Companies struggling to master globalisation

Just one in ten companies has fully mastered globalisation, finds survey

M&A deals will pick up pace in 2015.
M&A deals will pick up pace in 2015.

Despite a concerted push to expand their overseas presence, few companies are ready to build global organisations, a new survey has found.

Companies have high global aspirations and confidence in their global strategies, but only about 10% have mastered the capabilities needed to run successful, truly global operations, claims the survey conducted by Boston Consultancy Group and IMD business school.

Mergers and acquisitions, which have been on the rise lately, are critical weaknesses, the survey adds.

Line managers who run businesses or regions are much more pessimistic about their companies’ global readiness than headquarters staff. Midsize companies are at the greatest risk in going global. They are less nimble than smaller companies and do not have the scale or systems of larger ones.

“Companies clearly recognise the need to globalize, but few of them are truly ready to execute and bring to life their global strategies,” said Dinesh Khanna, partner in BCG's Singapore office and global leader of the Global Advantage practice.

“Companies that want to win overseas should be focusing on the nuts and bolts of going global.”
The conducted by BCG and IMD found that, while about 75% of companies plan to increase their international share of business, only 10% believe they are mastering the full set of 22 capabilities required to go global.

Several practices essential to globalisation, such as establishing a global supply chain and spreading best practices, rank in the bottom third of capabilities. And, overall, respondents rated their companies below average on 15 of the 22 capabilities.

Global expertise in mergers and acquisitions was the lowest-rated capability by a wide margin. Its “readiness score” was 34%, where a score of 100% indicates that a company has perfected the capability.

The survey revealed, however, that M&A have strong potential in “energising a globalisation journey”, as companies scoring 75% or higher on M&A reported total readiness scores at least 10% higher than average.

“M&A can be challenging to master as it requires mastery of several skills, such as target selection, negotiation, and integration. But M&A can also be transformative.

"Companies can quickly acquire market share and a global footprint, diversify their talent base, and create a more varied portfolio of businesses,” said Margaret Cording, Professor of Strategy and Regional Director of Southeast Asia and Oceania at IMD business school.

The Global Readiness Survey also found differences between the views of executives who work at headquarters and those who work in the field. Headquarters staff have a far more optimistic view of their companies’ globalisation readiness than line executives.

The biggest differences have to do with whether the organisation has an open mind-set, aligned performance incentives to support the global agenda, and best practices effectively spread across the organization.

Small, midsize, and large companies have similar globalisation aspirations, but vast differences separate their readiness to globalise, according to the survey.

Most strikingly, midsize companies, with annual revenues from $1 to $10bn, underperform their larger and smaller peers across most capabilities. They have neither the scale of large organizations nor the agility and effectiveness of smaller ones.

Large companies do better than midsize and small companies in core business capabilities such as setting up a global supply chain. But they do relatively poorly on capabilities related to learning and agility, leaving them vulnerable during periods of rapid change.

Small companies, on the other hand, are fleet-footed but haven't mastered local markets overseas and may misunderstand their competitors abroad.

The 362 surveyed executives work for a wide variety of companies throughout the world. Slightly more than one-half, or 56%, work for companies based in Western Europe; 11% are at North American companies; 9% are at Latin American companies; 9% are at Japanese and Australian companies; and 6% are at companies in emerging Asian markets.

One-quarter of the respondents work for industrial goods companies; almost as many, 21%, work for consumer products companies; 15% work for technology, media, and telecom companies; and 6% work for either financial institutions or professional services firms. The remainder work in health care, energy, insurance, the public sector, and other industries.

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