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Strategies for achieving high performance in a multi-polar world


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Survey and analysis of global trends among C-suite executives of high-performing multinationals conducted by the EIU on behalf of Accenture.

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Strategies for achieving high performance in a multi-polar world

  1. 1. Strategies for achieving high performancein a multi-polar worldGlobal choices for global challenges
  2. 2. Foreword........................................................................3Executive summary.....................................................4Multi-polar world:Opportunity amidst volatility..................................6Creating geographic options...................................10Being authentically local..........................................20Networking the organization..................................28Appendix........................................................................33References.....................................................................34Contents2
  3. 3. ForewordMark FosterGroup Chief ExecutiveManagement Consulting &Integrated MarketsAccentureGlobalization remains a durable andconstant presence in the headlines.Recent turbulence shows onlytoo clearly that today’s marketsare extensively integrated andinterdependent, and that exploitationof the global economy is characterizedequally by risk and opportunity.More than ever before, businessexecutives from all regions on theplanet recognize that their responsesto the multi-polar world—whereeconomic power is increasinglydiffused across multiple countriesand regions—can be powerful driversof lasting company performance. Yetthere are few experienced navigatorsof this new economic geographyand little consensus on the strategicimperatives. Across the world, clientstell me they are seeking a newcompass to help chart this latest stageof multi-directional globalization andinsights into the options they have torespond to short-term pressures whileinvesting for longer-term growth.Accenture’s High PerformanceBusiness research program, nowin its sixth year, focuses on theattributes that a high-performancebusiness must not only attain butalso constantly balance and realign inthe face of changing circumstances.The manifest changes in the externalbusiness environment brought aboutby the rise of the multi-polar worlddrove us to integrate our high-performance business thinking withour ongoing research program intothis current phase of globalization.We wanted to understand howthe economic trends shaping themulti-polar world might also alterthe best practices and commonattributes behind high performance.This report, the third in our Multi-PolarWorld series, distills the findings ofprimary and secondary research intohow high-performance businesses havebeen evolving their business strategyin response to the multi-polar world.It offers persuasive evidence that highperformers from both the developedand emerging markets do globalizationdifferently—in the way they createfocused geographic options, weavethemselves authentically into localbusiness ecosystems, and networktheir organizations to allow therapid mobility of people and ideas.There can be no set path for successin a globalizing world. This reporttherefore presents not a checklistof actions but rather a playbook ofoptions to open up opportunity. Itsets out emerging best practicesand leading management ideas onwhich companies from across theglobe can draw as they shape andupdate their business strategy.We hope the report will act as aspur to the next stage of globalcompetitive endeavor as organizationsemerge from the current marketplaceturmoil and seek to become resilientand agile leaders in a volatileand interdependent world.Mark FosterGroup Chief ExecutiveManagement Consulting &Integrated MarketsAccenture3
  4. 4. Executive SummaryIn 2008, the world acknowledged thatglobalization had changed. Investorsand consumers beheld an increasinglymulti-polar global economy in whichrisk and volatility went hand-in-hand with emerging growth andopportunity. Deeper integration ofmarkets meant that economic andfinancial shocks were transmittedacross national boundaries morerapidly than ever before. No longercould businesses—however seeminglylocal or insulated—assert immunityfrom global interdependence.Economic slowdown hastens thesearch for cost efficiency, addedflexibility and new sources ofearnings growth in a more financiallyconstrained future. Paradoxically, itis precisely by engaging purposefullywith the multi-polar world—whichhas heightened and amplifiedbusiness risk as well as creatingopportunities—that companies canfind important elements of theirstrategic response to the downturn,while positioning themselves tobenefit from longer-term trends.The multi-polar world is an arena ofdynamic shifts in economic power andinfluence. Globalization has becomemultidirectional, driven by advancesin information and communicationstechnologies, greater economicopenness, and the growing size andgeographic reach of multinationalcompanies. Emerging markets clearlyplay an important role in this newera, no longer passive recipients butactive shapers of globalization.This new economic backdrop suggestsan urgent new layer of businessimperatives. What to do? Where tobegin? In the face of opportunitiesmatched by chronic volatility,how can businesses achieve highperformance in a multi-polar world?How should they use economicgeography to consistently outperformtheir industry peers over multipleeconomic and industry cycles?To understand how companies canharness the opportunities of the multi-polar world, Accenture conductedextensive research into the strategiesfollowed by high-performancebusinesses across a range of countriesand industries in each of the fivedefining dimensions of the multi-polar world: new consumers, talent,innovation, resource sustainabilityand capital. We surveyed businessleaders from 375 companies,representing all major industries and53 developed and emerging markets.We found that high-performancebusinesses join battle in new anddistinctive ways in each of thesecompetitive and interdependentdimensions of the multi-polar world.In the way they create geographicoptions, weave themselves intomultiple local markets, and sustaina strong global operating model topropel people and know-how acrossa smart, enabling organization,these companies are writing a newplaybook for globalization—onethat will help businesses withstandshort-term pressures while laying thegroundwork for growth in the upturn.4
  5. 5. High Performance:A globalization playbookEvidence from our researchdemonstrates that high-performancebusinesses distinguish themselveswith a globalization strategy thatis conceived and executed in a newand consistently different way. Theydiscover new fulcrums of growth,cost efficiency and risk managementin the multi-polar world, developthem and work them into thefabric of their businesses. Across alldimensions of the multi-polar world,high-performance businesses areguided by three central maxims:Create geographic optionsHigh-performance businessesproactively and continually explorenew geographic sources of value.They constantly look outward, sensingtheir business environment (and thatof their value-chain partners) andmaking focused choices about whereto compete and whom to engage. Notwo markets are the same. Companiesoften need to go to multiplemarkets to find what they need, beit talent, capital or raw materials.Lessons from high performers:• Reach out to potential customersin overseas markets with newbusiness models, channels andinfrastructure investment thatunlock otherwise latent demand.• Source talent wherever it mayexist geographically, as well as fromsectors of the population that mayhave been overlooked previously, suchas women and rural workforces.• Identify emerging centersof excellence in differenttechnologies, products andprocesses around the world.• Build resource input securityvia term contracts, upstreamacquisitions and investment indiversified geographical sourcesto minimize supply disruptionsand cost fluctuations.• Improve access to capitaland diversify risk by updatingknowledge, relationships andfinancing models to reflect the newmap of global investment flows.Be authentically localAlthough searching for valuein emerging markets is a cross-border task, unlocking that valueis a local exercise. As tastes,customs, regulations—and politicalenvironments—differ widely, highperformers embed themselves withfull commitment in their chosenlocal and regional markets asthey execute their strategies.Lessons from high performers:• Identify critical local differencesin consumer preferences and usageand, in response, tailor products andservices to new consumer segments.• Develop and mold local talent fortoday and tomorrow by investingacross the skills spectrum.• Embed innovation activities intothe local research and developmentand consumer environment,working in tandem with industrypeers and policymakers.• Optimize resources strategyunder differing economic, culturaland regulatory constraints acrossmarkets and harness incentiveregimes, such as carbon trading,for current and new business.• Be willing to draw on a broad suiteof investment models tailored to thecharacteristics of different markets.Network the organizationActing on knowledge from around theworld and executing company strategyin multiple locations requires theability to transfer people, resources,capital and know-how to the rightplaces at the right time. Creatingorganizations that are permeable, bothinternally and externally, enables flowsof people, ideas and best practices.Lessons from high performers:• Create structured channels to allowrapid diffusion of ideas and know-how across geographic regions.• Build a global backbone ofstandardized data, systems andprocesses.• Ensure multi-polar leadershipto cultivate a global mindsetfrom the top down.Global choices forglobal challengesThese lessons from high performersare often grounded in a mastery ofbusiness basics. Current realitiesdemand a focus on the basics—butin an inescapably global arena. Bylearning from the choices madeby high performers as part of theirmulti-polar strategies, businessescan find new ways to counter short-term pressures while setting a pathfor sustained high performancein the recovery and beyond.5
