MY FIRST INTERNATIONAL case-writing experience, in the early 1990s, had me visit a Pepsi plant in the strife-torn Indian state of Punjab. Given the political environment—a low-grade civil war—many workers were militants who arrived at the plant each day toting their AK-47s. Pepsi had set up a system whereby these could be checked in and then retrieved at the end of a shift. Absolutely no AK-47s inside the building, the HR director explained forcefully—introducing me to the large differences with which international business must contend.
This sense of differences has been sharpened by the years I have spent since then working on globalization and global strategy. As a result, instead of focusing on market size and the illusion of a borderless world, this book reminds managers that if their businesses want to cross borders successfully, they need to pay serious attention to the sustained differences between countries in developing and evaluating strategies. And it provides them with the insights and tools necessary to do so.
To illustrate this perspective on globalization—or what I call semiglobalization—I’ll use football as a metaphor.1 U.S. readers may be disappointed that the kind of football that I have in mind is what they refer to as soccer, but that itself makes a useful point about the differences between countries. Although football is supposed to be a global phenomenon—former UN secretary general Kofi Annan noted enviously that more countries belong to FIFA, football’s governing body, than to the United Nations—its hold on sports fans is very uneven, and the United States constitutes the single largest exception to its general appeal.2
That said, the game has come a long way since English villagers began kicking around pigs’ bladders in the Middle Ages. Football began to spread internationally during the heyday of the British Empire, but the sport’s globalization went into reverse in the interlude between World Wars I and II, as authorities restricted the international transfer of players.
The years after World War II saw escalating international rivalry, particularly around the World Cup. In the late 1950s and early 1960s, Real Madrid emerged as the first great European club, with players from a number of countries.3 But until the late 1980s, West European leagues continued to limit the number of foreign players to between one and three per team. East European countries, meanwhile, restricted the “export” of their players. And increasing international rivalry did not supersede intense local competition. Thus, matches between Real Madrid and FC Barcelona reenacted the Spanish Civil War—and continue to do so to this day, as I can testify from living in Barcelona and going to watch them play.
The barriers to labor mobility largely disappeared—for club play but not country play—in the 1990s. Economic pressures in East Europe and other poorer parts of the world led to the abandonment of restrictions and the adoption of export-oriented strategies by many local clubs, as well as by football academies established for that purpose. And on the demand side, a ruling by the European Court of Justice in 1995 lifted restrictions on the number of foreign players allowed in European club play. In 1999, Chelsea F.C. became the first club in the history of the English Premiership to start a game without a single English player on the field.4 By 2004–2005, an estimated 45 percent of the players in that league’s starting lineups consisted of foreigners.5 Similar internationalization is evident in other European clubs. But for World Cup play between countries, FIFA continues to restrict players to representing their countries of origin or citizenship.
Different degrees of cross-border labor mobility have led to very different outcomes. More or less free cross-border movement of players at the club level has concentrated quality and success at the national and regional levels among the richest clubs.6 In the European Champions League, for example, the number of different teams that qualified for the top eight slots has decreased significantly in the last twenty years. And a recent report by the accounting firm Deloitte & Touche indicates that the concentration of revenues among the top twenty clubs—all European—is increasing as well, as richer clubs with better players secure proportionately more valuable broadcast rights.7 Interestingly, the club with the most revenues in 2005–2006, Real Madrid with $373 million, thrived financially not just by building local identity but also by targeting global sales of merchandise featuring an all-star cast of galácticos, including David Beckham and Ronaldo. (This seems, however, to have exacted a cost on the playing field: as of this writing, Real Madrid has begun to rebuild its lineup with younger players after a spell of embarrassingly bad performance.)
This story of ever-more-concentrated success is not mirrored, however, at the World Cup level. With players’ skills sharpened by European club experience, an increasing number of poorer countries have become globally competitive. Thus, the last five World Cups have each featured in the quarterfinals, on average, two teams that had never advanced that far before. And the arrival of these newcomers has not led to more blowouts: the average goal differential, from quarterfinals onward, in the last five World Cups has been one goal, versus an average differential of two goals in the first five postwar cups. Clearly, the lack of cross-border labor mobility has led to very different outcomes from club play.
