Gallus Book Club – World 3.0 – the best bits
OUR TAKE ON ‘WORLD 3.0 – GLOBAL PROSPERITY AND HOW TO ACHIEVE IT’!
By Pankaj Ghemawat
EVERY MONTH THE GALLUS BOOK CLUB EXPLORES A TOPICAL, RELEVANT BOOK THAT, ON FACE VALUE, COULD INFORM THINKING, SPARK SOME DEBATE AND GENERATE IDEAS AMONGST OUR MEMBERS. We picked World 3.0 by Pankaj Ghemawat as our January read. Many of our GALLUS BOOK CLUB members are tasked with identifying and developing the global leaders of the future, designing and leading major transformations and/or driving growth across geographical, political, regulatory and cultural boundaries. An examination of globalisation - its benefits, costs and risks - is a conversation that perhaps ought to form part of the foundation to any such initiative. An academic text, World 3.0 presents an evidence based assessment of the extent and impact of globalisation. Using many examples and scenarios drawn from political and corporate contexts across the globe to examine and demonstrate ideas, the book lays out Ghemawat’s opinion of the reality of globalisation and constructs his arguments using a number of useful concepts, models and tools. Hard-going at times due to the inevitable reference to complex economic and demographic data and correlations; perseverance is rewarded with clearer frameworks from which to consider globalisation, its impact and demands on nations, organisations and individuals. Here we present THE BEST BITS from our perspective. . . . World 3.0: Global prosperity and how to achieve it: Ghemawat.P. Harvard Business Review Press 2011 page 18
Each of Ghemawat’s worldviews describes the elements involved in varying levels of globalisation across history.
World 1.0
World 2.0
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World 0.0
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Ghemawat challenges Thomas Friedman’s view that ‘the world got flat’ and suggests that despite a widely held belief that the world has been operating at World 2.0, evidence suggests that the reality is somewhere between World 1.0 and World 2.0; borders are still important but there are extensive flows of capital, produce and labour across them. He notes that in times of crisis and when under pressure World 2.0 can feel alien to many people and there is a natural inclination to revert towards World 1.0 ; a world in which local production and consumption prevails and where small communities manage their own micro-economies. He argues that this can be counter-productive to recovery following market shocks of the type we experienced in 2008.
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GHEMAWAT’S FOUR WORLDVIEWS:
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WORLDVIEWS: AN INITIAL CHARACTERIZATION Worldview
World 0.0 Wild World
World 1.0 Walled World
World 2.0 One World
World 3.0 Workable World
Period of emergence
Prehistoric
Age of Enlightenment
Late 20th century
The third millennium
Development
People in early history bonded together to survive hostile conditions
Massive population growth drives the establishment of national borders that strictly separate domestic and international realms. Interpersonal exchange and other forms of interdependence become more common
Deregulated and integrated markets are considered the norm. Competition is king and market forces are favoured over government intervention. International trade increases dramatically and market expansion becomes a core focus
Borders and distance are important. Human nature and behaviour is considered and a balance is sought between selfinterest and altruism
Level of market integration
Subnational markets: local integration
National markets: national integration
Global markets: complete global integration
Semi-global markets: partial global integration
Geographic structure
Local borders
National borders
None
Borders plus distance spatiality
Governmental policies
Minimal
Regulator of market failures
Integrator (limited role)
Integrator plus regulator
Business strategies
Local
Domestic / multi-domestic
Global standardisation
AAA strategies to adjust, to overcome, and harness differences
Individual mind-sets
Communitarianism
Nationalism
Cosmopolitanism
Rooted cosmopolitanism (cultural distance)
Adapted from World 3.0: Global prosperity and how to achieve it: Ghemawat.P. Harvard Business Review Press 2011 page 20
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GALLUS CONSULTING
‘a crisis can be the best time to get out of the groove of traditional thinking’ Pankaj Ghemawat
Ghemawat explores the notion of increased integration and decreased regulation and makes the point that these need not go hand in hand. If market failures are potentially hugely disruptive then some protection from their effects needs to be sought. Integration creates bigger markets and therefore potentially more disruptive failures; perhaps greater regulation should be considered in some areas to mitigate associated risks = World 3.0.
