Ethical Considerations in Global Expansion

The Conference Board CEO Challenge Survey 2012 confirms that corporate executives increasingly recognize they are operating in a truly borderless global environment. For the first time since they have conducted the survey, global expansion was included among the top five challenges CEOs say they face. The survey also comments on a new phenomenon: the shift in wealth creation from the developed to the developing world and an increasing reliance on partnerships with smaller to midsize companies in those regions to remain competitive.

It’s worthy of note that being on top of the balance of power is not altogether new for either China or India. Think back to what you learned in world history class; according to the World Bank, China and India’s share of the world’s GDP averaged 50 percent from 1500 through the early 19th century (Maddison, 2001). The shift began as Western Europeans—in particular the Portuguese, Spanish, and British—began to explore and exploit the natural and cultural resources of the East, namely silks and spices. At roughly the same time, the Ming Dynasty, which had been the world’s leading economic power, decided to call its enormous merchant marine home and focus domestically instead of internationally. What had begun in Western Europe as a commercial enterprise dependent upon a new and untested view of the world—that it was round not flat—led, although perhaps inadvertently, to the discovery and colonization of what would become the United States and its eventual emergence as a dominant world power.

These shifts are the latest iteration in the evolution of what it means to be a global company. It is no longer enough to design a product in Silicon Valley, manufacture it in Asia, sell it in Europe, and grow value on the U.S. stock exchange. Today, a global company is about more than making or selling products or services globally. There are much broader implications, including how and where you structure your workforce and business partnerships, source materials and vendors, and design and market your products—essentially whatever makes and keeps you relevant in a global marketplace. It’s not only how valuable your products and services are to the varied local markets around the globe that you serve, but also how appropriate your organization is, in terms of its structure and operations, to the culture(s) and setting(s) in which you conduct business. The degree of difficulty in staying relevant increases with the number and diversity of markets in which you operate.

Today, as the economic balance of power shifts, organizations are redefining their global strategies to capitalize on new markets and establish (often literally) closer relationships with their suppliers and customers. While a global company may still have a highly visible corporate headquarters, it doesn’t always represent a centralization of power across its portfolio of products and lines of business. Increasingly, more agile global organizations are moving toward distributed centers of excellence and expertise to leverage the human and physical resources of the globe to do work in the best way it can be done.

This was the progressive thinking behind Cisco CEO John Chambers’ bold move in 2006 to build a second headquarters in Bangalore, India. By doing so, he believed Cisco could develop products and solutions much closer to the markets for which they are intended, while acquiring top engineering talent from the region. Unlike many other companies, John’s globalisation goal was not for cost arbitrage, but rather to better position the company for innovation and growth. Today, Cisco East is home of the company’s globalisation center and houses approximately 13 percent of Cisco’s worldwide workforce (Aulakh, 2012).

The significance of this transition became strikingly evident on one of my early visits to Bangalore, India. As I rode from the hotel to the office one morning, I watched as literally thousands of people filled the streets, hustling to work or gathering in open air markets to meet with friends. My impression was that despite being the fourth largest technology center in the world (after Silicon Valley, Boston, and London), Bangalore is still very much a third world region, at least by Western standards. Travelling the relatively short distance—10 miles at most—could easily take an hour or longer, with traffic periodically coming to a complete halt to let a cow or two cross the road. Barefoot men used open urinal streams, while mothers simply held diaper-less children away from their hips whenever the babies needed to relieve themselves. Amidst these seemingly impoverished conditions, many of these same men and women were also busy talking on mobile phones. When I got to the office, I asked one of my Indian colleagues about this dynamic. With wide eyes, he smiled and explained, “These people are without the necessities of a Western world, such as shoes and diapers, but they have one of the most important assets: a means to communicate and do business with the rest of the world.” That’s when I realized that for many, the smartphone has become a lifeline and an instrument of economic development and opportunity.

Consider what the rise in the use of mobile phones in India has enabled. As of May 2012, the country had the world’s second largest mobile phone user base, at just fewer than 930 million (Telecom Regulatory Authority of India), which is considerably more than the number of PC users. Wireless communication works for rural India, where 75 percent of the country’s 1 billion plus population lives. Global telecom companies have successfully capitalized on these markets by introducing more affordable phones customized to the needs of rural populations, with localized languages and plans that can be easily shared by multiple users.

