Redrawing the Map

9 October 2008

Scourge of ‘flatworlders’ such as Thomas Friedman, Harvard Business School’s Pankaj Ghemawat tells Phin Foster about being compared to 16th century physicists, run-ins with Colin Powell and AK-47s in India.

1. By denying that the world is flat, Nikos Mourkogiannis has compared you to Galileo. Do you feel like that much of an outsider?

This process has highlighted the huge dysfunction between academia and practice. In the world of international economics, my views are so mainstream as to be utterly unremarkable. For people who actually study the data, there’s no question as to whether the world is perfectly integrated or not. What’s striking to me is how limited the communication of this knowledge to other spheres has been.

2. Is it the simplicity of the integrated world vision that so appeals to the business community?

The flat world is a very arresting image. Even the media has a strong tendency to dichotomise: either you believe globalisation will go all the way or it’s irrelevant. The FT ran a generally positive review of my book, but the headline was "A sceptic’s take on globalisation". Anyone who believes that the level of integration is anything less that 100% is dismissed as a cynic.

"For people who actually study the data, there’s no question as to whether the world is perfectly integrated or not."

3. You’ve compared the flatworlders’ thesis to religious rhetoric.

I did some research into writings on apocalyptic movements and the similarities struck me. Both arguments are characterised by emotional rather than cerebral appeal, with lots of reliance on prophecy, focus on technology, and an emphasis on the creation of new people. Underpinning all of this is the demand that this warrants special claim on your attention immediately.

4. Do they see you as spoiling the party?

It’s a bit like when the Bush administration was feeling chipper about Iraq and dismissed people’s complaints as reality-based perspectives that were frankly irrelevant. I get a similar sense when I see a lot of this stuff: forget reality, let’s go with the rhetoric.

5. Are business scholars as culpable as anyone else?

This might incur further enmity, but these guys are already ticked off at me so what the hell? I ran a colloquium on the globalisation of business education. Senior, influential business types attended, including the editor of the Harvard Business Review, and a leading scholar said that Wal-Mart moving overseas was no different to it shifting a store from Arkansas to Alabama. I was appalled and less gentle in my response than a good host should’ve been.

6. Is this thinking reflective of big business, generally?

Some of my most valued sources were the CEOs of very large companies. I benefited a great deal from speaking to Sam Palmisano at IBM and AG Lafley of Proctor and Gamble about their approach to global strategy. I’ve also got a great deal from working over the years for Tata Consultancy Services. Jeffrey Immelt of GE really liked the book and he wrote to me about it.

7. Are these the people to follow in terms of developing a global strategy?

While nobody has fully worked out solutions to the challenges of globalisation, there are a bunch of companies on the cutting edge trying out very interesting things. There’s a lot to be learnt if you pay close attention to what they are up to.

8. Would you recommend appointing a chief globalisation officer?

One can focus on the formal aspects of organisational structure, but if global strategy is still a matter of somebody decreeing that ‘x’% of sales will come through international expansion in ‘y’ years, you’re still stuck with a crude, size-based metric. I tend to encourage companies to set up globalisation scorecards.

9. Asking what questions?

The fraction of products customised for local markets; the relative price realisation; how many mentions one gets in local media; the ratio of locals in your management team. You must understand how globalised your company is, beyond the usual "how many sales are from outside our home market", before embarking on strategy. And you need to spend time thinking about exactly what will be different on the other side of the border.

10. Has your research overseas helped crystallise those differences in your own mind?

When I travelled out to India in the late 1980s, to see how Pepsi was going about moving into the Indian market, there was an insurrection in the Punjab at the time, and my strongest memory of visiting the factory is the sign banning AK-47s being taken into the building. You will have to adapt the way you do business in accordance with what is happening on the ground. The Punjab was an epiphany for me in that regard.

"When I look at the US in terms of expressed sentiments of the US public, its role in absorbing world imports and, frankly, the sheer paucity of any real safety nets, I get very worried indeed."

11. People not seeing this must frustrate you.

If I didn’t have this large constituency there’d be fewer people to proselytise, but it startles me that captains of industry still end up spouting the stuff about borders not mattering anymore.

12. Can you give me an extreme example?

I was attending a dinner talk by Colin Powell and heard it right from his mouth: ‘The world may not be flat today, but it will be tomorrow.’ I was amazed that a former secretary of state could believe that borders would soon cease to matter. When I asked him about it afterwards, I was advised to go and read Thomas Friedman. That wasn’t a particularly adequate response.

13. Holding these beliefs, is one just staying on message?

Just as techno music is known to affect brain activity, technology trances around globalisation affects how sensible people think. If you are a technological determinist – as Friedman admits to being – to the point where you think culture and politics stop mattering, you’re sailing a dangerous course.

14. What companies have sought to right the balance?

Coke is a great example. Under Roberto Goizueta in the 1980s and mid-1990s, it was a case of extreme standardisation. That ran into some problems, so when Douglas Daft took over from Doug Ivester his mantra was ‘think local, act local’. That worked even less well. But [chairman and former CEO] Neville Isdell has been trying to strike a third way, between extreme standardisation and extreme localisation.

15. And this third way is far more nuanced?

It’s a rebuttal of all the myths. Coke no longer prides itself on being a stateless company – Isdell reinstated the difference between US and international on the tenth anniversary of Goizueta’s abolition of the distinction. It’s more nuanced about ubiquity, no longer sees the game as purely about economies of scale, stopped believing in the magic of standardisation, and has given up on the ridiculous assumption that the rest of world will automatically come up to US levels of Coca-Cola consumption.

16. Does the rhetoric of both US presidential nominees suggest that free trade is becoming a dirty word?

According to a Pew Research survey, the US ranks 45th out of 45 countries in public support for free trade. Downturns are when protectionist pressures tend to be at their nastiest, and such pressures tend to be irresistible in democracies without any sort of safety net for workers. When I look at the US in terms of expressed sentiments of the US public, its role in absorbing world imports and, frankly, the sheer paucity of any real safety nets, I get very worried indeed. If congress introduces such an agenda, and the rest of the world reacts, well … we all know what happened in 1929.

17. Do there need to be more public cheerleaders?

Yes, but it seems highly unlikely to be the politicians. And with business leaders unwilling to step forth, it’s unclear what’s going to right the balance of the rhetoric. Isdell is the only major player to step forth and say business leaders aren’t doing enough.

18. Is this purely an American problem?

There are nasty things going on all around the world. In Europe we’re seeing a tendency to crave national champions in areas like telecoms, financial services and energy. The Chinese are happy about trade, but are angry at the world for other reasons. Such trends are reversible, but it will take a lot of work.

19. Are American and European business schools addressing these problems in similar ways?

The smaller the country you’re from, the more international matters will occupy the attention. European business schools have more of a propensity to look across borders and a natural disposition to internationalisation. If one could think of a plausible area in which European schools might be able to seize an advantage over US institutions that would be it.

20. Is there a danger that what is being taught in such institutions is moving too far into academia and away from practice?

In economics, there are many people at business schools who essentially write for economic journals and have done little else. I’m not sure whether that’s the best way for an institution to make its mark on the world. It may be an older person’s lament, but I’m making no apologies for that.