Emile du Plessis
SUCCEEDING RESPONSIBLY, SUCCEEDING GLOBALLY By Emile du Plessis
The Global Initiatives Symposium: ―Challenges and Opportunities, the Global Economy in the Transition Phase‖ Theme: Find the Next Wave to Ride on — New Business Strategies in the Changing World
* Word count, excluding title page and bibliography: 1998
Emile du Plessis
P age |2
Introduction ―Olive trees are important. They represent everything that roots us, anchors us, identifies us and locates us in this world - whether it be belonging to a family, a community, a tribe, a nation, a religion or, most of all, a place called home. Indeed, one reason that the nation-state will never disappear, even if it does weaken, is because it is the ultimate olive tree-the ultimate expression of whom we belong to - linguistically, geographically and historically.‖ Thomas L Friedman, The Lexus and the Olive Tree.
Friedman’s book, The Lexus and the Olive Tree describes the interplay between the human drive for modernization, represented by the Lexus automobile, and as a result of it the potential loss of identity, as represented by the olive tree. The Lexus equally represents the longstanding human drive for improvement and prosperity and characterizes the global markets, the financial institutions and the technologies which we use to reach for elevated living standards.
Larraine Segil(2002), author of Dynamic Leader, Adaptive Organization initiated a business model, called ―Adaptive Organisation‖ to equip companies with guidelines and directions to face the challenges caused by the interplay between the Lexus and the olive tree. ―Adaptive Organisation‖ argues that adapting is the best survival strategy for global organisations.
This paper argues that businesses will have to adapt in order to survive in a global context. Comparative advantage will continue to foster international trade, however shifting the emphasis to quality. Further changes will require strong leadership, responsible products and services, and operating in an environment with stricter oversight and regulation.
Global Initiatives Symposium in Taiwan 2009
P age |3
Comparative Advantage as the Driver of International Trade "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage." Adam Smith, The Wealth of Nations, Modern Library edition.
The theoretician of free trade David Ricardo conceptualised the term ―comparative advantage‖ to describe what Adam Smith referred to as the motive behind international trade. The argument was that each nation should specialise in the industry in which it has a comparative advantage. Global trade will increase as country’s export their surpluses and import goods they do not manufactured themselves. This will result in increasing efficiency and productivity and would enhance economies of scale. The trading data evidently corresponds to the theory. Daily foreign exchange trading in 1900 was calculated in millions of dollars. In 1992 it amounted to $820 billion a day and in 1998 surpassed $1.5 trillion a day.(Friedman,2000)
Clearly, international trade is a large force behind economic growth and will only increase. However, it will experience countless adjustments. As consumers become wealthier and knowledge spreads more widely throughout the global community, demand inevitably shifts from quality to quantity. This has been proven in the market for clean air.(Scruggs,2003) As nations become richer and more aware of the dangers of polluted air a trend can be observed in the decline of pollution. This shift to quality of products and services is illustrated in Figure 1. Consumers insist on higher product standards, converging to internationally accepted criteria. In turn, businesses and the suppliers of goods and services feel the urge to adjust readily to the constant changing demands. Furthermore, businesses have to cater for the consumers’ command for more affordable products and services and their desire to exercise greater control over product specifications. Consumers want goods and services to be tailored distinctively for their personal needs.(Friedman,2000)
Find the Next Wave to Ride On - New Business Strategies in the Changing World
Emile du Plessis
P age |4
Figure 1: Economic Growth and Production Standards Quality
Quantity
Economic Growth (Gross Domestic Product)
Figure 1: The initial stages of economies of scale and associated cheaper production costs focussing on mass produce are presented by the downward sloping hyperbolic curve. This results in higher profits and eventually higher overall economic welfare. As knowledge spreads throughout the nation and the consumers becomes more aware of the necessity of better products and production standards such as cleaner air, a shift can be observed in demand for higher quality products. This is represented by the upward movement in the curve.
Consumers will in future exercise elevated pressure on markets to produce quality products. This will be the first challenge global businesses will have to adapt to in order to survive as a supplier in another country. The Chinese markets should particularly take note as their well-known mass produce could experience a decline in demand from informed developed nations.
Global Initiatives Symposium in Taiwan 2009
P age |5
The Role of Leadership in the Adaptive Organisation The interplay between the Lexus and the olive tree bring challenges for global businesses. These include information sharing, the value of relationships and the respect for diversity and cultures. The adaptive organisation model requires strong leadership in implementing the necessary adjustments with the adequate precision.