Mobile technology has also created opportunities for more cross border, cross cultural, and sustainable business models. A friend of mine, Shubhra, who used to work sourcing fabrics for Talbots, created ShubraDesigns out of a desire to reduce the amount of waste in the production of designer clothing. She buys saris and uses them to create ready-to-wear Western designs out of Asian fabrics, or what she calls “East meets West fusion” fashion.

Thanks to mobile technology and the Internet, she can cost effectively and readily connect with her team in India. She sends her designs to the tailor on his smartphone, and they can discuss any changes before full production begins in New Delhi. Shubhra speaks proudly about using this virtual process successfully to create bridesmaid dresses, emailing both the designs and specific measurements to her Indian team.

A more networked population also creates a much bigger talent base upon which companies can draw, especially as the concept of “going to work” shifts to more of a focus on “doing work.” What matters more than where. People can work at the (business) hub, the club, or the pub—virtually anywhere they happen to be, with equal if not greater degrees of efficiency and effectiveness.

To accommodate and capitalize on this phenomenon, global leaders must take a far more flexible and organic approach to how they grow and structure their enterprises. Over the past 30 years, a primary growth strategy for companies has been to get bigger— often through mergers and acquisitions—in order to produce, at least temporarily, the kind of numbers that Wall Street and other financial markets value. Too often, this approach has led to organizations that are bigger, but not necessarily better at meeting the needs of a global marketplace. Mergers and acquisitions can actually slow down performance, as companies contend with the challenges of cultures and technologies that take time to integrate. This is particularly true for companies with more rigid hierarchical structures. While their focus is diverted, smaller, more agile, and networked competitors can quickly capture market and mind share.

The traditional hierarchical organization worked well in a world for which it was designed: one dominated by industrial processes and requiring both control and standardization. But it can be a liability in an environment where organizations need to outthink and out innovate the competition. Making the transition and giving up control is difficult for many corporate leaders—it goes against what they were taught and what has worked for them in the past. But those who recognize the changing nature of their roles understand the importance of broadening their horizons, their networks, and in some cases, their business models.

Creating a new business model has been instrumental in the success of Red Hat, a leader in open source technology. Red Hat builds software and then gives the code away to a worldwide community of developers—many of whom are customers—who continue to make improvements to the product. The result, says Red Hat CEO Jim Whitehurst, is better software at a better cost, which increases customer value and, in turn, revenue. There must be something to it; after 40 straight quarters of revenue growth, Red Hat surpassed the $1 billion revenue mark in early 2012, something relatively few technology companies ever achieve.

When organizations were rewarded for incremental improvements in productivity and efficiency, their leaders generally knew what to do and how. Today’s most successful global business leaders know that their power comes not from what they know, but rather from knowing the right questions to ask and whom to ask. They recognize the value and know how to harness the collective thought power of a much larger ecosystem. This includes those traditionally in their camps: employees, customers, suppliers, and shareholders—as well as other interested parties, such as their suppliers’ suppliers and customers’ customers, non-governing organizations, advocacy groups, government leaders, and, at times, even their competitors. The traditional roles of these various parties are also changing; think Red Hat and the role that the broader community plays in its products’ life cycles.

Social networks and cloud technology offer a host of opportunities for a wide range of companies. Those with widely dispersed workforces can organize and communicate with teams around the world, while smaller companies can scale the computing power they need to grow their businesses. Individual companies are increasingly forming alliances with other firms—sometimes, even competitors—to address specific challenges and opportunities with lower overhead and greater flexibility.

The more ubiquitous, real-time nature of information is also changing the social consciousness of organizations and their leaders. As the social network grows, so does instantaneous access to information about everything you do, as a company and as an individual. Your employees, your customers, and your business partners are interested in more than just whether you make the quarterly numbers. They know and care about value, which goes beyond economics, to incorporate quality: quality in products, in process, and in character. Are your processes and products sustainable? Do you conduct business in an ethical manner? Do you consistently deliver on what you promise? All of these can be challenging for any business, but even more so for global businesses that operate in regions that do not always share the same social or moral codes. In an era of radical transparency, these are not questions that can be answered by your HR or PR teams. As a business leader, you must take much more personal responsibility for how your company, and you as an individual, show up in the world.

