Globalisation - challenges for ceos and solutions - Essay Example

GLOBALISATION - CHALLENGES FOR CEOs AND SOLUTIONS Globalization and Management of Business Globalization has been a part of human evolution over the centuries. The first phase of globalization occurred from the 1870s to World War I, this was accompanied by industrialization and increase in global trade. (Parrett: 2005). The second phase is said to have begun with the end of the Cold war in the 1990's. Technology and communications have been the drivers of this phase. (Parrett: 2005). "Globalization" implies economic integration of nations through trade, investment, production, flow of capital, information technology, joint ventures, mergers and acquisitions and other related activities. (Phua : 2004 ). It is essential to understand the scope and dimensions of globalization to enable business benefit from the opportunities for growth as well as the perils. The role of a CEO in the integrated World of tomorrow is all important. However the exact dimensions of the challenges faced by CEOs and their role thereof in the global environment have not been fully defined. Globalization is also taking place in diverse environments geographically, politically and socially, thus the challenges faced by the CEOs are varied. It is therefore essential that we undertake an analysis of this essential facet as it will define the social as well business environment of the future. (Napolitano: 2006) Role of Globalization. The role of globalization in the growth of business has been well recognized in recent times. Globalization today is driven by policy changes where governments have reduced the obstacles for trade, thereby making it a tool for development. (Bhagwati : 2004). In a survey of CEOs carried out in the United States, over 75 percent of the CEOs identified international customers, consumers and employees as more important and approximately 70 percent determined reduction in the role of labor unions. With growth opportunities limited at home, it was also identified that expansion of market share was important for growth for which globalization provided the ideal vehicle. (NIST Survey :1998). The challenge of globalization for companies is to harmonize local sensitivities to the harsh realties of competitive business in the international arena. (Duncan: 2002). Globalization is also driving competition and hence creating new opportunities. These need to be seized and companies should position themselves to take advantage of the situation. (Parrett: 2005). Globalization also creates complexity, this creates a need for the CEOs to explain and manage this complexity successfully. (CEO Survey). Globalization has created economies of scale at an international level creating beneficiaries from variations in inflation; savings, competition, and job creation in say China with low-cost manufacturing which has kept inflation low. (Parrett: 2005). Role of CEOs The CEO has a major role to play in sustaining corporate continuity in a cohesive manner to include intangible facets as customer satisfaction, product and service quality, ethical conduct and reputation, operational performance, and employee commitment. (Parrett: 2005). The CEO has to transact with the society as a whole and particularly its three major constituents, other companies, government, and civil society. (Napolitano: 2006). The CEO has to seamlessly link the organization globally and locally by synergizing its goals and aspirations in both the dimensions. (Napolitano: 2006). A CEO should be sensitive to ensure that the organizations goals and operations are not creating resentment in society which in the final analysis would damage the company in the longer run. (Napolitano: 2006). A CEOs role is perceived as a partner rather than a leader. It has a lot to do with effective management of the company, its external involvement as well as the government. (Global Corporate Citizenship : 2003). Nearly 80 percent of CEOs say they have made reducing unnecessary complexity a personal priority. Their primary focus areas are information technology (84 percent), organizational structure (79 percent), and financial reporting and controls and customer sales and service (both 69 percent). (CEO Survey). CEO's should also establish an effective relationship with the key stakeholders by identifying them in the first place, to include host communities, the government and a large number of civil society organizations. A CEO has also to provide leadership, defining what it means for the company and then implementing it as well as being transparent about it is important. (PWC Survey : 2003.). 52% of all CEOs surveyed, regardless of location, cite sustained or steady top-line growth as being of greatest concern. As per Vernon Ellis, CEOs need to understand that the best way to survive is not to create boundaries but to be able to operate within the ecosystem of a globalized environment. (Ellis : --). In addition, Christopher Bartlett states that empowerment is driving strategic decisions down to people who are closest to the customers, competitors, and technology changes hence the CEOs role is not managing content but managing and framing context.