  6. 6. The last decade has illustrated vividlyboth faces of the multi-polar world.For much of the period, efficiencygains, stable prices and sustainedeconomic growth owed much toreduced economic distance andtighter interdependence of markets.Yet these very same forces have morerecently served to broaden and amplifythe current financial and economicturbulence. The events of 2008proved that no economy—howeverseemingly local or insulated—istruly immune from the forces of themulti-polar world. Economies havebeen rocked by a combination ofa credit crunch, slowing economicgrowth and volatility in prices andinput costs. Banks failed despite beingthousands of miles and dozens ofdecisions away from the underlyingbad investments. Record rises—andthen record falls—were seen in theprices of oil and other commodities.Emerging markets, along withdeveloped markets, are feeling theeffects of the current financial andeconomic turbulence, particularlyas investors adjust global portfolios.But with their growth anchoredin generally resilient economicfundamentals—including incomeand population growth, lowercosts and generally sound policy—emerging markets are expected togenerate all of the expansion inthe global economy in 2009.1Above all, for the company executive,recent events show that companystrategy cannot be divorced fromthe evolving multi-polar businessenvironment. Like it or not, globaleconomics affects companies’performance, and companies can nolonger sit on the sidelines. Ratherthan simply responding defensively—protecting their position in increasinglycontested markets—businesses canactively harness the multi-polarworld for their long-term benefit.For multinational companies, asfor national economies, marketsbeyond traditional borders cancushion the impact of a slowdownat home. A multi-polar approachcan give businesses the flexibilityto counter short-term pressureswhile better managing future risksand creating durable, competitivecost structures, all of which producecapacity for rapid expansion during arecovery. Therefore, it is crucial thatbusinesses understand and evaluatetheir options in exploiting economicgeography. By harnessing five dynamicdimensions—new consumers, talent,innovation, resource sustainability andcapital—multinational businesses canachieve long-term growth as well asshorter-term flexibility. (See page 7for more detail on these dimensions.)So how can businesses use the leversof the multi-polar world to achievehigh performance? To begin toanswer these questions, Accentureconducted extensive research into thegeographic strategies being followedby high-performance businessesacross a range of countries andindustries. (See pages 9 and 33 foran explanation of the criteria weuse to define high performance.) Wesurveyed 375 companies, including45 high-performance businesses. Oursurvey sampled companies in all majorMulti-polar world:Opportunity amidst volatility6
  7. 7. The multi-polarworldAccenture uses the term “multi-polar world” to describe the diffusionof economic power in the globaleconomy across a wider range ofregions and countries, underpinned bythe three key drivers of informationtechnology, greater economicopenness, and the growing size andreach of multinational companies.Many of these new poles of economicactivity and influence are to be foundin the emerging world—notablythe “Big 6” emerging economies(Brazil, China, India, Mexico, Russiaand South Korea)—but also includea wave of next-tier emergers.Together with the more establishedcenters of economic activity, theseeconomies are radically reshapingthe economic geography in whichbusinesses must operate. Accenturefirst explored the characteristicsand drivers of this new phase ofglobalization in its 2007 study titledThe Rise of the Multi-Polar World.The canvas of the multi-polar worldalso features a large and increasinglydiverse cast of public and privateplayers operating and competingalongside traditional, developed-market multinationals. Chief amongthese are the emerging-marketmultinationals, which have becomeincreasingly prominent as theyexpand their international activities.These companies were the subjectof Accenture’s 2008 study titledThe Rise of the Emerging-MarketMultinational. Sovereign wealthfunds—state-backed entities thatinvest surplus foreign reservesoverseas—have also become importantplayers in the arena of global capital.Accenture has identified fiveincreasingly competitive andinterdependent dimensions to themulti-polar world—new consumers,talent, innovation, resourcesustainability and capital—thatmultinational businesses can harnessfor short-term flexibility and long-term growth. These dimensionsmay be thought of as marketsspanning emerging and developedeconomies in which companiesoperate and need to compete.New consumersMany emerging markets continue toenjoy impressive growth in consumerspending, bolstered by long-termfundamentals such as populationgrowth, an emerging middle classof aspirational consumers, rising percapita incomes and greater creditavailability. Retail sales in Chinacontinue to grow at around 20 percentper year.2Goldman Sachs projects thatrising incomes could lift an additional2 billion people into the global middleclass—defined as those with annualincomes between US$6,000 andUS$30,000—by 2030.3These newsources of consumer spending can helpbusinesses counteract sagging demandin Western economies and build a baseof new consumers for the upturn.TalentWhile many Western economiesare grappling with the effects ofcontracting workforces and specializedskills shortages, emerging-marketworkforces are set to expanddramatically. Between 2008 and2015, the working-age population ofemerging economies is expected toincrease by more than 400 million,compared with an increase of only7 million in developed economies.4While the vast labor reserves ofChina and India have been amplychronicled by many commentators,less-well-known pockets of talenthave sprung up in many other partsof the emerging world. For example,more than half of Vietnam’s 84 millionpopulation is under 25 years old, 83percent of all graduates are science-based, and the country’s labor poolhas around 80,000 IT graduates, afigure increasing by 9,000 per year.5InnovationInnovation is no longer the exclusiveprovince of developed markets. Acombination of investment, educationand a strategic policy focus onnew technologies has spurred thedevelopment of new clusters ofinnovation in emerging economies.Witness the rise of nanotechnologiesand biotech in Beijing, digital mediaand genomics in Seoul, biofuels inBrazil and automotive technologiesin Poland. As companies look to drivenew sources of revenue during therecovery, a critical factor will betheir ability to distribute innovationactivities in a way that reflects thisfast-changing map of innovation.Resource sustainabilityAfter several years of soaring demandand record price levels backed in partby emerging-economy demand, globalcommodity prices have dramaticallyreversed direction as the economicslowdown squeezes demand. Whilerising commodity prices createdadditional costs for business, fallingprices may undermine investment inexploration and long-term supply, aswell as alternative sources, leadingto higher prices in the future. Eitherway, and with continued geopoliticaluncertainty and global trading ofcommodities, it is clear that a newera of chronic volatility in resourceprice levels has arrived. Thanks toglobal commodity markets andoptimized supply chains, companiesfeel the effects more quickly thanever before. At the same time, theprospect of a carbon-constrainedworld means that businesses will befaced with something closer to thefull economic cost of their resource-intensive activities. The challenge forcompanies sourcing critical inputs isto find the right balance of supplysecurity, price stability, efficiency gainsand decarbonization. The challengefor companies supplying resourcesis to help them find this balance.CapitalIn the aftermath of the sub-primefinancial crisis, companies needto survey the altered landscape ofinvestment capital sources. Poolsof capital are increasingly visiblein the emerging world—not only innascent capital markets but alsovia a new cast of players such asemerging-market multinationalsand sovereign wealth funds. Withapproximately US$5 trillion in assetsunder management,6sovereignwealth funds dwarf private equityand could reach US$10 trillion by2012,7according to some estimates.7
  8. 8. Reach out topotential customersin overseas marketswith new businessmodels, channelsand infrastructureinvestment thatunlock otherwiselatent demandSource talentwherever it may existgeographically, aswell as from sectorsof the populationthat may have beenoverlookedpreviously, such aswomen and ruralworkforcesIdentify emergingcenters of excellencein differenttechnologies,products andprocesses aroundthe worldBuild resource inputsecurity via termcontracts, upstreamacquisitions andinvestment indiversifiedgeographical sourcesImprove access tocapital and diversifyrisk by updatingknowledge,relationships andfinancing models toreflect the new mapof global investmentflowsIdentify critical localdifferences inconsumerpreferences andusage and, inresponse, tailorproducts andservices to newconsumer segmentsBeauthenticallylocalCreategeographicoptionsResourcesustainabilityCapitalInnovationNew consumers TalentDevelop and moldlocal talent for todayand tomorrow byinvesting across theskills spectrumEmbed innovationactivities into thelocal research anddevelopment andconsumerenvironment, workingin tandem withindustry peers andpolicymakersOptimize resourcesstrategy underdiffering economic,cultural andregulatoryconstraints acrossmarkets and harnessincentive regimes,such as carbontrading, for currentand new businessBe willing to drawon a broad suite ofinvestment modelstailored to thecharacteristics ofdifferent marketsNetwork theorganizationCreate structured channels to allow rapid diffusion of ideas and know-how across geographic regionsBuild a global backbone of standardized data, systems and processesEnsure multi-polar leadership to cultivate a global mindset from the top downindustries, drawn from 53 developedand emerging markets. We askedquestions about their current andrecent interventions in each of thefive battlegrounds of the multi-polarworld. In this report, we focused onidentifying differences between highand low performers. (See page 9 formore information about the survey.)Strategies for achievinghigh performance in amulti-polar worldThis report sets out our findings in theform of a playbook—of emerging bestpractices and leading managementideas—for doing business in a multi-polar world. Crucially, our surveyfound strong evidence that high-performance businesses, as distinctfrom their low-performance peers,do globalization differently. Wefound that in each dimension of themulti-polar world, whether scoutingfor new ideas or tailoring existingproducts to reach new consumers,high performers recognize andact on a number of imperativescentral to their success. Across allbattlegrounds, high-performancebusinesses follow a balanced strategyguided by three central maxims:Create geographic optionsHigh-performance businessesproactively and continually explorenew geographic sources of value.They constantly look outward, sensingtheir business environment (and thatof their value chain partners) andmaking focused choices about whereto compete and whom to engage.Be authentically localAs tastes, customs, regulations andpolitical environments differ widely,high performers embed themselveswith full commitment in theirchosen local and regional marketsas they execute their strategy.Network the organizationHigh performers improve the flow ofideas, people and capital across thebusiness by creating organizationswith permeable internal andexternal boundaries. Technologywill play an increasingly importantrole in creating and sustainingthe networked organization.Generally, as companies learnto embrace new informationtechnology—such as cloud computing,collaborative media, smartphonesand comprehensive, cross-businessdata analysis—they will find new,quicker and cheaper ways ofcompeting in the five dimensionsof the multi-polar world andnetworking their organization.8
