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Breaking Geopolitical Barriers
In real estate, three things matter: Location, location, location.  But for the multinational corporation, geography is no longer destiny.
by Yves Doz and Pierre Loewes (Strategos)  

Ask anyone in real estate and they'll tell you what matters: "Location, location, location." It's a dictum that industry, too, has taken to heart. If IT's your game, then you'd better have a major presence in Silicon Valley; if your business is fashion, stay close to Paris. But as the world settles into what may be called a post-globalization paradigm, this notion is becoming obsolete. The way a company achieves global leadership has been turned on its head. Geography is no longer destiny.

Switzerland, best known for its longstanding neutrality in matters of war and peace, is hardly the place one would look for a leader in the global market for guided missile systems. Taiwan isn't widely viewed as a hotbed of envelope-pushing PC technology. Japan is more identified with high-technology electronics than haute-couture perfumes. Yet these countries are the unlikely launching pads from which Oerlikon, Acer, and Shiseido, respectively, broke into the international marketplace and became winners in the global economy.

Before, multinational success depended on a company's ability to leverage its home-based strengths to penetrate new markets and develop cost advantages. The few companies that did become dominant in their fields via another strategy were widely seen as curiosities, not objects of emulation.

Are they flukes? The answer is a resounding no. Oerlikon, Acer, Shiseido, and dozens of companies like them may have been born in the "wrong" place, but they were born at the right time—a time when geography is no longer the determining factor of success.

A new world view

The traditional multinational model of projecting a home-based formula around the world is being challenged by the emergence of a global-knowledge economy. In this economy, the competitive advantage belongs to companies that can extract knowledge from global markets rather than simply project expertise into them. These companies, with their ability to learn from the world, are what we call metanationals, and they're the definition of future global-business success. In a knowledge-intensive environment, metanationals demonstrate that distance from an industry's home base can be a plus, because it forces companies to develop the core capabilities needed to meet the demands of a knowledge economy.

The metanational model has profound implications for the IT function and for CIOs. The information systems of global companies are good at collecting operational information by country, region and product line , and aggregating it to produce information on costs, revenue, inventories, market share, and so on. But in the knowledge economy, IT must generate information on technologies and market trends emerging around the world. 

These new metanational archetypes possess three core capabilities:

  • Identifying diverse sources of knowledge worldwide.

  • Capturing that knowledge to out-innovate competitors.

  • Efficiently producing and distributing the product of that innovation to a global market.

Take Acer as an example. Today it's the world's third-largest PC company. But roughly 20 years ago it was a bit player on the PC periphery, with a Taiwanese headquarters about eight time zones from the Silicon Valley epicenter of the PC universe. Making a virtue of necessity, Acer became a compulsive global prospector, scouring the world for hidden pockets of knowledge that might be useful in building the next-generation PC. From a small shop in the United States, Acer assimilated skills in ergonomic design that led to the sleek, gray Aspire machine. In Mexico, Acer quizzed small-business owners about their unmet computing needs, and built machines it subsequently sold to small businesses in emerging economies around the globe.

Acer's voracious appetite for knowledge took it into worlds not remotely connected to its own—for example, the fast-food industry. Borrowing from globally known fast-food franchises such as McDonald's, Acer's management team sought to meld standardization—a formula for cooking the famous fries exactly the same way from Milwaukee to Moscow—with use of the freshest possible ingredients— locally grown spuds. Acer remade itself into 40 separate companies, partly owned by local entrepreneurs—franchisees, in the fast-food model—combining standardized manufacturing techniques with the use of the "freshest possible" PC ingredients. It even called its subsystems "perishable" or "nonperishable," based on the pace of new-product introductions, and managed its operations accordingly— for instance, by minimizing inventories of perishable products.

Lessons learned from Metanational Companies

For CIOs the lesson could hardly be clearer: Because traditional information systems focus on the collection of operational information, they're not geared to support innovation. So the challenge for the CIO of any would-be metanational is to set up a system that complements the gathering of operational information with much "softer" and more diffuse information about new technological and market developments in various parts of the world. Much of this information doesn't lend itself well to traditional information capture and diffusion methods. So after the information is captured, it needs to be aggregated and distilled in a way that makes it useful for decision makers.

Shiseido, the Japanese cosmetics manufacturer, gets the metanational message. Nearly two decades ago, Shiseido confronted the knowledge that if you want to be a global cosmetics company, you need to understand perfume. The challenge it faced was this: Fragrances account for only about 1% of all cosmetics purchases in Japan, compared with 30% in most Western nations and 40% in France, the fragrance capital of the world. So Shiseido packed its bags for Paris and established a 50/50 joint venture with the goal of learning the French approach to perfume development and exporting that knowledge back to Japan.