‘disentangling integration and regulation as two separate, non-binary domains of choices opens up countless potential paths toward greater prosperity and security’ Pankaj Ghemawat
He argues that World 3.0 is a better route to prosperity than World 1.0 or World 2.0 and explains that, to create effective globalised value chains, capital flows and mobile workforces, we need to fully examine and interpret cross-border differences from a number of angles truly understand the ‘distance’ between countries and the likelihood of productive trade relations.
‘globalisation can alleviate the effects of some categories of market failures and fears and often mitigates any negative effects it creates’ Pankaj Ghemawat
LEVERS TO LEVERAGE AND METRICS THAT MATTER! Some surprising statistics show how the commonly held view of extensive globalisation is not representative of reality and potentially how far we are from extensive integration. Globalisation is uneven and trade has become regionalised rather than truly global. At Gallus we often talk about identifying ‘LEVERS TO LEVERAGE’ and ‘METRICS THAT MATTER’. Ghemawat says that to cut through the ‘GLOBALONEY’ we need to recognise that borders and distance are important and develop ways to measure their impact. He suggests the CAGE model as a framework through which we can organise our thinking. THE CAGE DISTANCE FRAMEWORK DISTANCE
Cultural
Administrative
Geographic
Economic
External distance (bilateral / plurilateral / multilateral attributes)
Different languages
Lack of colonial ties
Physical distance
Differences in consumer incomes
Different ethnicities / lack of connective ethnic or social networks
Lack of shared regional trading bloc
Lack of land border
Different religions
Lack of common currency
Differences in climates (and disease environments)
Differences in national work systems
Different legal system
Differences in time zones
Different values, norms, and dispositions
Political hostility
Differences in availability of: Human resources Financial resources Natural resources Intermediate outputs Infrastructure Supplier/distribution structure Complements Organisational capabilities
Traditionalism
Nonmarket/closed economy (home versus foreign bias) Lack of membership in international organisations Weak legal institutions / corruption Lack of government checks and balances Societal conflict Political / expropriation risk
Internal distance (unilateral attributes)
Insularity Spiritualism Inscrutability
Landlockedness Geographic size Geographic remoteness
Economic size Low per capita income Low level of monetization Limited resources, inputs, infrastructure, complements, capabilities
World 3.0: Global prosperity and how to achieve it: Ghemawat.P. Harvard Business Review Press 2011 page 55
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Gallus Book Club – World 3.0 – the best bits
In essence the more similar countries and populations are the more likely they are to trade with one another and, contrary to popular belief, geographical distance matters. This explains in some part the regional nature of the pattern of globalisation across the world.
ADDING VALUE THROUGH GLOBALISED MARKETS
Ghemawat wants us to judge globalisation in terms of the value it can add.
