes that Friedman makes some good points on how the internet has eased international business connections.
“But if you look at manufacturing firms, for example, their supply chains are mainly regional. They’re not global.
“And if you look at off-shoring, this is also mainly regional. Western European firms are off-shoring in the former Eastern Europe.
“The more we push at globalisation, the more tricky and slippery this concept is.”