  9. 9. Survey and researchmethodologyThis report draws on two majorresearch components. First,Accenture undertook extensivesecondary research into the globalstrategies and operations of morethan 100 companies betweenMarch and November 2008.Second, Accenture conducted aquantitative survey to discoverhow companies are shaping theirstrategies in response to the latesttrends in economic globalization.The fieldwork was carried out via anonline worldwide survey, conductedbetween August and October 2008.The survey contained extensivequestions on a wide variety of topics,including growth, investments,innovation and talent management.Survey participants included asample of companies analyzedin Accenture’s High PerformanceBusiness research, as well as a largenumber of additional companies.The survey was completed by 375companies, including 45 high-performance and 35 low-performancebusinesses. (See below, and page 33,for more information on underlyingdefinitions and methodology.)All respondents held a positionof influence with regard to theircompanies’ strategy and operationsin different parts of the world. Mostcompanies cited a home market(or main market) in Asia-Pacific(29 percent), Western Europe (28percent) or North America (26percent). The other companies camefrom Eastern Europe, Latin America,the Middle East and Africa. Over80 percent of companies operatedin multiple countries. The surveysample included companies with awide range of annual revenues, fromless than US$500 million to morethan US$10 billion. Responses weredistributed across a broad rangeof industries including financialservices, communications and high-tech, resources, consumer goods, andprofessional and business services.The survey results can be accessedonline at is ahigh-performancebusiness?Accenture defines high-performancebusinesses as those that:• Effectively balance currentneeds and future opportunities;• Consistently outperform peers inrevenue growth, profitability andtotal return to shareholders; and• Sustain their superiority acrosstime, business cycles, industrydisruptions and changes in leadership.For full details of Accenture’s HighPerformance Business methodology,which we apply to publicly listedcompanies, see page 33. Futuredevelopments of the methodologywill encompass enterprises from awider range of ownership models,including the non-publicly-listedenterprises that are commonlyfound in emerging markets.In October 2008, a snapshot ofour ongoing High PerformanceBusiness research revealed 12percent of the 963 companiesanalyzed were high performers.At the other end of the performancescale sit “low-performance businesses.”Eleven percent of the 963 companiesanalyzed were low performers.Most executives aspire to highperformance, yet relatively fewcompanies actually meet Accenture’sdefinition. Accenture’s HighPerformance Business researchprogram—now in its sixth year—hasbeen recognized by HarvardBusiness Review as one of the 10most notable initiatives in the fieldduring the past quarter century.8Grounded in extensive analysis,the initiative aims to identify thecharacteristics and capabilities ofhigh-performance businesses so thatAccenture can help organizationsattain and maintain that status usingintegrated and aligned offerings.9
  10. 10. Creating geographic optionsHigh-performance businessesproactively and continually explorenew geographic sources of value. Thisis particularly important in times ofeconomic turbulence, in which lower-cost opportunities around the worldbecome increasingly attractive. Highperformers constantly look outward,sensing their business environment(and that of their value chain partners)and making focused choices aboutwhere to compete and whom toengage. They recognize that no twomarkets are the same and that theymay need to go to multiple marketsto find what they need, be it talent,capital or raw materials.Accenture research shows that high-performance businesses draw on a richarsenal of best practices to find andgive shape to new sources of value—whether by unlocking growth, cuttingcosts or controlling risks—in chosendimensions of the multi-polar world.10
  11. 11. New consumersBridging to customersacross the globeEighty-six percent of companieswe surveyed reported that they arelooking to boost sales beyond theirhome markets. Rapid growth anddevelopment, particularly in emergingmarkets, make an attractive propositionfor companies seeking revenuegrowth in the future. A well-managedportfolio of developed and emergingmarkets also will help counteractthe shorter-term challenges posedby slowdowns in some economies.But companies struggle to accessthese new customers in overseasmarkets. Respondents told us thatamong the challenges they facein reaching new consumers areinadequate distribution networks,inadequate infrastructure and weakmarketing channels. In the face of theseobstacles, how do high-performancebusinesses reach new customers?First, they tap base-of-the-pyramiddemand. Nokia, working with theGrameen Foundation and Siemens,created the “Village Phone” programto provide mobile access to remotevillages in Uganda and Rwanda.9The program, which can reduce thecost of owning a mobile phone toUS$3 per month, involves a localentrepreneur who acquires subscribers,an operator who offers services and amicrofinancier who procures a networkaccess point that supports 70 Nokiahandsets. (See case study on page 14.)Second, they build infrastructure toovercome the effects of geographicdistance—bringing markets closer.One-third of the high-performancebusinesses we surveyed do this to asignificant or great extent, comparedwith 22 percent of low-performancebusinesses. América Móvil deployedwireless technology in Latin Americato reach out to clients who previouslylacked wireless coverage, investingheavily in customers, coverage,capacity and technology. As a result,wireless penetration in Argentina hasreached 100 percent, from a baseof 19 percent when the companyentered the country in 2003.10Third, they use apparently unorthodoxdistribution and marketing channelsto reach previously under-servedcustomer groups. Norwegian media firmSchibsted uses market developmentsand its specialist expertise to capturepositions in its more peripheral marketssuch as Italy, Austria, Singapore andRussia.11Despite the dominance oftelevision advertising in Russia—one ofthe world’s fastest-growing advertisingmarkets—Schibsted’s efficientlydistributed free newspaper, Moi Rayon,has created a new market, becomingSt. Petersburg’s most-read newspaper.12And in a move away from its traditionalWeb-based retail model, Dell nowalso uses physical stores to sell anddistribute its products in countries withcomparatively low Internet usage.13Business imperativeReach under-servedcustomersReach out to potential customersin overseas markets with newbusiness models, channels andinfrastructure investment thatunlock otherwise latent demand.TalentFinding the right peoplearound the worldBusinesses seek strategies thataddress long-term talent shortageswhile providing flexibility to managethe effects of the economic cyclein the short term. Economic, socialand demographic trends, especiallyin emerging markets, provideopportunities to harness new pools oftalent now and for the future. High-performance businesses realize thisand already are active in discoveringtalent. Forty-four percent of high-performance businesses in our surveytold us that accessing new talent poolsdrives their investments in foreignmarkets to a significant or greatextent, compared with just 20 percentof low-performance businesses.As a result, high performershave workforces that are moregeographically widespread thantheir low-performance counterparts.More than three-quarters of highperformers have workforces locatedin more than one country, comparedwith less than half of low performers.Fifty-one percent of high performers(versus 34 percent of low performers)are more likely to seek to expand theirworkforce in foreign markets, bothby increasing the number of marketswhere they recruit and by expandingin markets where they already recruit.How do high performers find the talentthey need in a multi-polar world?Although both high-performanceand low-performance businesses useinternational external recruiters as partof their talent management strategy,our survey found that high performersdraw on a wider range of recruitmenttools (Figure 1). High performers aimto access the best people by tappinginto under-represented talent poolsand reaching diaspora populations.Three out of four high performerstarget under-represented talent pools,such as women and rural populations,compared with two out of four lowperformers. Avon, one of the firstdirect-selling firms to be granted alicense by the Chinese government,successfully targeted women whenrecruiting more than 560,000 activerepresentatives in China in 2007.14This move caused its revenues in thecountry to surge by 32 percent in justone year.15More than three-quartersof high performers also recruit fromnational diasporas, compared with lessthan two-thirds of low performers.All high-performance businesses wesurveyed also build links with localuniversities and research institutes assources of interns and new recruits,compared with 59 percent of low-performance businesses. The highperformers are also more likely thanlow performers to use innovative,non-conventional recruitingmethods, such as competitionsand word-of-mouth strategies.High performers are even alert to thepossibilities offered by talent poolsbeyond their immediate operationalboundaries. Fifty-seven percent of highperformers reported that they activelyrecruit from markets where they haveno operations or sales, comparedwith 39 percent of low performers.Business imperativeDiscover emergent talentSource talent wherever it mayexist—geographically as well asfrom sectors of the populationthat may have been overlookedpreviously, such as womenand rural workforces.11
