A DECADE HAS PASSED since the original release of Redefining Global Strategy, and I could not be more pleased with how the ideas contained in this volume have stood the test of time. The material in this book is, arguably, even more important today than when the first edition came out. Back in 2007, the common wisdom was that globalization was racing ahead, flattening borders and erasing the effects of distance. As I write this new preface, in 2017, many business leaders suspect that globalization has stalled or perhaps even suffered a reversal. This has prompted rising interest in international strategies designed for a world where borders, geographic distance, and other differences between countries still constrain international activity—the central theme of this book.
One reason that Redefining Global Strategy has remained so relevant is that expectations about globalization have long tended to overshoot reality—in both directions. The flat-world euphoria that prevailed a decade ago was so much removed from reality that I have debunked it as globaloney.1 And more recently, proclamations that globalization is dead and multinational firms are in retreat also seem exaggerated.2 When I wrote this book, I anticipated such oscillations and made sure that my recommendations could withstand them. In the final chapter, I predicted: “Looking forward, levels of cross-border integration may increase, stagnate, or even suffer a sharp reversal if the experience between and during the two world wars is any indication of the possibilities. But given the parameters of the current situation, it seems unlikely that increases will anytime soon yield a state in which the differences among countries can be ignored. Or that decreases could lead to a state in which cross-border linkages can be forgotten about.”
This book helps firms develop strategies to succeed in a world where international opportunities and threats are key items on the strategy agenda, but the markets in which most companies compete are still far from completely integrated. I refer to this sort of world—which prevailed in 2007 despite so much hype to the contrary and still prevails today—as semiglobalized. As this book elaborates, semiglobalization opens up far more interesting strategic opportunities for firms than would be available in a world where globalization is either negligible or complete. And after devoting substantial effort in the years since this book was first published to tracking globalization trends in the DHL Global Connectedness Index and elsewhere, I am even more confident that the world will remain semiglobalized long into the future. In 2016, I even wrote an academic book about how the effects of borders and distance are so reliable that they underpin two scientific laws: the law of semiglobalization and the law of distance.3
Somewhat less gratifying from an academic perspective, but another reason why this book remains so relevant, is that most business leaders are still unaware of how globalized the world really is and what that implies for international strategy. In 2017, I conducted a survey of managers in three advanced economies (Germany, the United Kingdom, and the United States) and three emerging economies (Brazil, China, and India). I asked the participants to estimate several of the globalization metrics covered in chapter 1. The average manager thought the world was five times more globalized than it really is! And the evidence on how much harm such globaloney does has also mounted since the initial publication of this book. My recent surveys show that managers who have perceptions of globalization that are more exaggerated are more likely to make some common errors in international strategy. And at the societal level, my surveys show that more globaloney is associated with more anxiety about globalization’s alleged harmful side effects—effects that I put into perspective in my 2011 book, World 3.0: Global Prosperity and How to Achieve It.
As changes in the globalization environment prompt firms to reexamine their international strategies, the material in Redefining Global Strategy provides a powerful complement to the content of my 2018 book, The New Global Road Map: Enduring Strategies for Turbulent Times (also from Harvard Business Review Press). The new book builds on this one but does not repeat the same material. Redefining Global Strategy is, as indicated by its title, devoted entirely to strategy, and so it explains my international strategy frameworks at much greater length. The New Global Road Map, in contrast, examines how globalization is evolving over various time frames, and it discusses implications that extend beyond strategy. The new book also examines choices about where to compete, how to organize, and how to engage better with society.
Redefining Global Strategy is organized in two parts. Part one introduces the concept of semiglobalization and two key frameworks for thinking about value creation and value capture in a semiglobalized world. More specifically, chapter 1 debunks globaloney-induced myths and grounds the book in a more realistic sense of globalization. Chapter 2 articulates the CAGE (cultural, administrative, geographic, and economic) distance framework, which has come to be widely used and illustrates its power in business analysis. Chapter 3 provides a scorecard for thinking through how international moves create or destroy value. The ADDING Value scorecard encompasses six elements: adding volume or growth, decreasing costs, differentiating or increasing willingness to pay, improving industry attractiveness or bargaining power, normalizing or optimizing risk, and generating knowledge and other resources and capabilities.
Part two is organized around three fundamental strategies that firms can employ in a semiglobalized world: adaptation, aggregation, and arbitrage (AAA strategies). Chapter 4 covers adaptation strategies, suggesting a wide array of levers and sublevers that firms can use to adjust to differences across countries. Chapter 5 discusses aggregation strategies, which focus on overcoming some cross-country differences to achieve more economies of scale or scope. Chapter 6 focuses on arbitrage strategies, which treat differences as a source of, rather than a constraint on, international value creation. Chapter 7 brings these three strategy archetypes together and examines how firms should think about combinations and trade-offs across them. Chapter 8 concludes with a short step-by-step guide to help firms apply the key learning points from this book.
To recap, this book articulates a global strategy approach that is grounded in a clear recognition of the persistent differences across countries and the challenges these differences pose for multinational firms. The idea is to help businesses cross borders profitably by seeing the world as it really is, rather than engaging in wishful thinking. To achieve this objective, the book embodies what might be called the three Rs. First, it is readable because of its unified point of view, its conciseness, and its use of numerous examples. Second, the book is relevant for business policy makers because I have written it around their needs (although it may also interest leaders in the public sector and others seeking to understand cross-border business) and have kept the discussion grounded in reality by focusing on value creation and capture. Also important in this regard is the ease with which companies from different parts of the world can customize the frameworks presented—which suggests some obvious follow-up exercises. In particular, the tools available on my website at Ghemawat.com can help practitioners customize and apply this content. And third, the book is rigorous in the sense of drawing on research in a variety of fields—including international economics, industrial organization, business strategy, and international business—as well as extensive interactions with business leaders. So use it to your advantage!