Ghemawat’s adding value scorecard ADDING ECONOMIC VALUE Adding volume
Economies of scale
Decreasing costs
Economies of scale
Differentiating
Improving willingness to pay Encouraging variety, improved quality, and continuous improvement
Intensifying competition
Greater openness increases numbers of market players
Normalising risk
Balancing risks rather than minimising
Generating and diffusing knowledges
Fuelling technological progress Quicker diffusion of innovations Adapted from World 3.0: Global prosperity and how to achieve it: Ghemawat.P. Harvard Business Review Press 2011 page 69
THE 7 POSSIBLE PROBLEMS Scholars and laymen alike consider globalisation to be at the route of many of the world’s problems. Ghemawat proposes 7 main problems and suggests that in reality there are benefits and risks presented through globalisation that should be fully analysed before apportioning blame. Global concentration: This problem corresponds with the first of the classic economic trilogy of market failures – small numbers. Does globalisation eventually lead to global markets being dominated by a small number of large competitors? Does globalisation make industries more concentrated and therefore make it impossible to be successful unless your organisation is in the global ‘top 3’? Do global companies need to compete everywhere or should they choose their markets? Does the ‘invisible hand’ of market theory work effectively in keeping prices down or does integration create ‘market power’ for the few that pushes prices higher over time? How do political processes and government intervention impact concentration? Global externalities: The second of the classic economic trilogy of market failures – externality. Is globalisation causing an ecological catastrophe? Are ecological problems truly global or are they more regional, impacting on closest geographical neighbours? How can we understand the impact of pollution, identify and improve globalisations effects, and get countries working together – across borders. Do we fully understand ‘scale effects’, ‘technique effects’ and composition effects’? How can we ‘think global’ and ‘act local’? Do we need greater regulatory control in integrated markets rather than less? Global risks: The third of the classic economic trilogy of market failures – Informational problems. Globalised markets introduce greater systemic risk through the interdependence of global systems. Does diversification reduce this risk? How can regulation be used to manage interdependence? How can data be used to identify information asymmetries and cut through complexity? To what degree is contagion moderated by the law of distance? How can ‘ALARMS’, ‘BREAKS’, ‘CUSHIONS’, and ‘DAMPENERS’ be leveraged to best effect? Alarms
Early warning
Data and information flows Exposure awareness
Breaks
Curb contagion
Exposure limits and other measures to react to threats
Cushions
Soften blow
Strategic reserves Policy responses to potential scenarios prepared in advance Redundancy (spare capacity) built into critical systems
Dampeners
Ongoing management
Policy Regulatory interventions
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GALLUS CONSULTING Global imbalances: What cross border imbalances exist in terms of capital and labour? Global exploitation: How does inequality impact the treatment of people and how fairly are the benefits of cross-border integration distributed? Do unskilled workers fall behind skilled workers? Do workers overall lose out versus the owners of capital? Do jobs become less secure? Is the creation of a mobile workforce some measure of protection? What are the impacts of past colonial rule on emerging markets? Global oppression: How do political ideologies impact the system? Do some nations and corporations have too much power? How does their power get used in the political system? Is freedom of choice under threat? Global homogenization: How much is too much and how much is too little? How can cultures integrate and yet survive? Does globalisation present greater opportunities for innovation and the diffusion of new ideas and technology? How can an adaptive approach create balance? How can fear be managed and trust be earned?
THE CHOICES Ghemawat is clearly a proponent of integrated markets and outlines six propositions that he believes will enhance the benefits to be achieved through globalisation: 1.
Market failures and fears need to be incorporated into analysis of integration
2.
The cross-border integration of markets often helps to correct market failures instead of compound them
3.
In many other cases, integration has a negligible effect on market failures and therefore shouldn’t be restricted.
4.
When integration does threaten to aggravate market failures mix and match policies to try to preserve some of the benefits of opening up whilst curbing adverse effects
5.
Distance sensitivity is inversely related to the optimal scope of integrative and regulatory initiatives
6.
Large integration opportunities often exist within a swell as across national borders
A table of policy levers on page 266 provides some ideas as to how to promote integration within countries. Ghemawat then goes on to explain how countries, companies and individuals can best prepare themselves and leverage the opportunities afforded to them by integrated global markets. He talks about ‘changing mind-sets’ and ‘developing a rooted cosmopolitan that is distinct from notions of national or global citizenship’.
‘smart policies can push us in the right direction, but if we change our mind-sets we can get farther’ Panjak Ghemawat
World 3.0 gives a fascinating insight to the systemic risks, ‘METRICS THAT MATTER’ and ‘LEVERS TO LEVERAGE’ in an integrated global market. As such, we think it should be on the bookshelf of anybody seriously aspiring to lead across borders or who is involved in the identification and development of future global leaders.
GALLUS’ VIEW - WHAT DOES IT TAKE TO BE A GLOBAL LEADER? Leading across borders presents a greater variety of tensions and more challenging ethical dilemmas. An understanding of geographical, historical, regulatory, political and cultural elements is a must. At Gallus we believe that global leaders need to demonstrate six GLOBALMIND enablers to really be able to navigate the landscape successfully and enjoy their global leadership journey.