  12. 12. 0102030405060708090100%High performers Low performersUse internationalexternal recruitersBuild links with localuniversities andresearch institutesTarget under-represented talentpoolsUse non-conventionalrecruitingchannels/networksRecruit fromnational diasporasRecruit from wherebusiness has nooperations or salesInnovationScouting the worldfor the best ideasAs hubs of innovation spring up in newand unexpected locations, whetherorganically or assisted by the policies ofspecific cities or regions, companies canfind it difficult to keep up and addressthe opportunities that this shiftingpattern presents. Innovation occursincreasingly beyond the boundariesof the enterprise, making it necessaryto look for new product, service andbusiness-model ideas in emergingand developed markets alike. A goodexternal radar for innovation is critical.High performers are more likely topursue geographically distributedinnovation. Our survey found that 58percent of high performers sourceinnovation from more than one country,compared with 34 percent of lowperformers. Moreover, nearly threetimes as many high performers look toexpand innovation in foreign marketswhere they already source it than dolow performers. High-performancebusinesses told us that the three mainadvantages of expanding research anddevelopment (R&D) in foreign marketsare the availability of leading-edgeexpertise and specialized knowledge,the presence of R&D clusters andcenters of excellence, and lower costs.High-performance businesses look farand wide for innovation in a varietyof ways. Nokia taps outside talentvia “Forum Nokia,” a portal availablein English, Chinese and Japanese, togive developers from around the worldaccess to resources to help themdesign, test, certify, market and selltheir own applications, content, servicesor websites to mobile users via Nokiadevices.16(See case study on page 14.)Venture capital funds are anotherincreasingly popular way to discoverinnovation. ArcelorMittal launchedtwo venture capital funds in July 2008to find solutions for environmentalchallenges.17The first fund aims tosupport the commercialization ofclean-energy technologies, while thesecond fund manages €100 millionwith the goal of engaging in the carbonmarket and promoting climate-friendlysolutions for the steel industry.High performers also listen tolocal customers as a key source ofideas for products, services andbusiness models. In fact, they aremore than twice as likely as lowperformers (39 percent versus 16percent) to seek input for innovationprocesses from local customersto a significant or great extent.Recognizing the importance ofintellectual property rights to thecommercialization process, highperformers invest time in researchingand navigating intellectual propertylaws in foreign markets. Half of thehigh performers we surveyed reportedthat they do this to a significant orgreat extent, compared with onlyabout one-third of low performers.Business imperativeScout nascent innovation hubsIdentify emerging centersof excellence in differenttechnologies, products andprocesses around the world.Figure 1. High-performance businesses reach out to new talent pools in a variety of waysWhich of the following steps is your company taking in foreign markets where it aims to expand its workforce?12
  13. 13. Resource sustainabilityEnsuring access toessential inputsEconomic, geopolitical and regulatoryfactors cause unpredictable swingsin the supply, demand and prices ofkey commodities. Since 2002, theprices of primary commodities hadbeen soaring, driven by the relativelystrong and stable performance ofthe world economy. But the currenteconomic downturn is causing adownswing in commodity prices.Falling commodity prices reduce costsfor commodity users in the shortterm but, paradoxically, may leadto higher prices in the future due toreduced investment in productionand exploration today. The prospectof continued scarcity and volatility inresources markets impels businessesto secure their supplies even as pricesare falling. The high-performancebusinesses we surveyed told ustheir greatest resources challengesover the next three years will behigher input costs, greater costvolatility and threat of supplydisruption, along with a changingregulatory and policy environment.High-performance businesses sourceinputs globally to mitigate risksand remain cost-efficient. Forty-four percent diversify geographicsources of inputs to a significantor great extent, compared with28 percent of low-performancebusinesses (Figure 2). US-basedDanaher purchases raw materials—including steel, copper, cast iron,electronic components, aluminum,plastics and other petroleum-basedproducts—from a large numberof independent sources aroundthe world.18South Africa’s AngloPlatinum searches for new sourcesof raw material around existingoperations in the country’s BushveldComplex, where new explorationpermits were granted.19However,after encouraging exploration results,the company also began drillingin Danba in southern China and inMurmansk Oblast in western Russia.20Spanish utility Iberdrola importsliquefied natural gas from sevencountries—Nigeria, Algeria, Egypt,Qatar, Trinidad and Tobago, Libyaand Norway—to ensure a diversifiedand flexible supply of natural gas.21(See case study on page 15.)In addition to diversifying sourcesof inputs, high performers finddifferent varieties of inputs. Forty-four percent search for new typesof raw materials and inputs to asignificant or great extent, comparedwith just 22 percent of their low-performance counterparts. Oneexample is Brazil’s Vale, the world’ssecond-largest metals and miningcompany, which has taken steps tocreate its own energy supplies toprotect against instability of inputprices and to guarantee continuoussupply. Vale is a shareholder in eighthydroelectric stations in Brazil andalso has hydroelectric facilities inCanada and Indonesia.22In seekinglow-carbon energy sources, Valehas signed a memorandum ofunderstanding to explore for naturalgas in Mozambique in partnershipwith Brazil’s national oil company,Diversifyinggeographicsources of inputsSearching for newtypes of rawmaterials/inputsHigh performers Low performers01020304050%Figure 2. High performers are active in securing natural resource suppliesIs your company taking the following steps to a significant or great extent withregard to natural resources?13
  14. 14. NokiaWhoThe world’s number one manufacturerof mobile devices, based in Finland.Nokia had an estimated 38 percentshare of the global mobile devicemarket in 2007.23DifferentiatorNokia instigated a major strategicchange in 1992 to generate a hugesales increase outside Europe.24By 2006, Nokia had sold more than1 billion mobile phones around theworld.25Today Nokia is a marketleader in emerging markets. Halfof its top 10 markets by sales areemerging markets: China, India,Russia, Indonesia and Brazil.26Multi-polar focus• Access new ideas through venturecapital and open innovation• Hire locally to understandemerging-market needs• Tailor products to all price points• Embed sustainability acrossoperationsScout globally for new ideasNokia has a dedicated unit to identifybreakthrough ideas but also usesa venture capital group to accessinnovation.27Nokia Growth Partners,with offices in China, Finland, Indiaand the United States, managesUS$350 million for direct investmentsand fund-of-fund investments in otherventure capital players, primarily inthe United States, Europe and Asia.28One recent fund investment was inMadhouse, which is China’s leadingmobile advertisement network.29Tap into international researchand source new ideas and talentthrough open innovationNokia’s open innovation modeltaps two sources of expertise.First, the company partners withleading international universities.Nokia’s Research Center in theUnited Kingdom, for example, workswith the University of Cambridge,developing nanotechnologies formobile communication and ambientintelligence.30Second, Nokia makesabundant use of the Internet tosource new ideas and talent. Companywikis post the progress of currentprojects.31A “beta labs” website playshost to hundreds of thousands oftesters who provide feedback on newand potential applications.32“ForumNokia,” a portal available in English,Chinese and Japanese, gives outsidedevelopers access to resources to helpthem design, test, certify, market andsell their own applications, content,services or websites to mobile users viaNokia devices.33Understand markets throughlocal hiresNokia taps into local talent in selectedmarkets to help the company bettertailor its products and services. Nokia’sresearch center in Beijing was set upto take advantage of China’s fast-growing economy, the world’s largestmobile phone market, the country’sdynamism and the region’s top-leveluniversities.34Nokia also has a researchteam in Bangalore that focuses onemerging-market services, particularlyfor urban and rural India.35The groupstudies mobile banking and the needsof base-of-the-pyramid communities,among other topics. Nokia mostly hireslocal people in Bangalore and uses thewhole of India as a stage for researchwhile collaborating with MIT’s MediaLab and Bangalore’s Srishti School ofArt, Design and Technology. Beyondtraditional R&D skill sets, Nokia usesdesigners, economists, engineers andsocial scientists on the ground to gaininsights into low-income consumers.Create tailored products andservicesIn China, Nokia has introduced low-priced mobile phones to tap intoless-wealthy markets in small citiesand rural areas while introducing high-end mobile phones to woo corporateusers.36Nokia also creates tailoredservices. The Mobiledu service in Chinateaches English and offers more than6,000 courses accessible anywhere topeople on the move who don’t need tocarry books or other materials—idealfor a market where demand exists forjust-in-time learning.37The servicehad 300,000 users during its first sixmonths. Innovations like these havehelped the company become thenumber one brand in Asia.38Reach out to new customergroupsNokia Research Africa’smultidisciplinary team works withnon-governmental organizations anduniversities in Kenya, South Africaand Uganda to better understandthe needs of African mobile phoneusers.39Nokia also works with theGrameen Foundation and Siemensto provide mobile access to remotevillage communities. The “VillagePhone” program, operating inUganda and Rwanda, involves a localentrepreneur who acquires subscribers,an operator who offers services, and amicrofinancier who procures a networkaccess point that supports 70 Nokiahandsets.40The program can reducethe cost of owning a mobile phone toapproximately US$3 per month.Influence value chain partners tobe sustainableNokia aims to influence a number ofstakeholders to conserve resources.Its sustainability research programworks with research institutes such asthe Center for Corporate Citizenshipat Boston College and the HaasCenter for Responsible Business atthe University of Berkeley, as well asindustry bodies, including the WorldBusiness Council for SustainableDevelopment and StEP (Solving theE-waste Problem).41Since January2008, Nokia has worked with theWWF (formerly known as the WorldWildlife Fund) and with businesses toshow leadership in addressing climatechange through its membershipof the “Climate Savers” program.42Nokia also has “greened” its supplychain, insisting that all suppliersmeet international environmentalmanagement standards.43In addition,Nokia provides environmentalcontent to encourage customers toact responsibly green. One program,featuring films on sustainability fromthe Cannes Film Festival, attracted240,000 young filmmakers in its firstthree months to make films usingone of Nokia’s phones.44Some phonesare even equipped to find the closestrecycling service point.14