It didn't work. By 1990, Shiseido management decided that if the company had any real hope of plugging into the fragrance knowledge base in France, it had to be in business in France. Shiseido created a 100%-owned Paris subsidiary, BPI—Beauté Prestige International. Instead of staffing its executive team with Japanese expatriates, BPI hired as CEO a French woman who was a veteran of the fragrance trade, and it set up its own plant south of Paris on the Loire River, in the heart of French perfume country. Shiseido also acquired two prestigious French beauty salons, which it used as information labs to learn what demanding French consumers wanted from a fragrance. And finally, it insisted that all manufacturing be done in-house, as a way to learn the properties of perfume production. The result: BPI now boasts two successful designer-brand scents, Eau d'Issey and Jean Paul Gaultier. Only after BPI made a name for itself in Paris did Shiseido begin to produce perfumes for Japan, with concept development and fragrance-adjustment functions performed in Japan, with Japanese consumers.

The Swiss company Oerlikon takes being born in the wrong place to a whole new level. How else would you describe a company whose access to its main market is hampered by its nation's longstanding policy of diplomatic neutrality? Yet Oerlikon overcame this seemingly insurmountable obstacle to become a world leader in guided missile technology.

This transformation began in the mid-'70s, when Oerlikon saw a potential market niche between unguided, shoulder-fired missiles and heavy radar-guided missiles. There were only two problems: It didn't have any experience in missile-guidance technology, and Switzerland's neutrality impeded the company's access to NATO, the only market for such an advanced system. Oerlikon began searching the world for innovative know-how, and found it in California, where a small company was developing lasers powerful enough to guide missiles in adverse weather conditions over rugged terrain and long distances. Though other leading laser developers didn't see a need for this technology, Oerlikon quickly sensed its potential and formed a partnership with the laser developer. Soon it had an alliance with U.S. weapons contractor Martin Marietta—and shortly thereafter, key contracts with the U.S. Army and the Canadian Armed Forces. In this way, a Swiss company became NATO's leading supplier of advanced air-defense systems.

Today's survival strategy is more than merely a matter of grafting new locations, incentives, and skills onto existing structures. Companies that learn to identify diverse sources of knowledge from around the globe, integrate that knowledge in innovative ways, and produce and distribute the product of that innovation to a global market will reap the metanational advantage in a world of merely multinational competitors. To develop a true metanational advantage, businesses have little choice but to abandon yesterday's geographic mind-set in favor of a truly global perspective.

Is your company metanational, a global projector, or multidomestic?

Before any company begins to break down global barriers, it must define itself: Is it a global projector or a multidomestic company? Each type brings a different challenge.

Global projectors tend to be centrally driven, replicating what they do in the home market around the world. They have a high degree of global integration across their geographic markets, but low responsiveness to the needs of individual geographic markets. By contrast, a multidomestic has largely autonomous, local subsidiaries. That results in high national responsiveness to the needs of each individual geographic market, but low global integration across markets. Local markets are largely autonomous, and practices are neither shared nor duplicated.

For global projectors, the major challenge will be sensing, or identifying, new knowledge emerging around the world—the first of the three core capabilities—because their operating model has been to use the home market as the source of all knowledge.

Global projectors are ill-equipped to identify new sources of knowledge in remote corners of the world. Even when their operations are far-flung, they tend to be focused on efficient execution rather than learning. They also have difficulty with the second step—using that knowledge, because this is a muscle they don't often exercise. On the other hand, once they've figured out the first two steps, they may be very good at leveraging innovations around the world.

Multidomestic companies usually have good sensing capabilities, because each subsidiary is well-attuned to local market needs. On the other hand, they aren't good at mobilizing and instead generally hold onto any knowledge captured in their own market. They're also not good at leveraging innovations, because they've typically operated as if each market were a world unto itself and are quick to resist if told to implement ideas that originated elsewhere.

The 90-Day Plan: Starting the Metanational Process

While it takes far longer than 90 days to inject a truly metanational perspective into a large global company, there are a few steps companies can take to start the process of transforming themselves. Through it all, keep in mind that cultural change is trench warfare, fought water cooler to water cooler, and cubicle by cubicle.

  • First month: Assess your strengths and weaknesses
    Assess how good your company is at prospecting the world for new technologies and new market knowledge; set up mechanisms to mobilize and leverage this new knowledge to fuel practical innovation projects.  
    Determine how well-equipped the company is to facilitate knowledge transfer from place to place through an interconnected, interdependent organization. 
    Define success globally so people in one location have an incentive to help people in another location succeed. 
    Tip: Accept leadership from the periphery. That will help you gauge how well the company uses global operations to leverage knowledge wherever it originates.

  •  Second month: Develop a pilot
    A pilot -- a project or program to concentrate and refine your metanational skills, that acts as a magnet for people and resources through the organization -- should fall outside the realm of existing operational experience. This way, the need for finding, accessing, sharing, melding, and exploiting knowledge from "unusual" locations is obvious to all. One rule: The pilot should force collaboration. 
    Tip: Leveraging the convergence of two technologies developed in different parts of the world will help put the company in metanational mode.

  • Third month: Build a team and launch the pilot 
    The new team should encourage people to prospect for knowledge in novel places, and pull together people with diverse backgrounds, from different functions and different geographies at all levels of the company. 
    Tip: Place project leadership at the periphery to signal that you're serious. Steer clear of putting a manager from a big subsidiary in charge. And,     always overcommunicate. Knowledge grows more valuable the more people use it.

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