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Gallus Book Club – World 3.0 – the best bits
GLOBALMIND ENABLER
INDIVIDUAL LAYER
TEAM LAYER
ORGANISATION LAYER
Curiosity Embracing the inner child
Question everything – ask where, what, who, when, how and why often to understand the history of a culture, emerging world events, and the socioeconomic and political climates in countries across the world. Find the stories of a culture - the myths, heroes and religious influences.
Learn a language! Language skills have the obvious benefit of enabling communication on a broader scale. Grammar and commonly used phrases provide another insight into group values and cultural norms.
Get to grips with the governance and legal requirements of different territories. How can an expanded world-view and global business savvy enable the organisation to be successful now and future?
Adventure Experience is the root of all learning
Travel at every opportunity and go out of their way to mix with the locals and immerse themselves in the culture to have experiences that will broaden the mind. Dare to try out embryonic language skills and make the most of every opportunity to reach into a culture and connect.
Take risks and make the most of the varied experiences across the team to generate the best solutions. Show a willingness to adapt and to try alternative approaches informed by others’ experiences, regardless of how uncomfortable it may be at first.
Raise their global profile and connect with peers across the globe. Look for opportunities to work together on larger scale strategic problems.
Objectivity Mastering complexity
Think about thinking and hold multiple perspectives simultaneously. Can suspend their own worldview and be aware of the stereotypes and prejudices they may hold.
Have a range of group thinking and decision making processes that enable the team to function effectively and make the most of their experiences without getting bogged down in emotional conflict.
Can scan the environment to identify and focus upon the most important priorities right now. Understands the interplay between a range of factors and can create an appropriate, effective and proportionate programme of actions.
Empathy Navigating invisible rules and forgotten voices
Understand where ideas and traditions come from and the invisible rules. Respects the values and experiences of those from differing backgrounds to their own.
Appreciates the dos and don’ts of different culture, countries and religions and leads others with respect and dignity. Able to engage with anyone from anywhere – multi-cultural teamwork is a core skill – leader or not! Asks genuine questions and listens to the answers.
Builds their network and understands that leading globally is about relationships and trust rather than structure. Understands and learns to apply cultural codes. Values difference and the robustness it gives to group thinking and problem solving processes.
Dexterity Adapting to a changing world
Comfortable with ambiguity and can adapt their behaviour without losing themselves. Manages their times effectively across multiple time zones.
Leads across time zones and uses a tailored approach to guide every individual through ambiguity and change.
Considers the bigger picture and assimilates information rapidly to adapt to fast changing contexts and to inform crisis response.
Resilience Holding the fear when the going gets tough
Knows when to adapt and when to hold their own. Effective application of knowledge and skills in challenging, complex and ambiguous environment.
Have confidence in their opinions and challenge others when culture is used as an excuse for poor behaviour or performance. Has the tenacity to keep going when the team is finding its feet.
Willing to take on challenging assignments in untested territories or involving disparate cultural teams.
The world is changing and global mindset will be one of the differentiating factors evident in the successful organisations and leaders of the future - Thinking globally is no longer an option it’s an imperative!
ARE YOUR LEADERS UP TO THE CHALLENGE? Gallus build sustainable, high performance environments that everybody can believe in. With particular expertise in leadership capability and alignment, organisation design, business transformation and enterprise risk management, Gallus challenge assumptions, cultivate belief and drive positive change by making performance excellence systemic. An established business with Headquarters in Northampton, UK and offices in London, Manchester and Aberdeen, Gallus work with ambitious organisations across the world from a wide range of sectors. Find us at www.gallusconsulting.com or call +44(0)20 3751 6345. JOIN GALLUS BOOK CLUB ON LINKED IN TO REVIEW AND DISCUSS RELEVANT, TOPICAL BUSINESS BOOKS WITH LIKE-MINDED INDIVIDUALS. EACH MONTH WE WILL CHOOSE (WITH MEMBERS INPUT) A BOOK TO REVIEW AND ONE LUCKY MEMBER OF THE GROUP WILL RECEIVE A COPY OF THE CHOSEN BOOK!
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