The shortage of leadership is one of the main issues most organizations are challenged by. A new survey by Aon Consulting Worldwide reported that 60 percent of US companies are experiencing a leadership shortage.(Cummings,2008) The Malcolm Baldridge National Quality Program rate businesses on specific criteria and award them for outstanding achievements. The rating criteria they used can be summarized as: ―…the needs and expectations of all key stakeholders including how the leadership system addresses values, performance expectations, focus on customers and other stakeholders, learning and innovation.[H]ow senior leaders set and communicate company directions and seek future opportunities for the company,… performance reviews in evaluating and improving the leadership system.‖ Recruiting strong leaders and conducting adequately designed training programs will be crucial to the development of a performance driven, innovative business.
An important challenge facing the leadership structure of all global companies is what Friedman(2000) term the Microchip Immune Deficiency Syndrome(MIDS). The MIDS comes to businesses as a result of their lack to adjust to the changes brought by the microchip, the democratization of information, finance and technology – which was initiated by the more rapid, open and complex marketplace. The ―cure‖ for the MIDS is the ―fourth democratization‖. This entails the democratization of decision making and information, and the decentralization of power that permit more people across companies and countries to share knowledge and innovate quicker.
Find the Next Wave to Ride On - New Business Strategies in the Changing World
Emile du Plessis
P age |6
The leadership of global companies will further have to build valuable relationships with both its customers and competitors, and be responsive to diversity. A globally adaptive organization according to (Radjou,2007) is, ―a socially responsible and culturally sensitive enterprise with globally integrated talent, processes, and partnerships.‖ A fine example of a multinational company transforming into a global organization is IBM’s Global Business Solutions Centre(GBSC) in Bangalore, India. More than 600 professionals are conducting pioneering business innovations for IBM’s international customers as well as for the local Indian clients. By creating wider connections into Indian society, IBM’s GBSC is transforming from a western multinational to a globally adaptive organization. Western service providers can use the example of IBM’s activities to become less western centric and more culturally integrated with India, China, Russia and Brazil.
Two more examples of globally adaptive organizations successfully managing to be socially responsible, culturally sensitive with integrated partnerships is the card-based payments systems Visa and Mastercard.(Loftesness,2008) Mastercard was created in 1966 and expanded in 1968 to Mexico, Japan and Europe. Mastercard was the first payment card issued in the People’s Republic of China. Visa was established by the Bank of America in 1958 and by 1974 the payment facility was extended internationally. By 2001 Visa’s annual global sales volume reached the US $2 trillion mark.
Global Initiatives Symposium in Taiwan 2009
P age |7
The New Prominence on Responsibility ―Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age.‖ USA President Barack H Obama, in his inauguration speech on 21 January 2009.
President Obama captures the main reason in his speech for the sub-prime crisis that evolved into a financial crisis, as the lack of responsible business behaviour. More than ever before will the emphasis in the world’s strongest economy focus on accountability in production and services.
Businesses can learn good lessons from the highly researched monetary policies used by independent central banks on transparency, accountability and credibility. Transparency has to do with disclosing information while accountability entails taking responsibility for monetary policy actions. Research on central bank transparency and accountability (Geraats,2002) found it diminishes private sector uncertainty and enhances general economic stability. In addition, is a
credible reputation needed to restore trust in the financial markets and in global businesses.
The Nobel Prize winners Edward Prescott and Finn Kydland introduced the idea of the ―time inconsistency problem‖ into the macroeconomics dictionary – in which policymakers have an incentive to say one thing but do something differently later. Credibility is one prominent solution to the time inconsistency problem. Like the central banks, businesses can also embrace a credible reputation to appeal to consumers not only on the short run but particularly on the long run.(Gomme,2006) This will create more valuable relationships between businesses and their stakeholders.
Find the Next Wave to Ride On - New Business Strategies in the Changing World
Emile du Plessis
P age |8
In addition to becoming more credible, global businesses will have to adhere to stricter ethical standards. Mark Pastin, the author of The Hard Problems of Management: Gaining the Ethics Edge(1986), describes a highly ethical organization as having four distinguishable principles. These principles can be applied by any global company to enhance their levels of ethical behaviour. These include interacting with diverse internal and external stakeholders, being ―obsessed with fairness‖, and viewing responsibility as individual rather than collective and regarding all activities with a purpose in mind.
Carter McNamara(2008) mentions ten benefits of managing ethics in the workplace. These include the cultivation of strong teamwork and productivity; assist in managing values associated with quality management and diversity and strategic administration; and it promotes a strong public image. These advantages are all beneficial for the global business to successfully adapt to a responsible reputation of doing business, particularly when present in another country.