  15. 15. IberdrolaWhoSpanish utility that aims to becomea global leader in renewable energy.It is now the world’s fourth-largest utility in terms of marketcapitalization, up from its ranking as19th in 2001.45Recent acquisitionscentral to the company’s growthhave included ScottishPower andEnergy East in the United States.46,47DifferentiatorIberdrola has shifted its focusfrom conventional generation torenewables, a position the companyaims to strengthen while continuing toinvest in clean-generation technology.Current investment plans emphasizeorganic growth, with nearly 50 percentin renewables and 65 percent ofthe rest occurring outside Spain.48Multi-polar focus• Expand energy sources• Consolidate position infour core markets• Access new sources of innovationDiversify its generation base—and thereby its customers’power sources—with a specificfocus on renewablesBy 2007, Iberdrola produced 31percent of its power from combined-cycle plants, 23 percent fromhydroelectric plants, 18 percent fromrenewable energy, 18 percent fromthermal coal-fired and fuel oil/gasplants, 8 percent from nuclear powerand 2 percent from combined heatand power plants.49Liquefied naturalgas imports from seven countries onthree continents ensure a diversifiedand flexible supply of natural gas.50Iberdrola’s main strategic focus is itsRenovables (renewables) subsidiary,which is active in more than 20countries and is on a path to morethan double its capacity by 2012.51Renovables builds and operatespower plants and markets the powerthey produce. This helps ensure that42 percent of the company’s totalenergy production is currently freeof carbon dioxide (CO2) and insulatedfrom the supply concerns and pricevolatility of fossil fuel markets.52Reinforce its position incore strategic marketsThe company’s strategic plan for2008-2010 is multi-polar at its core,aiming to consolidate Iberdrola’sposition in the company’s four mainregional markets: Iberia (Spain andPortugal), the United Kingdom, theUnited States and Latin America.53Three main strategic guidelinessupport achieving this objective: adrive to improve operational efficiencyand to reduce the environmentalfootprint of the different coreenergy businesses; a continuouseffort to increase the quality ofsupply and performance of networkactivities to improve the reliabilityof transmission and distributionassets; and a more customer-centricapproach in retail activities toimprove service levels as liberalizationincreases in the Iberian market andthe competitive environment in theUnited Kingdom gets tougher.Boost its access to innovationinside and outside the companyInnovation initiatives at Iberdrolaare aligned with the key principlesof the company’s strategic plan,aiming to improve the operatingand environmental efficiency ofenergy operations. The companyis a leader is a number of areas,including smart grids, as evidencedby its work on the CRISALIDA project(Convergence of Smart and Safe Gridsin Electric Applications Innovating inEnvironmental Design); broadbandcommunications through electricgrids, an area where Iberdrola isworking to create the technologystandard; and protection and controlat electrical substations, for whichIberdrola’s engineering subsidiaryin Mexico was awarded a 2007technology and innovation prizefrom the country’s Federal ElectricityCommission.54Iberdrola looks toshare and promote its ideas with anumber of technological collaborators,including manufacturers, universitiesand technology centers. In 2007,the company set up its own forumexplicitly for that purpose.55Inaddition, Renovables has establishedan equity investment company,Iberdrola Perseo, with an annualbudget of €6 million.56It will supportrenewable energy projects with ahigh technology value, such as newfuel sources and CO2 capture, helpingIberdrola gain access to the latestrenewable energy technology.15
  16. 16. Petrobras.57In addition, Vale hasexpanded its use of biodiesel, becomingone of the world’s largest consumersof the fuel, which is used to powertrains and trucks.58These sources ofenergy secure a valuable input forthe company and also diversify itsrevenue structure, because surpluspower is sold to nearby customers.To secure reliable supply, high-performance businesses also undertakeupstream acquisitions and use termcontracts. Frontier, an Americanairline, makes arrangements withmajor fuel suppliers for substantialportions of its fuel requirements.59In light of rising coal prices, AnhuiConch, a Chinese cement maker,cooperates strategically with large coalenterprises to widen its coal supplychannels and safeguard supply.60French luxury retailer Hermès hasdeveloped long-term relationshipswith its partners and suppliers toprotect sources of supply as well ascritical know-how.61In some casesit will buy into carefully selectedcompanies to ensure the stability ofthese relationships. Hermès acquiredstakes in watch-movement makerVaucher Manufacture Fleurier in2006 and 2007 and in specialized rawmaterials supplier Soficuir in 2007.62Business imperativeSecure critical inputsBuild resource input securityvia term contracts, upstreamacquisitions and investment indiversified geographical sourcesto minimize supply disruptionsand cost fluctuations.CapitalFollowing the moneyFew phenomena better exemplify therise of the multi-polar world thanthe accumulation of new and deeppools of investment capital in high-saving economies in Asia and theMiddle East. Flush with petrodollarsand export earnings, these economiesplay host to a new breed of sovereignand private investors who willincreasingly shape the direction oflong-term capital movements.At the same time, companies see theirtraditional debt and equity financingmodels under strain in the wake of thefinancial turbulence that has besetglobal capital markets since 2007.Looking to emerging markets is anatural component of many companies’response. Indeed, emerging-marketmultinationals may find themselvesin better stead as a result of theirproximity to new pools of capital aswell as historical ties. While many arelisted on developed-market exchanges,companies based in emerging marketsoften look to other sources, suchas family members or local stockmarkets, as well as to sovereign wealthfunds and other state-run bodies.Mapping the new landscapeof investment capital, buildingappropriate investor relationscapacity, understanding differencesin accounting standards and adaptingfinancing models are all first stepsbeing taken by companies assessingthe short- and long-term opportunitiesthat the globalization of capital canoffer (Figure 3). Above all, being alertHigh performers Low performersAchieving a lowercost of capitalDiversifying risk byraising capital inmultiple currenciesand economiesAccessingfinancial productsand servicesunavailabledomesticallyCreating businessopportunities fromrelationships establishedwith foreign investors/stakeholders/governmentsGaining ready accessto local capital intarget marketsBuilding credibilityand prestige inforeign markets toaid other businessgoals%01020304050Figure 3. High performers diversify risk by raising capital from abroadWhat do you think are the main advantages to your company of raising new/more finance from foreign markets?16
  17. 17. and open to the possibilities presentedby more dispersed capital sources willcreate options to alleviate short-termpressures and drive long-term growth.In 2006, Indian builder Larsen &Toubro (L&T) secured the longesttenured external commercialborrowing in Indian history, despite adramatic slowdown in infrastructurelending.63L&T’s deal set Indianrecords for both its length of lendingterm and the degree of leverage,indicating the company’s heightenedstanding in the global debt market.Half the funding was internationallysourced from the Abu DhabiCommercial Bank. The transactionwas so notable that it won theprestigious Euromoney Project Finance“Transport Deal of the Year” award.Foreign listings will continue to be animportant source of investment capitalfor companies seeking to expand. LANAirlines was the first Chilean companyto be listed on the New York StockExchange and certified by the USSecurities and Exchange Commissionunder the Sarbanes-Oxley Act.64(Seecase study on page 19.) Wherever theyare listed, high-performance businessesrealize the importance of maintaininggood reputations and strong investorrelations around the world.Business imperativeBroaden geographicsources of capitalImprove access to capital anddiversify risk by updatingknowledge, relationships andfinancing models to reflect the newmap of global investment flows.Technology will facilitate anumber of these strategiesInformation technology will bea significant tool for companieslooking to expand into new markets.As companies become even moreInternet-oriented, they will drawon cloud computing, which enablestechnical capabilities—hardware,software and storage—to be sourcedthrough the Internet across companyfirewalls and national boundaries. Nolonger will they be limited by theirinternal and usually fixed technicaland business capabilities, whether theyare hardware, software or businessprocesses. Additional computingcapacity can be added as needed;business processes can be shared andintegrated with business partners;entry into emerging markets—oftenwith unpredictable demands—can beaccomplished more quickly withoutlong lead times or large fixed costs;local and regional partners canbe accommodated; and businesscontinuity can be enhanced ascompanies’ IT environments becomeinsulated against local shocks.17
  18. 18. ArcelorMittalWhoLuxembourg-headquartered steelcompany created in 2006 from themerger of Luxembourg’s Arcelor andIndia’s Mittal Steel.DifferentiatorThe world’s largest steel company,ranked 39th on the 2008 FortuneGlobal 500 and 17th in terms ofrevenue growth.65Multi-polar focus• Invest in emerging markets• Secure resources• Partner for innovationSource capital from multiplelocations …ArcelorMittal is listed on nine differentstock exchanges and issues bonds inboth US dollars and euros.66,67… to make strategic investmentsthat strengthen its globalbusinessesThe company now has an industrialpresence in 20 countries.68In 2007alone, ArcelorMittal conductednearly three dozen acquisitions.Those in emerging markets includedMexico’s Sicartsa, China’s RongchengChengshan Steelcord and Estonia’sGalvex OÜ.69The company alsoacquired minority stakes in ChinaOriental Group and Argentina’sAcindar. Greenfield projects focuson India, but also extend to Africa,Southeast Asia, Russia and the MiddleEast.70Secure supply and demandOther strategic transactions areconducted to reinforce the company’sstrength upstream and downstream.ArcelorMittal has acquired businessesupstream to secure access to rawmaterial inputs around the world.The company bought coal mines inRussia, a majority stake in Germangas distributor Saar Ferngas, and aminority equity stake in General Moly,a US mineral development and miningcompany.71ArcelorMittal acquireddownstream businesses to strengthendistribution channels and access toworldwide markets. To reinforce itsposition in the automotive productsand energy sectors, the companyacquired two French businessesas well as Venezuela’s Unicon.72In the stainless steel market, thecompany acquired Uruguay’s Cinterand announced the purchase ofoutstanding shares in ArcelorMittalInox Brasil.73It also acquired steeldistributors in Europe, Turkey andArgentina.74Deploy venture capital to findthe best “green” innovation in itssectorArcelorMittal launched two venturecapital funds in July 2008 tofind solutions for environmentalchallenges.75The first fund aims tosupport the commercialization ofclean-energy technologies. Its firstinvestment, of US$20 million, was inMiasole, a US company that producessolar products. The second fundmanages €100 million with the goalof engaging in the carbon market andpromoting climate-friendly solutionsfor the steel industry.Embed itself in the innovationneeds of its internationalcustomersThe company has 14 research centersin Europe and the Americas.76It alsohas developed a large partnershipnetwork, including universities, majorcustomers and other industrial players.In its automotive and appliancessegments, ArcelorMittal deploysR&D teams to customers’ plantsto co-engineer innovative productsolutions.77Conserve resources to minimizecost and embed sustainabilityThe company seeks to maximizerecycling and energy efficiency.Its plant in Tubarão, Brazil, is self-sufficient in energy; gas recoverygenerates all its electric power.78The plant also is registered withinthe Clean Development Mechanismintroduced by the Kyoto Protocol andearns Certified Emission Reductioncredits that ArcelorMittal can sellin global carbon markets.79Thecompany’s internal energy-efficiencyteam assessed 22 plants in 2007,identifying potential energy savingsrepresenting 10 percent of prevailingconsumption.80The company alsosupports projects to identify emission-reduction opportunities in the industry.Across its business, ArcelorMittalreduced CO2 emissions by more than20 percent between 1990 and 2007.81It also undertakes water recyclinginitiatives, especially in plants inemerging economies.8218