(Churchwell : 2003). CEO's should also be able to measure performance based on diverse indicators such as customer feedback, quality of product and employee performance. (Deloitte WEF : 2005) Current Globalization Situation The support for globalization is very intense and this is getting stronger day by day. In a survey of CEOs, 58 percent of the population declared that globalization will have a somewhat or very positive impact on their organization which increased to 63 percent when considered in the immediate time frame of three years. (CEO Survey). It was also felt that going global would be challenging and that overregulation was likely to be the main problem, followed by protectionism, political instability and social issues. The aim of globalizing is to find new customers and service the existing ones and not just to cut costs by benefiting from low manufacturing which only reduced basic costs. Complexity was a product of a number of new factors such as expansion into new areas, mergers and acquisitions, launching of new products and services. However there was unanimous agreement that despite this complexity, all value creating actions had more advantages than disadvantages and it was worthwhile to launch new products and services. (CEO Survey). The laws and regulations in various countries relating to functioning of multi national corporations and global businesses are under development with evolving principles and rules of conduct. Data collection is also evolving and best practices are being worked out. Business culture harmonization is also taking place in a gradual manner. (Parrett: 2005). Methodologies Information Collecting information in a globalised environment is extremely important. Obtaining information about CEOs, their role and globalization challenge is a difficult task as limited details are available in open sources. Primary collection is not practicable due to constraints of time, geographical limitations and resources precluding means as interviews, panel meetings and so on. Thus CEO surveys are the best form of collection of information. This will be supplemented by analysis of best practices of global companies and the role of the chief executive in their evolution in diverse environments. The modes of collection will be varied from consumer surveys, statistical analysis, continuous feedback on telephone as well on the web and other real time information collection means. While web supported analysis will support information collection. (Duncan: 2002). Information in the globalised world will affect emotions as local environment operates from a typically hostile approach to a globalised company at least initially. (Duncan: 2002). In the globalised world, web sites and portals, on line presence and networks should be able to acquire, collect, base, assist in analysis and decision making. (Duncan: 2002). Globalization Challenges Facing CEOs The management of culture is the principle challenge for CEOs in the global market place. Supply chain management for global companies based in different geographical zones, price differential rationalization of products, outsourcing of services, human resources challenges from the local employee environment, moving his own organization from a centralized to a decentralized perspective are some of the operational challenges likely to be faced by CEOs. (Duncan: 2002). The best illustration of the complexities of the global environment has been brought out by Bartlett and Ghoshal (Bartlett and Ghoshal :1998). The need to survive and grow despite regulatory control and adjustment is also essential in the varied forms of business in a globalised environment as per Dr Cheong Kong, CEO of Singapore Airlines. (McKern : 2004).. Savvy CEOs realize that survival may well depend on their ability to adjust quickly to sudden marketplace shifts, especially as the long expansion winds down. Increasing flexibility and speed has become a top management concern followed by profit growth and maintaining a steady top line. (Conference Board : 2003). CEOs also cite overregulation as the chief challenge to globalisation (64 percent), followed closely by trade barriers/protectionism (63 percent), political instability (57 percent) and social issues (56 percent). (PWC Survey). Migration of people has also been a phenomenon peculiar to globalization.(The Economist : 1999). Thus CEOs will have to develop skills for dealing with people of varying backgrounds even in their own countries. The process of globalization of business is marked by continuous change. Thus a CEO's personal attitude will determine the overall ability of the organization to adapt to the functional requirements of differing environments. The ability of the CEO to adapt to change is itself related to a number of variables such the number of years he has been a CEO, age, the functional background and its diversity and CEO gender. (Musteen : 2006). CEO's will have to integrate the top executive team to optimize all aspects to include manufacturing, marketing, product development as well as taxes, people management and legal issues across countries and continents. Not surprisingly, the vast majority of those manufacturers that are successfully optimizing their networks in a holistic fashion have one executive in charge of the overall supply chain. These factors seem to a degree challenge the CEOs in the process of globalization of their companies. Comparison Asian and European CEOs Globalization is not going to eliminate social and national differences, thus the distinct characteristics will remain. (Friedman : 1999). CEOs of Asian companies are more concerned with people issues such as stimulating innovation and acquiring top talent, while U.S. and European CEOs focus on sustaining top-line growth as their economies recover, according to a global survey of chief executives released by The Conference Board and sponsored by Heidrick and Struggles and PeopleSoft. Fifty-one percent of CEOs in Asia report that stimulating innovation is their greatest concern, while 47% say acquiring talented managers is their greatest concern. Only 34% of CEOs based in Europe and 28% of U.S, cite innovation as their top concern, while