Truly Global Company

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strategy+business

ISSUE 64 AUTUMN 2011

How to Be a Truly
Global Company
Many multinational business models are no longer relevant.
Skillful companies can integrate three strategies — customization, competencies, and arbitrage —into a better form of organization.

BY C.K. PRAHALAD AND
HRISHI BHATTACHARY YA

REPRINT 11308

features global perspective

1

How to Be
a Truly Global
Company
by C.K. P r a ha lad a nd H r ish i Bhat t acha r y ya

Photo illustration by Holly Lindem, portrait by Martin Mörck

During the high-growth years between and other emerging markets. The 1 bil1992 and 2007, the globalization of com- lion customers of yesterday’s global busimerce galloped at a faster pace than in any nesses have been joined by 4 billion more. These customers reside in a

other period in history. Now,
much larger geographic area;
amid the chronic unemploythree-quarters of them are new
ment and anti-trade rhetoric of
to the consumer economy, and
the post-financial-crisis world,
they need the infrastructure,
some observers wonder whether
products, and services that only
globalization needs a time-out.
global companies provide.
However, the experience of
multinational companies in the
The problem is not globalizafield suggests the opposite. For tion, but the way our current inthem, globalization isn’t hap- C.K. Prahalad, 1941–2010 stitutions are set up to respond pening rapidly enough. Whereas

to this new demand. The preGDP growth has stalled in the industrial- vailing corporate operating model does not ized world, consumption demand is still work well with the structural changes that expanding in China, India, Russia, Brazil, have taken place in the global economy.

features global perspective

Many multinational business models are no
longer relevant. Skillful companies can integrate
three strategies — customization, competencies,
and arbitrage — into a better form of organization.

2

features management
features global perspective
56
3

Hrishikesh (Hrishi)
Bhattacharyya
hrishibhattacharyya@gmail.com
is a management consultant
and was formerly a senior
vice president at Unilever with
global responsibility for the
health and wellness category.
He has also taught at the
University of Michigan’s Ross
School of Business and at the
London Business School.

Most companies are still organized as they were
when the market was largely concentrated in the triad
of the old industrialized world: the U.S., Europe, and
Japan. These structures lead companies to continue
building their global strategies around the trade-offs
and limits of the past — trade-offs and limits that are
no longer accurate or relevant.
One of the most prevalent and pernicious of these
perceived trade-offs is the one between centrally driven operating models and local responsiveness. In most companies, an implicit assumption is at play: If you
want to gain the full benefits of economies of scale —
and to integrate common values, quality standards, and
brand identity in your company around the world —
then you must centralize your intellectual power and
innovation capability at home. You must bring all your
products and services into line everywhere, and accept
that you can’t fully adapt to the diverse needs and demands of customers in every emerging market. Alternatively (according to this assumption), if you
want locally relevant distribution systems, with rapidly
responding supply chains and the lower costs of emerging-market management, then you must decentralize your company and run it as a loose federation. You must
move responsibilities for branding and product lineups
to the periphery, and accept different trade-offs: more
variable cost structures, fewer economies of scale, more
diverse and incoherent product lines, and more inconsistent standards of quality. Some companies try to use strict cost controls to
manage these trade-offs. They put in place a decentralized...
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