  19. 19. LAN AirlinesWhoChile-based airline serving 60destinations around the world, withan extensive network within LatinAmerica and flights to North America,Europe and the South Pacific.83DifferentiatorThe company’s new domestic businessmodel, along with a premium long-haul service, helped revenue, passengertraffic and net income grow by morethan 15 percent in 2007.84In thesecond quarter of 2008, revenuesoared by 38.8 percent, outpacingthe airline’s 8.5 percent growth incapacity.85Multi-polar focus• Recruit local talent• Expand customer base• Source capital overseasCreate a future talent supply …Recognizing the need to prime thepump of local, emerging-markettalent, LAN launched “Visit the Base,”a program to acquaint young peoplefrom various South American countrieswith the airline’s operations.86Participants experience the pre-flight process, tour workshops andhangars and later board an aircraft.More than 1,600 students from 30Santiago schools, along with pupilsfrom 11 schools in three provinces inArgentina, took part in the program in2007.… and deliver in-house trainingto develop and retain skilledemployeesTo deal with technical talent shortagesand build skills from within, LANrecently established a corporateacademy to train company workers andleaders. The academy ran more than4,500 courses in 2007.87The airlinealso provides selected employees withfinancial support to pursue post-secondary technical, graduate anddiploma courses. To retain its bestpeople, LAN offers scholarships tothe family members of employees forvocational training courses.Bring air travel to newcustomers in Latin AmericaLAN’s “New Way to Travel” programaims to make short-haul air travelmore accessible and attractive tothe general public.88Its goal is totransform air travel into the mostcommonly used transportationmethod in Chile and to capturemarket share by stimulating andtapping new sources of demand. Bysimplifying airport and on-boardprocesses, offering more non-stopflights and schedule alternatives, anddiscounting fares by up to 35 percent,LAN created demand for air travelamong those who previously used landtransportation. The airline carried morethan 500,000 additional passengers in2007.89This demand-stimulus modelwas piloted in Chile and later rolledout in Peru; passenger traffic grew by24 percent in Chile and 32 percent inPeru.90Use overseas capital markets tofinance operations and cross-border purchasesLAN sought to broaden its accessto global capital via an AmericanDepositary Receipt listing on theNew York Stock Exchange—the firstLatin American airline to do this.91After a decade of successful trading,the company has demonstrated toglobal investors that it is a seriousand prestigious player in the industry,something that served the airline wellwhen it recently sought additionalfunds to expand its fleet.92More than97 percent of the US$320 millionraised was sourced from the UnitedStates—finance that might not havebeen as readily available through adomestic stock issuance.9319
  20. 20. Although searching for value innew markets is a cross-border task,unlocking that value is a localexercise. While the markets fornew consumers, talent, innovation,resource sustainability and capitalare increasingly global, or globallycontestable, economic decisions inall five dimensions of the multi-polar world occur in local markets.Decisions about investment, training,work, consumption, and the use orregulation of resources are cruciallyconditioned by local circumstancesand priorities. Tastes, customs,regulations and political environmentsdiffer widely and often createbarriers to local success (Figure 4).The rise of the multi-polar world isas much a story about harnessingand adapting to local diversity asit is about global harmonization.Being authentically local, then, canhelp companies access and multiplythe value inherent in diverse marketsby putting themselves at the center oflocal business ecosystems. But whatform might this take? This is both aninternal and external challenge forcompanies: on one hand, adaptingstrategy, operations and productsto meet local conditions and tastes,and on the other, working to shapethe broader business environmentin which they operate. Accentureresearch shows that high-performancebusinesses are out in front in bothof these areas. Some seek to drawon historical ties or affinities oflanguage and culture that oftenprovide a natural bridge betweenhome and overseas markets. All drawon a rich playbook of best practicesand innovative tools to weave theiroperations seamlessly into the localbusiness and societal fabric.Being authentically local20
  21. 21. %01020304050InadequatedistributionnetworksInadequateinfrastructureWeak marketingchannelsCultural andlanguage barriersGovernmentregulationsTranslating brandacross differentmarketsTailoringproducts/servicesto culturaldifferencesHigh performers Low performersNew consumersAdapting to culturaldifferencesAfter deciding to enter a market andfinding a route to their customers,companies can still discover thattheir products fail to find a niche,either because of local competition orbecause they do not understand themarket’s distinctive characteristics.High-performance businesses avoidthis fate by identifying and isolatingimportant regional differences andtailoring products and services tochosen consumer segments. Theyoften use deep customer analyticsto increase their understandingof new customer segments. (Seepage 32 for more informationon the future of analytics.)India’s Tata Motors’ customerrelationship management programmakes real-time customer andvehicle data available across morethan 1,000 locations.94In additionto its research and marketingintelligence staff, Avon, a UScosmetics company, employs internaland external statisticians to developproprietary regression analysesusing Avon’s vast product and saleshistory.95US automotive-componentsupplier Johnson Controls usesmarket research to tailor productsto different markets. One of itsstudies across the United States,Germany and the Czech Republicinvestigated women’s preferencesin vehicle interior design.96Lack of available customer data,especially in emerging markets,can make it difficult to identifyconsumer preferences and trends.High-performance businesses getaround these difficulties by hiringand partnering locally to get closerto customers. US-headquarteredconsumer electronics retailer BestBuy partnered with The CarphoneWarehouse, Europe’s leadingmobile phone retailer, in 2006 toserve European consumers with itsGeek Squad services (agents whomake help-desk house calls).97Thecompanies agreed to a joint venturegranting Best Buy a 50 percent shareof European retail stores and otherbusinesses.98This mode of marketentry fits with Best Buy’s carefulexpansion strategy as it enablesthe company to benefit from TheCarphone Warehouse’s understandingof European consumers beforelaunching its own branded stores.High performers also use their marketinsight to tailor products and servicesto meet local tastes and requirements.Local consumption patterns, forexample, are rarely the same. Thereare culturally specific tastes andpreferences, varying income levels,disparate modes of shopping forgoods and services, and uneven retailinfrastructures. Because Chineseconsumers traditionally buy grocerieson a daily basis at “wet” markets andprefer fresh produce, many of Tesco’sstores in China have large, water-filled tanks of live turtles and toads.99This approach of tailoring offerings toaccommodate local shopping habitshas proved so successful that Tesconow operates 60 stores in China.100(See case study on page 26.)Figure 4. Businesses face a variety of challenges when targeting foreign customersWhich of the following challenges is your company facing in foreign markets where it aims to expand its sales?21
  22. 22. In addition, companies need toimprovise around the constraintsimposed by physical isolation andinadequate infrastructure in manymarkets, often by using new businessmodels. Nearly three-quarters ofhigh performers experiment withnew business models to appealto new customers to a moderateor greater extent, compared with59 percent of low performers.In terms of reaching customers,mobile devices will be both a businessopportunity and a business necessity.In the developed world, mobile phoneswill augment personal computers ase-commerce and customer supportchannels. In the emerging world,where there are more than 1 billionnew consumers, mobile devices arelikely to be the sole electronic channelfor most people. Nearly 4 billionpeople—or 60 percent of the world’spopulation—are mobile customers.Over 500 million new customers wereadded in 2008 alone. Seventy-fivepercent of subscribers are located inemerging markets, where the mobilephone is their sole means of electroniccommunication. Nearly all the deviceshave SMS texting capability andan increasing number have somerudimentary Internet connectivity.Norwegian telecommunicationscompany Telenor has brought mobilebanking to migrant workers whomight otherwise have insufficientaccess to regular banking services. Ina partnership with Citibank, Telenor’sDiGiREMIT service allows customersin Malaysia to transfer moneysecurely to Bangladesh, Indonesiaand the Philippines.101Subscribersto Telenor’s TeleDoctor service inPakistan receive easy access toexperienced physicians who providemedical advice and symptom diagnosisin eight languages, eliminating theneed to travel to an appointment.102(See case study on page 27.)Business imperativeRelate and tailor offeringsto new consumersIdentify critical local differencesin consumer preferences andusage and, in response, tailorproducts and services tonew consumer segments.TalentCreating business-readylocal workforces fortoday and tomorrowDeep immersion in local talent poolsis critical but far from easy to achieve.Talent pools can be shallower thanthey first appear, with business-ready skills often in short supply.Knowledge-based work increasinglydemands not only technical proficiencybut also a range of complementarysofter skills, such as managementexperience, organizational abilityand creativity—attributes that can beharder to find in emerging markets.Often this situation is compoundedby the lack of a senior managementcadre with experience suitable for aninternational business. Expatriatescan fill the gap in the short termbut seldom represent a sustainablemodel in terms of cultural insight,business stewardship and cost.High-performance businesses aredistinguished by their ability to ensurethat their workforces are equippedwith the full complement of technicaland managerial skills. Nearly nineout of 10 high performers—comparedwith fewer than six out of 10 