only 32% of European CEOs and only 22% of CEOs in the U.S. say availability of talented managers is their greatest concern. (Conference Board : 2003). Asian business leaders are especially concerned with the digital divide, with whether their governments can create the right environment for rapid change and innovation, and if their people can be taught to accept change and risk. European CEOs fall into basically two categories, the young and recent appointees, who are more operationally oriented with focus on numbers in the short term while the older managers see things from a larger perspective and have great charm and charisma. (Napolitano: 2006). The primary concern among CEOs in Europe is impact of the Internet, followed by industry consolidation, while in the Asia-Pacific, it is changes in type/level of competition followed by impact of the Internet. Customer loyalty is gaining mind share in all regions, except Japan while, increasing flexibility and speed indicates that business leaders in these two regions saw that U.S.style speed and innovation led to better corporate and economic growth rates and are now looking to follow suit. An advantage of globalization is that the variations between the CEOs across countries have reduced considerably. CEOs will have to be integrationists and communicators. Commercial skills have to be integrated to arrive at strategic business decisions. The main skills are thus related to bringing people together and communicating. (Duncan: 2002). This differential is however fast eroding and CEOs are able to operate diverse spectrums effectively regardless of their backgrounds. (Duncan: 2002). Off late Asian CEOs are blending the best of the East and the West and emerging as powerful managers providing efficiency, effective and innovative leadership at the highest level in an organization. This is evident from a survey of a group of CEOs of Chinese companies who have identified the strategies for entry into new businesses as plan early, remain flexible, leverage and stay focused. The key to success is to continue to perform despite the obstacles, global CEOs have to be managers for the long haul. (Ahlstrom : 2004). Solutions A key imperative for operating in a global business environment is transparency, this should include even most difficult decisions, as closing down plants in under developed areas. Then a bureaucratic, mechanistic view of the organization has to be avoided and a humanistic view taken by displaying a human touch and not appearing above normal human frailties. (Duncan: 2002). Companies as Shell are committed to global standards in human rights and always strive to attain the highest standards while operating globally. (Duncan: 2002). Global CEOs as Bill Parrett have reasoned that ethical behavior by demonstrated benefits of ethics in action will promote a global agenda to ensure efficient operations in the long term. (Parrett: 2005). A strong codification of conduct of business by an organization is essential which can be applied globally with flexibility to adjust to the local regulatory, legal, and cultural requirements within the context of global conduct. Such standards should be explicit in nature. (Parrett: 2005). A similar view has been held by Peter Duncan, formerly of Shell, who says that there are certain standards of behavior that a company should always adhere to through out the World. (Duncan: 2002). In staffing appropriate ethnocentric, polycentric, region centric, and geocentric approaches need to be adopted. CEOs should take expeditious action in their companies to take advantage of modern technology, research and innovative management techniques to remain cost competitive in the global markets. (PWC Survey). While the customer is the most important part of any business, the employee should be viewed as the second most important part. For long-term benefit of global companies the changes implemented to gain competitive advantage must be carried out creating a sense of family and establishing trust within the company. CEO's should also demonstrate the knowledge, skill and behaviour needed to lead through change, improve business performance and plan growth and prosperity. For this he can well exploit the Value Palette as an evolving conceptual tool designed to help managers think about and operate across the evolving value spectrum. (Elkington : 2005). Thus, managers must run an efficient and well coordinated operation using well-trained staff while simultaneously responding to customer demands at a global level. Risk management, local knowledge and local networks must remain central to any business strategy in a globalized environment. Achieving all of these objectives will not be easy for a manager who is normally accustomed to serving his or her domestic market feel Bartlett and Ghoshal. (Bartlett and Ghoshal :1998). But then the availability of communications, information technology, and global services if properly exploited seems to make the task of the global CEO much easier if he can articulate the vision and select key facilitators. Global CEOs as Parrett have stressed that the ultimate test lies in, providing ethical behaviour and its benefits in action rather than just profess global values to succeed. (Parrett : 2005). References 1. Bartlett, Christoper. Ghoshal, Sumantra.(1998). Managing Across Borders : The Transnational Solution, 2nd Edition. Harvard Business School Press. Harvard 2. Bhagwati, Jagdish. (2004). In Defence of Globalisation. Oxford. Oxford University Press. 3. Economics. (1999). The Economist Books. The Economist Newspaper. 4. Friedman, Thomas L. (1999). The Lexus and the Olive Tree. 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