Oversight and Regulation ―Some really stupid things were done by American banks and by American investment banks. To policy makers, I say where were they? They approved all these banks.‖ Jamie Dimon, JP Morgan Chase CEO at the World Economic Forum in Davos,2009.
Referring to the recent financial crisis, Jamie Dimon blamed the banks and regulators for allowing consumers to accumulate debt like ―weapons of mass destruction‖. Dimon argued that more oversight of the financial industry was required to stricter regulation.
The result of the financial crisis is evidently either more oversight or regulation or a combination of the two. The new and existing multinational businesses opting to transform to globally
Global Initiatives Symposium in Taiwan 2009
P age |9
adaptive organisations would be more restricted by tightly monitored regulations. Companies and especially infant firms within South Africa were unfortunate when the National Credit Act was introduced by Parliament in 2007 – making it more difficult for companies to obtain credit.(Standardbank,2007) Furthermore has bank regulations tightened between 1998 and 2007. Overall restrictions, official supervisory powers and private monitoring have increased dramatically.(Barth et al.,2008)
The tightening of regulation and oversight largely protects the South African system against the global financial market turmoil. The conservative South African regulatory and credit environment and the low exposure to sub-prime assets assured the balance sheets remains healthy. Global companies will face increasingly strict regulation, but as in the case of South Africa and according to a study by Guasch and Hahn(1997), social regulations have considerable benefits for the normal consumer.
Conclusion The Lexus and the Olive Tree dynamics is a reality and businesses will have to find a balance between the two longstanding desires of modernization and identity. To survive and more importantly to be successful globally, businesses need to adapt and adapt quickly. The revival in economic and political boundaries will result in three definitive stages of adaption and challenge organisations on the areas of leadership, responsible products and services, and operating in an environment of stricter oversight and regulation. In addition, businesses are required to build deep links into each society and attending to the specifications of the respective consumer groups. This process of establishing valuable relationships and partnerships with all the relevant stakeholders should be handled responsibly. Only then can businesses succeed globally.
Find the Next Wave to Ride On - New Business Strategies in the Changing World
Emile du Plessis
P a g e | 10
Bibliography Adam Smith. 2000. The Wealth of Nations. Modern Library edition: New York. Barth, J.R., Caprio, G., and Levine, R. 2008. Bank Regulations Are Changing: For Better or Worse. Worldbank. CNN. 2009. Politics, ―The 44th Presidential Inauguration: Obama’s Inaugural Speech‖. Available at <http://www.cnn.com/2009/POLITICS/01/20/obama.politics/ > Cummings, J. 2008. Leadership Shortage Starts to Bite, Business Finance. Available at< http://businessfinancemag.com> Dimon, J. 2009. JP Morgan Chase CEO at the World Economic Forum in Davos, 2009. ―Business Day‖, 30 January 2009. Friedman, T., L. 2000. The Lexus and the Olive Tree. Anchor Books: New York. Geraats, P., M. 2002. Central Bank Transparency. University of Cambridge, UK. Gomme, P. 2006. Central Bank Credibility. Federal Reserve Bank of Cleveland: USA. Guasch, J., L. and Hahn, R.,W. 1997. The Cost and Benefits of Regulation: Some Implications for Developing Countries, World Development Report, Worldbank.
Loftesness, S. 2008. Globally Adaptive Organizations. Available at <http://www.sjl.us/main/2008/12/globally-adapti.html> Malcolm Baldridge National Quality Program, National Institute of Standards and Technology. Available at < http://www.baldrige.nist.gov/Criteria.htm>
McNamara, C. Complete Guide to Ethics Management: An Ethics Toolkit for Managers. Available at<http://www.managementhelp.org/ethics/>
Global Initiatives Symposium in Taiwan 2009
P a g e | 11
Pastin, M. 1986. The Hard Problems of Management: Gaining the Ethics Edge. Jossey-Bass Publishers: San Francisco.
Radjou, N. 2007. IBM Reinvents Itself As A Globally Adaptive Organization, Starting In India, "Balancing Risks And Rewards In A Global Tech Economy". Available at<http://www.forrester.com/> Segil, L. 2002. Dynamic Leader, Adaptive Organization. John Wiley and Sons, Inc: USA.
Scruggs, L. 2003. Sustaining Abundance, â&#x20AC;&#x2022;Environmental Performance In Industrial Democraciesâ&#x20AC;&#x2013;. Cambridge University Press: UK.
Standardbank. 2007. The at<http://www.standardbank.co.za/SBIC>
National
Credit
Act.
Find the Next Wave to Ride On - New Business Strategies in the Changing World
Available
Emile du Plessis
Global Initiatives Symposium in Taiwan 2009