lowperformers—establish their ownacademies. These programs canhelp to augment technical skills,build management proficiencies andemphasize less tangible aspects ofperformance, such as teamwork andcreativity. Cisco has ramped up itsGlobal Talent Acceleration program,which now has hubs in India, Jordanand South Africa.103The program aimsto narrow the gap between the supplyand demand of regional networkingtalent by creating next-generationconsulting, engineering and salesexpertise in emerging countries.104The 37-week program offers twotracks: professional, for students withthree to five years’ experience, andassociate, for recent graduates. Allprogram graduates are expected tojoin Cisco as full-time employees.105Wherever possible, high performersfavor the acquisition and retention oflocal talent. In its overseas markets,UK-headquartered Tesco becomespart of the environment in the hostcountry in part by keeping down thenumber of expatriate employees.Despite talent bottlenecks in China,the grocer has managed to fill 80percent of managerial posts with localhires.106(See case study on page 26.)Local leadership in particular helpsbusinesses plant deep roots in localtalent markets. Nearly two-thirdsof high-performance businesseshave local people in charge of localoperations to a significant or greatextent, compared with fewer than halfof their low-performance counterparts.Best Buy prefers to seek out localleaders to fuel its internationalgrowth—rather than transplantingAmericans—because local talentsimply understands the markets andcustomers better. Best Buy even choseto moderate its rate of expansion in2006 because it wanted to take thetime to “develop local talent whereverthe customer meets the brand.”107However, attracting and retainingskilled local talent is often difficult,especially as employees in differentmarkets have different rewardspreferences. In response to thischallenge, all the high-performancebusinesses we surveyed tailorreward packages to local markets,compared with 65 percent oflow-performance businesses.We found that high-performancebusinesses take a long-term view,looking beyond immediate talent needsand acting to build a pipeline of skills.In particular, they work with externalstakeholders, such as governmentsand local communities, to boost skillsdevelopment. Ninety-two percentcollaborate with external stakeholders,such as academic or governmentalorganizations on education and healthinitiatives, compared with 73 percentof low-performance businesses.Telenor has worked with the TechnicalEducation and Vocational TrainingAuthority in Pakistan and two industrypeers to launch the Telecoms Futuresprogram, which develops technicalskills in individuals from deprivedbackgrounds.108(See case study onpage 27.)In a joint initiative with UNESCO andthe World Economic Forum, Ciscohas pioneered an e-learning programto help energize local economies;22
  23. 23. the program now operates inapproximately 165 countries.109Cisco’sacademy in India seeks to improvesocial and economic conditions bydeveloping IT skills in a predominantlyagrarian region, targeting girls, ruraland urban underprivileged childrenand people with special needs.110Business imperativeDevelop local talentDevelop and mold local talent fortoday and tomorrow by investingacross the skills spectrum.InnovationEmbed in local networksEven companies that have successfullyidentified appropriate new hubs ofinnovation often find it difficult totap into the ideas, innovation andexpertise present there, includingopen innovation systems. Moregenerally, companies targetingsales growth in new markets canstruggle to keep their innovationengines fueled with local-marketinsight, preferences and feedback.Understanding this, high performersfocus on establishing innovationactivity in locations close to emergingand future customers. Our surveyshowed that high performers are morelikely than low performers—86 percentversus 63 percent—to locate researchand development facilities near theircustomer bases in new markets (Figure5). With a view to consolidatinggrowing biotech research activitiesand facilitate operational excellence,Monsanto invested in a facility inBangalore in March 1998 to researchbiotech crops with resistance toviruses and tolerance to drought,heat and salinity.111The center testedand gained approval for Bollgard,the only biotech crop sanctioned inIndia. Yields for Bollgard acreageare 64 percent higher than forconventional cotton, according to asurvey of more than 4,000 farmersby the Indian Market ResearchBureau.112The net profit increase forfarmers using Bollgard is Rs 6,727per acre, or more than 118 percent.High-performance businesses benefitfrom innovation clusters in localmarkets by placing themselves at theheart of a wider web of relationshipsamong companies, universities,research institutes and governments.India’s Bharat Heavy Electricalsformed a number of joint ventures,including one with GE to repair andservice GE-designed gas turbines andanother with Siemens to improvethe performance of old fossil-fuelpower plants.113Our survey foundthat high-performance businessesare far more likely than their low-performance counterparts to partnerwith local universities or researchinstitutions (85 percent versus 58percent). For example, Canada’sImperial Oil has an external technologynetwork maintained through linkswith universities, industry andgovernment research alliances.114Sometimes growth by acquisitionis needed to permit effectiveparticipation in local innovationclusters, particularly when accessto specific know-how or technologyis critical. Our survey found thathigh-performance businesses aresignificantly more likely than low-0102030405060708090100%Working withgovernments inshaping intellectualproperty lawsPartnering with localor nationalgovernmentAcquiring foreigncompanies with specificR&D expertise/complementarytechnologyPartnering with localuniversities orresearch institutesLocating R&D centersclose to newcustomer marketsHigh performers Low performersFigure 5. High-performance businesses use a number of methods to embed themselves deeper into local innovation hubsIs your company taking the following steps in foreign markets where it aims to expand R&D/innovation activities?23
  24. 24. performance businesses to buyforeign companies to acquire specificR&D expertise or complementarytechnologies (96 percent versus 63percent). For example, KingspanGroup, Ireland-headquarteredbuilding-products company,acquired Thermomax, a leading-edgeEuropean solar thermal business,to bolster its suite of sustainablebuilding solutions.115(See alsoArcelorMittal case study on page 18and Telenor case study on page 27.)Each market has a distinct innovationecosystem in which regulation andpublic policy are crucial forces.Accordingly, high performersparticipate in dialogues aboutinnovation policy at a local level tobetter anticipate trends and shapethem where possible. In fact, nearlyeight out of 10 high performers teamup with local or national governments,compared with fewer than six out of10 low performers. And more thanthree-quarters of high performerswork with governments to shapeintellectual property laws, comparedwith only one-third of low performers.Business imperativeEmbed in the localinnovation fabricEmbed innovation activities intothe local research and developmentand consumer environment,working in tandem with industrypeers and policymakers.Resource sustainabilityHarnessing local marketsand incentivesAlthough the upstream supply ofenergy and natural resources isswayed by global markets, finalconsumption of resources—bycompanies or individuals—occurs indiffering local markets, each withits own economic, cultural andregulatory backdrop. Similarly, ina world increasingly conscious ofglobal climate change, countriesand regions differ in the way theyregulate, or intend to regulate,greenhouse gas-emitting activities.Companies are beginning torespond by making a businessout of low-carbon activities.High performers know that thisrequires a deep understandingof regulatory, tax and incentiveregimes enabling them to identifythe most attractive opportunitiesin multiple markets—whether toenhance the cost benefits of energyefficiency or decarbonization,to support investment in newand adjacent markets for futurerevenue growth, to diversifyregulatory risk or to maximizeexposure to emerging technology.Iberdrola’s focus on renewables hasallowed the company to explorenew sources of revenue from thegovernment. The company benefitsfrom feed-in tariffs in Spain,“green” certificates in the UnitedKingdom, and tax incentives, “green”certificates and investment subsidiesin the United States.116It also hasregistered its Mexican wind farmand Guatemalan hydropower plantwith the United Nations CleanDevelopment Mechanism, earningCertified Emission Reduction creditsthat can be sold on the globalmarket.117(See case study on page 15.)US chemicals-solution providerPraxair works with the US Departmentof Energy and other companies todevelop high-efficiency oxygen supplysystems for next-generation IGCC(integrated gasification combinedcycle) power plants.118Praxair alsoparticipates in projects in Germany,Spain and the United States thatdemonstrate Praxair’s oxy-coaltechnology and carbon dioxidecapture and processing systems.119High performers in general havebeen quicker than low performersto embrace carbon trading. TheCopenhagen Consensus, a periodicreview of global challenges by leadingeconomists, identified R&D in low-carbon energy technologies as oneof the major solutions to the world’schallenges in 2008.120Over one-thirdof high performers seek to increaserevenues through new markets, suchas carbon trading, to a significantor great extent, compared with 22percent of low performers. US utilityPPL generates electricity but also hasmoved into trading. The companynow actively buys and sells energy inselected competitive wholesale andderegulated retail markets.121Overall,generation and energy marketing andtrading account for more than half ofthe corporation’s annual earnings.122Business imperativeLocalize resourcesustainabilityOptimize resources strategy underdiffering economic, cultural andregulatory constraints acrossmarkets and harness incentiveregimes, such as carbon trading,for current and new business.CapitalAcquiring expertiseand market accessAllocating scarce investment capitalto projects in foreign markets ischallenging. Some markets arevolatile and uncertain. Some haveregulations that hinder certain modesof investment. In others, the mostappropriate mode of investmentmay appear to be incompatiblewith a company’s current operatingmodel. It is no wonder that highperformers recognize that inthis context a proactive, creativeand—above all—open-mindedapproach is indispensable.Acquisitions are a preferred investmentmode in foreign markets for both highand low performers (Figure 6). Yet insome emerging markets, acquisitionsand greenfield entry in certainsectors may be restricted, whetherby local laws and regulations or bythe strength of market incumbents.High-performance businesses respondflexibly, often using joint ventures toenter such markets. Tesco created ajoint venture to establish a presencealongside the restricted Indian retailmarket. Government legislationprotects the millions of family-run“kirana” shops, and domestic retailchains prohibit foreign multiple-brand retailers from selling directlyto customers.123Tesco plans toenter India in 2009 by establishingwholesale cash-and-carry stores tosell directly to domestic retailers,restaurants and caterers.124Storeswill be set up through a partnershipagreement with Trent, the retailarm of Tata, one of India’s largestconglomerates.125Tesco is laying the24