This requires a fundamental shift in how you think and problem solve. Rather than focus on the long-standing imperative to pursue scaled efficiency (better, faster, cheaper processes), global leaders must become more agile and innovative by pursuing what John Hagel and John Seely Brown, co-chairs of the Deloitte Center for the Edge, call “scaled learning.” Scaled efficiency reflected the operational focus of an industrial age. Scaled learning is required to meet the multidimensional intricacies of the global information era (2012).

Complicating matters for the global company is the changing nature of change itself. A business constant for years, if not decades, change has been seen as linear and sequential and applied primarily to process improvement for competitive advantage. Can you do things better, faster, and cheaper than your competitors? Today, if you were to try to depict change, rather than draw a line, you might envision something analogous to vines growing on a piece of lattice. The latticework represents the underlying factors transforming today’s global business environment: new enabling technologies, higher education levels within large population bases, and the fall (or at least faltering) of debtor nations. Each of these structures supports the vines, or changes, that intertwine and influence each other’s development.

The interdependent and concurrent nature of change creates a multiplier effect. Global leaders and their organizations must continually predict, adapt to, and manage myriad possible outcomes and impacts, resulting in an exponentially higher degree of difficulty. I liken the challenge to playing a multilevel game of chess. Previously, it was enough for business leaders to anticipate how the chess pieces in a single game will move. You might not have known exactly how, where, or when each piece would move, but you understood the parameters and a more defined set of possibilities. Bishops can move diagonally, knights in a figure seven, pawns in any direction—but only one space at a time.

As a result, today’s global business leaders are more like explorers, navigating a world that is changing in an unprecedented manner—not only faster, but on multiple levels and in a far more interdependent fashion. They need to chart new territory, as their business models (even those that have proven successful for decades, if not centuries) may no longer be viable. As global leaders seek to ensure revenue growth while redefining those business models—all against the backdrop of political instability, volatility in the financial markets, and increasing government regulation—they are discovering that their organizational models also need an overhaul. After all, the two go hand in hand. Unfortunately, many organizations are structured to support an economic engine that thrives on control, not originality, and certainly not innovation. Business and organizational models, then, must change dramatically, as we will discuss in more detail in our chapter on innovation. So, too, must the nature of leadership change, and more specifically what is required of successful global leaders. If organizations are to make the required changes to their business models, they will need leaders who are willing and able to change themselves; if not, sometimes the only choice an organization has is to change leaders.

The Leadership Paradox

Contrary to what so many business books and leadership development courses would lead you to believe, there is no magic formula; in other words, you cannot simply follow these 10 steps, learn these skills, or complete this coursework and be on your way. The reason is simple: Learning a step-by-step process assumes the path will continue to be relatively the same going forward. “Walk this way and you will get where you want to be” does not work in a diverse and dynamic world; rather than walk, you might need to swim, or fly, or find an altogether new method to move forward. Sometimes, changing direction is the best course of action, and sometimes you just need to stay in one place, listen, and observe. No one can teach you what to do no matter what the circumstance; the best they can do is help develop leaders who can figure it out as they go along.

Several years ago I had the opportunity to hear Jack Welch, the iconic leader who served as GE’s chairman and CEO from 1981 to 2001, speak on the topic of leadership. While Jack and I don’t always see eye to eye, he made one point I wholeheartedly agree with: A leader cannot change the game relying only on the leadership behaviors that drove success in the past. When change was more linear, you could learn that if you did X, Y would happen. You could apply what you learned from experience in a fairly predictable manner. Today, there are too many variables for experience to be a reliable teacher. In fact, in some cases, it is exactly what holds some leaders back. The leadership style and skills that worked in a model where efficiency and managerial control ruled may be precisely the things that stifle innovation and growth in an age when creative disruption can be more desirable than predictability.