The debate over global management: flattening v. semi-globalization

The purpose of this article is to give a brief overview of the debate on global management that has taken place since 2000, and then consider the ideal form of global management for Japanese companies to conduct.

Research into global management has thrown up two conflicting concepts for understanding the current globalization of business management. These concepts are (1) flattening and (2) semi-globalization.

It was the economic journalist and three-time Pulitzer Prize winner Thomas Friedman who first put forward the idea of the world undergoing flattening. The flattening that he advocated refers to the development of a level playing field in the global marketplace where, due to the standardization of competitive conditions, companies or individuals from all countries can compete equally without distinction between developed nations and emerging nations.

Conversely, Pankaj Ghemawat of Harvard Business School has insisted that the world is far from flat and that companies must take into account regional variations such as long-established cultural differences, institutional differences, and geopolitical conditions in order to achieve a competitive advantage.

Rather than conflicting with one other per se, these two assertions are in fact just complementary viewpoints emphasizing two different aspects of the same phenomenon. While Friedman focuses on the relative progress of globalization now compared with ten years ago, Ghemawat turns his attention to the degree of absolute globalization. A more intuitive way of understanding the difference between the two assertions is to imagine a cup of water; Friedman emphasizes the significant change when water is poured into an almost empty cup up to the 10% mark, whereas Ghemawat emphasizes the fact that this volume of water is far from a cupful. In other words, deriving from both arguments, global management has progressed dramatically over the past decade but, as an absolute standard, it has yet to progress to 10% of a completely flat state along various evaluation axes.

The ideal state of Japanese global management

Based on this awareness of the current situation, let’s look now at the global management of Japanese companies. Preempting my conclusion, Japanese global management does not seem to be responding adequately whichever of the above viewpoints we take. Let me explain why there has been an inadequate response from both viewpoints.

1. Lack of initiative in the formulation or modification of global rules
   Looking from the standpoint of flattening, although global rules of competition are being established to supersede the conventional special competitive advantages enjoyed by some countries as developed nations or emerging nations, Japanese companies and governments seem to lack the desire and ability to create rules that benefit Japan and Japanese business. This lack of initiative is evident not in bilateral talks particularly but in the building of multilaterally accepted mechanisms. Yet this is a point where western nations always seem to have an edge. Disputes over international rules in sports etc., although not an example of business, can be held up as evidence of their edge. Ahead of the next Olympics, baseball and wrestling were entered as candidates for elimination as events. Both are popular events in which Japan could possibly win medals. But the 15-person IOC Executive Board, which selects the events to be eliminated, contained no members from Japan or who have background of wrestling or baseball. In other sports such as Formula One and Judo, too, each time rules are modified it becomes increasingly difficult for Japanese teams or individuals to win, and yet I have never heard of Japanese taking the initiative in trying to change those rules.
2. Lack of deep consideration about globalization
   Looking from the standpoint of semi-globalization, several aspects of globalization have not really been developed enough. For example, foreign direct investment by Japanese private companies makes up no more than 10% of their total investment. Of course differences exist in the development of globalization from company to company, but whatever the case, globalization is just one of the options available to companies in their attempt to increase profits. There may be various other options within Japan such as market cultivation, diversification, and so on. Especially in a country like Japan with its relatively high domestic demand, it should be understood that globalization is not the only choice.
   Most Japanese companies, however, seem to consider globalization to be an inevitable route. Not only that, such companies seem to be swept along with the trend of industry, despite the need to carefully consider what, where, how, and how much to grow.
   It is particularly dangerous for managers who, when asked about globalization, reply offhand that “we have to globalize quickly or we won’t beat our rivals” or “such-and-such country looks promising so we must get in there first” without thinking things through further. If everyone thought and acted like that, such markets would inevitably become excessively competitive and, as a result, unprofitable even for those who took a risk by participating.

As I have stated here, most Japanese companies do not seem to be responding sufficiently to either the flattening or the semi-globalization of business. When I look at companies currently struggling with globalization, they appear to be rushing around ineffectively, following rules that are stacked against them, and obsessed with the idea of having to globalize. I hope that students interested in global management will, based on an understanding of the current situation described in this article, look more deeply into the ideal form of global management that Japanese companies should adopt.