Increased parity at the country level does not, however, mean that all international differences have been ironed out. Detailed statistical analysis of the determinants of the official FIFA rankings sheds some light on the matter. Generally speaking, large countries with Latin cultural origins rank highly, as do countries with temperate climates and high per-capita incomes (up to a point).8
Cross-border movements of capital as well as labor merit consideration. Recent years have seen several English Premiership clubs bought out by foreign investors (e.g., Chelsea by Roman Abramovitch). But attempts at foreign investment in Brazilian clubs, for example, have clearly not worked well. Consider the sad tale of Dallas-based buyout firm Hicks, Muse, Tate & Furst and its 1999 decision to invest in Brazilian football. As a company partner put it at the time: “It’s hard to imagine a better sector in which to invest in Brazil. If you add up all the fans of professional baseball, basketball, football and hockey in the United States, that number is lower than the number of Brazilians who are soccer fans.”9 Based on this crude arithmetic, Hicks, Muse, assumed control of business dealings for Corinthians, São Paulo’s leading club. And it invested more than $60 million in the team in the first year of a ten-year contract.
Unfortunately for Hicks, Muse, the Brazilian club circuit was as politicized and corrupt as the Brazilian style of play was captivating. Corinthians won the World Club championship in 2000, but its performance subsequently slumped, and fans began to protest bitterly against trades of key players, changes in the colors of jerseys, and the addition of advertising. In 2003, amid a row with its local partners, whom it accused of misappropriating funds, Hicks, Muse exited—as did two other foreign groups that had invested in Brazilian football at roughly the same time.
What does this brief discussion of football tell us about globalization—and about global strategy, which is the focus of this book?
• Football’s global progress mirrors that of many economic indicators of globalization: there was a peak before World War I, followed by a reversal during and between the two world wars, and then a revival after World War II. The revival has, along a number of dimensions, led to new records being set. At the same time, football’s failure to gain traction in the United States, by far the world’s largest sports market, reminds us that despite the new records, globalization remains, in many respects, uneven and incomplete. Chapter 1 applies these themes from football to the broader context of globalization.
• Football’s failure, so far, in the United States is just one indicator of the continued importance of the differences across countries. Others include the roles that Latin cultures, reasonable temperatures, and threshold levels of economic development play in explaining various countries’ success in the FIFA rankings. And restrictions on cross-border labor mobility in World Cup play but not club play highlight the continuing importance of administrative and institutional factors, as does the more favorable record of foreign investment in English clubs than in Brazilian ones. These factors prefigure a framework for thinking about cross-border differences: the CAGE framework, developed in chapter 2, that highlights the cultural, administrative, geographic, and economic differences between countries.
• The story of Hicks, Muse, Tate & Furst’s investing in Brazil also illustrates what is probably the most common bias in evaluating cross-border strategies: an emphasis on “size-ism,” which fails to appreciate the persistence of differences between countries. Chapter 3 discusses a general structure for evaluating the crossborder effects of strategic moves—the ADDING Value scorecard—that goes beyond a focus on size and economies of size.
• The strategies followed by football clubs exhibit a range of approaches for dealing with the differences between locations. I refer to these approaches as AAA (adaptation, aggregation, and arbitrage) strategies. Many clubs have focused on forging a local identity, that is, adapting to particular locations. But there are also clubs that have aggregated across borders (e.g., Real Madrid’s global merchandise sales). And some clubs in poor countries feed talent to richer counterparts; that is, the poorer clubs assist in arbitrage. Arbitrage is also prominent in at least some cross-border investments and in the manufacture of a specialized input, footballs: the Pakistani city of Sialkot has been a famous production hub for close to one hundred years and still accounts for the bulk of world production.10 The strategies of adaptation to adjust to differences, aggregation to overcome differences, and arbitrage to exploit differences are the topics of chapters 4, 5, and 6, respectively. Chapter 7 is integrative: it examines the extent to which it is possible to mix and match across these AAA strategies for dealing with differences, given their different requirements.
• Finally, the description of football has focused on the state of play as of the end of 2006. But changes cannot be ruled out. For example, FIFA president Sepp Blatter has railed against the dominance of the richest European clubs and, relatedly, the free transfer of players across clubs, comparing the latter to slavery.11 Analogously, there are always negative portents about globalization to fuel debates about whether it will stall or go into reverse. Chapter 8 uses the insights developed in the earlier chapters to discuss how you should think about such debates—and what your company can do now to build a path to a better future.
While football stars manage to make the beautiful game look easy, anyone who has actually taken the field knows how hard it can be—especially under the pressure of intense competition. So, even the most talented footballers study how others play the game, break big strategies down into tactical plays, and submit themselves to intensive training and practice programs. The case examples, frameworks, and customizable tools described in the chapters that follow are intended to serve roughly analogous functions in the business context. If you finish this book with a redefined sense of what global strategies really entail and can translate those insights into action—and profit from them—then I’ve attained my goal in writing it. For now, though, I pass the ball over to you. Turn the page, and let’s begin.