S+B: You start your book by staking a claim that, contrary to Thomas Friedman’s assertions, the world is not flat. Why is that distinction important?
GHEMAWAT: Let’s start with the business implications. I think believing the world is flat leads to one-size-fits-all strategies. This may be one reason that so many firms are disappointed with the performance of their overseas operations. If you’re looking for guidance on questions like where to compete, the “world is flat” thesis has only one message: “The market is almost infinite.” There’s no sense of place, no notion of distance to help you set priorities. So businesses go for bigger and blander strategies.
But I think there are broader implications as well. In both the academic and the political sphere, problematic consequences result from believing that no differences remain between countries. You’re less likely to believe that there is anything interesting to discover in the rest of the world. Right now, we’re in a fairly scandalous situation where only 5 percent of the articles published in the top 20 academic management journals have any cross-border content. Fewer people are conducting research in other parts of the world, looking to build distinctive awareness of other places, as opposed to reinforcing plain-vanilla, “one-approach-fits-every-country” strategies.
Furthermore, I think that the notion that borders don’t matter very much encourages an excessive faith in what Thomas Friedman calls the “golden straitjacket”: the idea that there’s nothing government can do to protect the weaker sections of society, because the capital markets will automatically punish every attempt. This further erodes support for economic integration by leading to alarmist visions about what’s going to happen tomorrow.
S+B: What do you say to the politician or citizen who takes the golden straitjacket message seriously?
GHEMAWAT: We’ve seen global competition before. We’ve seen East Asian economies powered by low labor costs penetrating world markets — but it literally took them decades to do it. And that strikes me as a much more reasonable time frame for some of these processes to unfold. To frame it as an instant, nearly universal economic integration is not accurate, and it leads to political overreaction: “There is no future for my children, so let’s man the barricades against imports and free trade.”
S+B: You’re saying that companies and communities have ample time and strategic options for adapting to globalization.
GHEMAWAT: The press interest in my book has focused on my saying, “The world is not flat.” But that takes up literally only the first half of the first chapter. The rest of the book tries to answer the question, “OK, so what do you do about the world that we live in? How do you cope with this more textured and complex reality?”
If you talk to most business executives, you hear about one technique, which is balancing centralization against decentralization. “We’ll make some decisions centrally, and we’ll delegate some to the provinces or the country managers.” But there is a much richer menu of strategies for dealing with differences.
S+B: In Redefining Global Strategy, you write that natural barriers will keep most industries from achieving anything close to perfect integration. Do you mean primarily economic and structural barriers, or are you talking about culture as well?
GHEMAWAT: I’m referring to a range of barriers that I identified over years of studying corporate global efforts. I called them “distances,” because the distance between places does matter in setting business strategy. There are four basic types of distance: cultural, administrative, geographic, and economic, which form a framework I’ve named CAGE.
Many strategists recognize the importance of geographic distance; if you’ve ever been involved in transporting products, you know that geography is still significant. And certainly we are all attuned to economic distance, differences among nations in labor costs, and so on. But strategists often don’t expect administrative or cultural distances to have the force they do.