  25. 25. groundwork for a strong presence inthe Indian market on which it cancapitalize should foreign investmentrules be relaxed in the retail sector.126(See case study on page 26.)In addition to helping with accessto foreign markets, joint venturesalso can help companies enter newsectors and gain expertise. Larsen &Toubro recently partnered with GEEnergy in India to focus on the powergeneration market.127GE Energy willprovide products from its power plantmain control system, and L&T willleverage its strengths in engineeringand project execution as well as itsexperience in the Indian market.When companies wish to tap intonew ideas and markets quickly—butinvestment outcomes are lesscertain—a venture-capital approachmight be appropriate. Nokia’sventure capital group, launched in2004, manages US$350 million fordirect investments and fund-of-fundinvestments in other venture capitalplayers. Nokia Growth Partnersaims to support portfolio companieswith their global perspective onthe mobile phone industry and thenecessary strategic guidance, networkand platform to accelerate growthdomestically and internationally.128(See case study on page 14.) Similarly,Iberdrola’s Renovables subsidiaryhas set up an equity investmentcompany, Iberdrola Perseo, with anannual budget of €6 million.129It willsupport renewable energy projectswith a high technology value, suchas new fuel sources and CO2 capture,helping Iberdrola gain access to thelatest renewable energy technology.(See case study on page 15.)Business imperativeBe open to a variety ofinvestment modelsBe willing to draw on a broad suiteof investment models tailored to thecharacteristics of different markets.Figure 6. Acquisitions are the preferred investment strategy in foreign marketsWhich of the following investment modes does your company use in foreign markets?High performers Low performers%01020304050GreenfieldinvestmentAcquisitions Franchising Joint ventures LicensingagreementsOur companydoes not investabroad25
  26. 26. TescoWhoBased in the United Kingdom, Tescois the world’s third-largest grocer,operating more than 3,900 stores in 14countries.130DifferentiatorsMore than 60 percent of Tesco’s salesspace is now located outside theUnited Kingdom.131The company madeits first move abroad in 1994, when itset up in Hungary, followed by Poland,Slovakia and the Czech Republic.132Inaddition to becoming a clear winnerin Eastern Europe, the company is nowthe market leader in Malaysia.133Tescoalso planned to double the numberof Tesco Express stores in Turkey in2008 and more than doubled its onlinegrocery sales in South Korea—itssecond-most profitable market—since2007.134Across Tesco’s new markets,sales grew by 25 percent in 2007, andgrowth remained strong in 2008. Inthe first half of the year, same-storesales in China rose by 14 percent.135In the third quarter, internationalsales were up 28.1 percent at actualexchange rates (and by 14.6 percent atconstant rates).136In the United Kingdom, Tesco’smultiple product ranges—spanningnumerous price points—have allowedthe company to position itself as amajor discounter during challengingeconomic times.Multi-polar focus• Partner with local players inemerging markets• Cater to local shopping preferences• Source talent globally, staff locally• Deploy a global operating model forstandardization efficiencies• Pioneer sustainability initiativesUse joint ventures to enter newmarketsTesco entered the US$270 billion-a-year grocery market in China in2004 through a joint venture withTaiwan’s Hymall, of which it nowowns 90 percent.137Today, Tescooperates 60 stores in China, with 95percent of products sourced withinthe country.138Global reach is key tolocal effectiveness: Tesco believesthat in China it can use the experienceit has gained from operating aroundthe world to localize its food offeringsbetter than its two major rivals.139In India, Tesco partners with Trent(the retail arm of Tata) to establishwholesale cash-and-carry stores forretailers, restaurants and caterersand to expand Trent’s Star Bazaarhypermarkets by sharing know-howand technology.140If current rules thatrestrict foreign ownership of retailoutlets are relaxed in the future, Tescoexpects to be well positioned.Tailor the store experience tolocal preferencesTesco is highly flexible in its retailingformat to respond to differentconsumer norms and tastes. Notingthat grocery shoppers in Japan liketo buy small amounts of fresh foodeach day, Tesco entered the marketnot by opening hypermarkets but byacquiring a discount supermarketoperator.141The company’s stores inThailand seek to replicate the productselection experience of traditionalstreet markets, with less emphasis onthe neatly packaged portions found inmany Western markets.142Tesco sellslive toads and turtles from tanks inChinese stores, catering to consumers’preference for shopping in “wet”markets.143Look locally—and globally—toovercome talent bottlenecks … Recruiting employees of the rightcaliber remains a challenge. Tescoviews overseas growth as “not aboutputting flags down in countries,[but] about the quality of people.”144The company has filled 80 percentof managerial posts in China withpeople hired locally, consistent withits strategy of acclimatizing to eachcountry and keeping down the numberof expatriate employees.145At the sametime, the company has recruited MBA-degree holders from Indian consultingfirms to staff the global functioncharged with deploying Tesco’s newglobal operating model, called TOM,around the world.146… and standardize systems andprocesses across the companyOne of TOM’s benefits is swifter andeasier expansion into new marketsbecause TOM standardizes operations.All stores use the same technologyand processes for billing customers,purchasing goods and managing thestores. Tesco plans to centralize ITapplications under a single networkand voice contract and to standardizeits main finance, human resourcesand sales applications.147Standardreporting functions will allowexecutives to manage a store inMalaysia or Japan just as they would astore in the United Kingdom.148Embed resource sustainability inits operationsTesco has pledged to halve emissionsfrom existing stores and distributioncenters worldwide by 2020 and toreduce the amount of packagingon branded and Tesco’s own-labelproducts by 25 percent by 2010.149Theretailer is also a pioneer in the use ofsustainable and cost-saving materials,experimenting recently with a storeof wooden construction in Slovakia.150Its service center in India—whereit replaced all 2,500 of its compactfluorescent lamps (energy-saving lightbulbs) with LED lighting—has set localstandards for energy conservation ininterior lighting.15126
  27. 27. TelenorWhoNorwegian telecommunications giantproviding mobile services to more than150 million subscribers in 12 marketsacross Europe and Asia, as well asfixed-line and broadcast services in theNordic region.152DifferentiatorTelenor joined forces in 1997with Grameenphone—now thelargest mobile service provider inBangladesh—for its first venturein Asia.153In 2007 alone, Telenor’ssubscriber base in the country grewby more than 50 percent. TelenorPakistan launched its service in 2005and is now the country’s second-largest provider, with 33 percent of themarket.154Multi-polar focus• Deploy capital to acquire emerging-market players• Attract local talent with technicaleducation programs• Tailor innovation and services tocritical lifestyle needs in emergingmarketsMobilize capital to expandinternationallyTelenor’s strategy in emerging marketsis to capture a large subscriber baseearly on so it can enter the industry’sconsolidation phase in a dominantposition.155As a result, it has chosento expand by deploying capital toacquire top-tier players in low-incomebut high-growth markets. Telenornow owns Telenor Pakistan, TelenorSerbia, ProMonte (Montenegro) andPannon (Hungary) and holds partialequity stakes in other companiesincluding DiGi (Malaysia, 51 percent),Grameenphone (Bangladesh, 62percent) and DTAC (Thailand, 65percent).156Expansion continues in thecurrent economic climate. Telenor isentering India—the world’s second-largest mobile phone market—via thepurchase of a controlling stake inUnitech Wireless, a local greenfieldmobile operator with pan-Indiantelecommunications licenses.157Telenorplans to launch its Indian services in2009.Having identified high-growthmarkets, Telenor invests for the longterm. In Ukraine and Hungary, thecompany was looking for subscribergrowth in 1998. By 2004, both marketsgenerated revenues for the companyand, by 2008, they generated profits.158Invest in basic education toexpand future talent poolsTelenor invests locally to offset localshortages of technical skills andexperience. In Pakistan it workedwith the Technical Education andVocational Training Authority andwith Nokia and Siemens to createthe industry’s first industry-academiacollaboration.159Telenor’s employmentqualification—a two-year highernational diploma—is aimed expresslyat making the company accessible topeople from deprived backgrounds.Innovate for the local marketTelenor uses its Malaysia-basedResearch & Innovation Centre AsiaPacific (TRICAP) to improve itsunderstanding of Asian consumers’behaviors and preferences and todevelop new technology and services.160TRICAP considers that the insightsfrom its many consumer interviewsare especially valuable for Telenor asa whole because Asian consumers areoften early adopters of new technology.Reach new consumer groupsTelenor’s offer to consumers ishighly tailored and markedly local.Its TeleDoctor service in Pakistanoffers subscribers easy access toexperienced physicians for remotemedical advice and symptom diagnosisin eight languages.161Customers alsocan indicate whether they wouldprefer to connect to a male or femaledoctor. The company’s BillPay systemin Bangladesh allows natural-gasconsumers to settle their bills usingtheir phones.162Telenor providesfree life insurance in Thailand tosubscribers of a year’s standing.163Andin an evolution of communicationsand banking business models, Telenorteamed with Citibank to allowcustomers in Malaysia to transfermoney securely to Bangladesh,Indonesia and the Philippines via SMStext-message technology, bringingremittance-dependent migrantworkers into the customer base ofboth companies.16427
  28. 28. The ability to scan the evolvingeconomic geography of the multi-polar world and embed businessactivities in local markets areessential hallmarks of the businesseswe studied. But high-performancebusinesses go beyond this: theyactively find ways to scale the benefitsof local success to the organization atlarge. By creating organizations thatare permeable—both internally andexternally—companies enable flowsof people, ideas and best practices.Many companies are still on thejourney to find the right globaloperating model. High performersare taking steps toward a model thatmirrors their multi-polar businessenvironment and enables them toreap the benefits of being bothsuper-global and super-local.Networking the organization28