The latest Knowledge@Wharton has an interesting review of the book Globality: Competing With Everyone From Everywhere for Everything.
If business is supposed to slacken during the sweltering days of August, that message has failed to reach Embraer, the aircraft maker based in Sao Jose dos Campos, Brazil. Earlier this month the company — it is the world’s fourth largest plane manufacturer — said it had doubled its net income in the second quarter to $134 million and delivered 52 aircraft, compared with 36 during the same period last year. At a time when airlines all over the world are reeling from the double whammy of high oil prices and a faltering economy, Embraer expects to deliver an impressive 200 aircraft. Its backlog of orders stands at a robust $20.7 billion.
Embraer’s growth during difficult economic times offers an example of the way that companies from emerging markets are reshaping global business, argue Harold L. Sirkin, James W. Hemerling and Arindam K. Bhattacharya.
We’ve discussed Embraer before, specifically comparing them to Brazil’s other engineering marvel: the tiny bikini. What’s going on? A reshaping of the concept of globalization.
The authors say that globalization has entered a new phase. The old model of globalization was about multinationals from Europe, the U.S. and Japan expanding into the developing countries, attracted primarily by low raw material and labor costs. In the new phase — which the authors term "globality" — firms from rapidly developing economies such as Brazil, India, China, and Russia are stepping out to challenge the incumbent multinational giants, often on their own turf.
It is "a different kind of environment, in which business flows in every direction. Companies have no centers. The idea of foreignness is foreign," the authors write.
Driving the change are "challengers"… a specific type of multinational company.
Sirkin and his co-authors call companies like Embraer "challengers," and they identify 100 of them. Among them are 66 based in Asia — 41 in China, 20 in India — 13 in Brazil, seven in Mexico and six in Russia. Total revenues for the 100 challenger companies were $1.2 trillion in 2006.
The authors identified three key characteristics of such companies. First:
The first is their country origins. Brazil, China and India historically have not been — and are still not — easy places to do business. A company that wants to survive, much less thrive, in those markets must overcome a constant series of obstacles. One of the biggest is having to deal with millions of demanding customers, most of whom don’t have much money. Having come from such a business climate leads these companies to develop a kind of hardiness. It makes doing business relatively easy when they enter more business friendly and well developed markets.
The second factor driving the challengers’ growth is global access. "Unlike challengers of previous waves, the companies of the rapidly developing economies had amazing access to the wealth of resources the world had to offer — knowledge, intellectual property, services, talent, capital and so much more — as well as to the markets from which they could buy and into which they could sell." The most critical resource, according to the authors, is knowledge. The founders and senior managers of several of these companies were educated in the U.S. In addition to formal education, the challengers have been able to tap into other sources of intellectual capital by working directly with for-profit and not-for-profit research labs, scientists and patent bodies.
"The most critical resource… is knowledge." How refreshing, compared to the companies we rant on almost every day that are excelling at shedding knowledge. And finally:
The third factor that drives the challengers is "insatiable hunger" for "achievement, success, and world-wide recognition," according to Sirkin and his colleagues. "This hunger infused the culture, and people in the rapidly developing economies developed a remarkable business-mindedness — an intense entrepreneurial spirit and a near obsession with work and commercial affairs — that seems even more intense than that of the most business-minded of developed countries, the United States."
That’s an interesting one. Isn’t this common to all nascent economies? Then the stress, combined with improved standards of living, catches up and there’s a desire to enjoy what has been achieved? Perhaps. But what does this mean for the rest of us?
Sirkin and his colleagues, who note that globality is both an opportunity and a threat. For those who deny the existence of the phenomenon — despite daily headlines to the contrary — it could well be the latter. For others, however, it represents a chance to bring about global transformation. The authors recommend several actions for companies that want to transform themselves to compete in the present environment: Evaluate your competitive position; shift your mind set; assess and align your people; recognize your full set of opportunities; define your future global shape; encourage ingenuity; and lead your transformation from the front.
So once again we have a choice. We can be scared and start complaining, pleading with the government to erect artificial barriers that do nothing except delay the inevitable. Or we can look at the situation as an opportunity to improve, create, and excel. I know which tact I plan to take.