Stage Set for Borderless World

1 September 2005

Chief Executive Officer’s Ciaran Parker hears from Kenichi Ohmae, author of The Next Global Stage, about the unfolding storylines in the global marketplace.

Kenichi Ohmae is one of the world’s leading business strategists. Born in Tokyo in 1943, he studied nuclear engineering both in Japan and at the MIT where he got his PhD. He later joined the Japanese office of the consulting firm McKinsey and Company, becoming a senior partner.

Ohmae is the author of over a hundred books and articles dealing with strategy and global trade. His most recent book, The Next Global Stage: Challenges and Opportunities in Our Borderless World, was published in 2005 by Wharton School Publishing.

Your book is entitled The Next Global Stage. Why do you use a theatrical analogy?

My latest book provides a script to help people find a route through the shifting plotlines of the global economy.

How would you characterise the global economy?

"1985 is the annus domini of the global economy - AG and BG – After and Before Gates."

The global economy has four characteristics: it is based on cyber-connectivity that allows large amounts of data to be transferred incredibly quickly. It is invisible, or rather not totally visible to the naked eye. It is also based on the importance of stock price multiples.

We have witnessed a number of corporate takeovers that would have been viewed as surreal two decades ago. But perhaps the most important element of the global economy is its borderlessness. In terms of four key factors of business life, the world has already attained borderlessness. These are the four Cs: communications, capital, corporations and consumers.

Is this new global economy similar in concept to the ‘new economy’ of the late 1990s?

No. The new economy of the 1990s trumpeted a brave new economic order based on the fantastic technological advances unleashed through the internet. It was a model that mistakenly saw a parallel and unstoppable rise in productivity. The wheels fell off this conceptual wagon in April 1999 with the sudden decline in technology stocks.

Is the global economy just theory, or can we see it in the world around us today?

In the book, I take readers on a tour of the world, visiting places where we can see the global economy in action. This includes the hinterland of Dalian in China, as well as Finland and Ireland.

What developments launched the global economy?

"Success in the new global economy will depend on good leadership."

For me, 1985 is the annus domini of the global economy, and the dating system I like to use in a light-hearted way for it is AG and BG – After and Before Gates. The year 1985 saw the sowing of seeds that didn’t sprout into immediate and abundant growth, but which did not lie dormant. These included Gorbachev’s rise to power in the Soviet Union, the Plaza Accord, the Gramm-Rudman Act in the US Congress and the launch by Microsoft of the Windows operating system. The years since 1985 have seen some hectic developments, particularly in 1998 (14 AG). These included the economic reforms announced by Zhu Rongji in China. The Christmas season of that year also saw the public in the developed world purchasing items over the internet in a phenomenal fashion.

What are the business implications of the global economy?

Defining strategy in terms of the three Cs of company, competition and customers is no longer valid. In the 1980s, strategy was developed to define the relationship among the three Cs, but now strategy is about defining each of them, and then trying to define their relationships in a dynamic, time sequenced manner. This is far from simple. A company such as Kodak cannot even define what it is anymore. We are dealing with an invisible continent in the borderless cyber jungle, so the business domain you carve out is person-specific. Once you’ve worked out your vision you can spell out your strategy, and then you can develop a business plan.

What stage directions would you give to businessmen for performing on the global stage?

Success in the new global economy will depend on good leadership. Given the uncertainties, leaders must be courageous and pragmatic, refusing to be imprisoned by the past. Business leaders should have vision. They must embrace innovation and court flexibility. They must also possess a full understanding of, an instinctive sympathy with and a total commitment to the global economy.

What is the contribution of technological platforms to the global economy?

Platforms allow companies or individuals to communicate with each other to get things done more quickly or more efficiently. They aid communication and enhance delivery. They do so by establishing the common standards that come to be the accepted norm. The global economy depends on such standards.

You have written the obituary of the nation state and how it should be replaced by the region state. Can the optimal region state be defined closely in terms of area and population?

Region states can’t be defined too tightly. Many region states do share characteristics, but they should be seen as points of reference only, rather than specifications. No region state can attain success by marshalling a set of ingredients, as in a recipe for a cake.

Population size is important but not crucial. Size is a state of mind. A successful region state must have a sizeable domestic market to attract internal investment – a lower floor of half a million or a million is desirable. There are no magic numbers here.

An area might have the right population level, but still be mired in poverty. The opposite also holds true. An international airport, at least one efficiently functioning harbour capable of handling international freight as well as good transport infrastructure are necessary, too. A sprinkling of forward-looking universities and research facilities is also very important.

But the most essential element of any successful region is openness to the outside world. The rest of the world must be viewed as the source of prosperity. Any lingering concepts of native versus foreigner must be erased, so rules limiting foreign investment or foreign ownership of land or capital must be abolished.

So any region can be successful on this new stage?

The success of any region depends not on factor endowments, but on good physical and intellectual infrastructure. So any region can become successful, in defiance of a lack of traditional resources. Look at Dalian in China.

Some clusters and micro-regions are also successful. Are these similar to traditional business clusters?

Clusters of industry have been around for a long time. They are associated with smokestack industries, operated by old and inefficient enterprises. Concentration of heavy industry in one location brought advantages, but these are old-style, one-dimensional clusters.

Micro-regions are multi-dimensional. They don’t exclude. Take the Pearl River Delta area of China where there are thousands of electronic component suppliers. This cluster is a good industrial hinterland for manufacturers of other electronic goods. It is not exclusive and one-dimensional. It is magnetic, attracting dissimilar industries that need the components in production there.

What areas will prosper in the global economy?

I mention ten regions that at present have some of the ingredients to attain the level of a prosperous region state. These are Hainan Island, the Ho Chi Minh City region of Vietnam, Kyushu Island in Japan, Petropavlovsk-Kamchatskiy, the maritime province of Russia’s far east, the Vancouver and Sao Paulo regions, and in Europe Finland’s neighbour, Estonia, and the south-eastern corner of the Baltic Sea. The integrity of these regions’ political and economic leadership is key. Prosperity in the twenty-first century is still down to individuals.

What is the role of China in the global economy? For some time now, there has been a persistent prediction that the rapid rate of growth seen in China cannot last. What do you think?

Nobody can talk about the global economy and leave China out of the discussion. China seeks to compress 200 years of post- Industrial Revolution development into a couple of decades. When people think of China, they see a monolith. But this vision is no longer reality. China is, instead, an assembly of region states, some moving very quickly. That’s why I call it the United States of Chunghwa. Talking about soft or hard landings is applying old economic thinking based on the national economy paradigm. China’s prosperity has been produced at region state level.

Can the onward march of the global economy be stopped?

The global economy has its own dynamic and its own logic. It is no longer theory; it is reality. It is growing stronger, rather than weaker. It will feed on its own strengths. It is irresistible. There is no use complaining about it or wishing it to go away. People just have to learn to live with it.

Kenichi Ohmae, author of The Next Global Stage.
In terms of four key factors of business life, the world has already attained borderlessness.
In the book, I take readers on a tour of the world, visiting places where we can see the global economy in action.