Looking beyond the obvious

Globalization and new opportunities for growth

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Case studies

Click to read how leading global organizations are tackling growth in a globalized world.


  • Clarke Murphy on leadership in a changing world

    Clarke Murphy is the Chief Executive Officer of Russell Reynolds Associates, the executive search and assessment firm, and serves on the Board of Directors. He has over 20 years of experience in the executive recruiting industry and joined Russell Reynolds Associates in 1988.

    EY: How should changing economic times affect leadership styles?

    Clarke Murphy: Different economic times require different types of leadership. At the millennium there was the vision thing and guidance around the role of technology. Then there was the offshoring and outsourcing of manufacturing. Then we had a financial crisis and leadership is all about survival, so you need great operators. Today it’s all about the speed of change and having the flexibility or nimbleness to evolve the business, often with the support and enablement of technology.

    However, you can be a great operator, you can be highly flexible, you can understand a rapidly changing world, but in any market if you can’t communicate well with your employees then you won’t succeed. We’ve seen very successful executives with the first two competencies that didn’t have the third and failed.

    EY: In what ways do emerging markets offer different leadership challenges?

    Clarke Murphy: In rapid-growth markets in particular, you have employees who sense that they have an entrepreneurial opportunity even though they’re working for a multinational. They expect and need some flexibility on pricing and on marketing. I do think the leaders in larger corporations - and even expanding midsize companies - are saying that to have a local market you need to offer some flexibility to work on pricing schemes and other activities.

    We're also going to see a corporate approach to holistic investment in countries of Africa and Latin America, by which I mean their investment is not strictly commercial, supply chain or revenue driven. Instead investment is in the country itself for a long-term sustainable business. You’ve seen that for better or worse with oil companies over the last decade - you did not see this with them earlier. Now we see the same trend in telecommunications, wireless, rare earth elements, many kinds of areas.

    EY: Does this new approach to holistic investment inform your executive search process?

    Clarke Murphy: Yes, our work reflects this holistic approach, in Africa for sure, and we’re seeing it in other countries over time. They need to be committed to stability, infrastructure, education, health, and nutrition, which is as important to the country as it also is to their business. If you look at Ethiopia for instance there are only two paved highways. They are now constructing three and four and who’s doing it? Chinese companies working with the Ethiopian government to create the highways to help the country to, ultimately, help their supply chain.

    The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

  • Gary Pisano on manufacturing and outsourcing

    Gary Pisano is the Harry E. Figgie Professor of Business Administration at the Harvard Business School. He has taught MBA and executive level courses on technology and operations management, operations strategy, competitive strategy, product development, and the management of innovation. His is the co-author of Producing Prosperity: Why America Needs a Manufacturing Renaissance (Harvard Business Review Press, 2012).

    EY: Some commentators are describing what they see as a return of manufacturing to the US - do you see this trend?

    Gary Pisano: Well, I feel that there is a lot of noise in this data over the short-term, but two things are going on. There have been some companies bringing things back from China to the US as anecdotes, but there is not a lot of systematic data on it. I don’t see it as a major sea change. There are still a lot of structural forces at work in the world that create challenges for manufacturing in the US. My view on it is if things have been done in China that are lower skilled or more labor intensive then I’m not sure that is the kind of manufacturing I want to see in the US. The manufacturing that really matters is that most closely tied to innovation. I want to see the US doing the really complex very difficult stuff. The next battles in manufacturing will be fought around nanotechnology, bio-materials and bio-technology, and that is where I’d like to see the US playing a role. It’s not clear to me whether companies are investing enough in those capabilities in the US.

    EY: Do companies who have over many years outsourced more and more manufacturing processes find that they have now lost some of their R&D skills?

    Gary Pisano: Yes, you can win for a while by off-shoring manufacturing because you do get a cost advantage but then companies realize that they have lost the capability that enables them to make the next generation innovations and that's when they start to feel the pain.

    EY: How do you see the link between manufacturing and innovation?

    Gary Pisano: I think that manufacturing is tightly bound up with innovation. There is a widely held view in boardrooms that you can outsource manufacturing without any impact on your competitive advantage, and I think it’s a misinformed view. Product and process are tightly connected and there are many instances where product and process innovation are actually indistinguishable.

    EY: How do you feel about the practice of a global cost minimization strategy in procurement, where companies switch regularly to the lowest-cost option wherever it may be?

    Gary Pisano: A lot of companies have gotten into this arbitrage-based mentality that is very short term. If you scour the globe for the lowest costs, eventually you run out of places in which you can gain an advantage. The change in mentality I’d like to see is companies recognizing that location matters and can be a source of advantage. So by making a commitment to helping a country build particularly capabilities and clusters, and being part of those, companies could actually gain a competitive advantage.

    The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

  • Gavyn Davies on today's major macroeconomic trends

    Gavyn Davies is a macroeconomist who was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004.

    EY: Major emerging markets are seeing their growth rates slow down - do you see this a new normal or do you think stronger growth will return soon?

    Gavyn Davies: Over the course of 2012, there have been reductions in all the GDP projections for the BRICS. And by the standard of these things, they’ve been quite big downward revisions. So the financial markets have been adjusting to slower growth in general but slower growth particularly in the BRICS where there have been downgrades of at least 1% to GDP in 2012. We did see that happening in 2008 but then the downgraded projections didn’t come to pass because of the Chinese policy easing in 2008 and 2009. So really this is the first time for a long time that we’ve seen substantial downgrades to projections in the BRICS. That said, although there is that medium-term slowdown, next year should see a cyclical recovery compared to this year in the major emerging countries.

    EY: What do you make of current growth projections for developed markets?

    Gavyn Davies: For the developed world it is a different pattern. Again, many projections for the medium-term are coming down, so people’s expectations of potential growth rates in the United States are definitely diminishing. The demography in the labor market appears to be becoming more problematic. Productivity growth rates are not very high in many developed countries and so we’re seeing medium-term potential growth forecast dropping. And in the developed countries’ case, there’s not much of a pickup predicted for next year. So in most parts of the developed world the fiscal tightening which is due next year is leading to both some underperformance and somewhat sluggish growth over the medium term.

    EY: Do you think the worst is over for Europe?

    Gavyn Davies: The worst of the short-term acute crisis has come out of the system and that is because of the ECB and what it has done through this year. For example, we can see things like financial stress indicators in Europe have gone back to where they were in the middle of 2011 having tightened dramatically at the end of 2011 and the first half of 2012. So the ECB has definitely managed to dampen the atmosphere of crisis. But there has been no fix for the banking sector in Southern Europe so the deleveraging that we’re seeing in the banking sector is still a very serious threat to Southern Europe. The monetary policy of the ECB is completely fragmented between the north and south with the lending rates still stratospheric in the south and falling sharply in the north, which is perverse and exactly what isn’t needed. So the worst of the financial stress has come out but the underlying economic tensions and worries about growth have not got any better.

    EY: What are your thoughts on the increasing attention paid to growth in Africa?

    Gavyn Davies: Economic growth in Africa is not yet big enough to move the dial very much on the global GDP growth rate but it’s certainly very impressive. And it’s not the plain vanilla places that we all know about like South Africa. It’s right across the center and north of the continent where you’re seeing very rapid rates of GDP growth, much better fiscal and central banking governance and more stable politics, notwithstanding the North African spring issues. So, I’m pretty optimistic about Africa. I think it’s a very interesting place and no global player can afford to ignore it anymore.

    The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

  • Ian Hudson on targeting pockets of growth

    Ian Hudson is President for Europe, Middle East and Africa at DuPont. He has held several other senior positions in DuPont and before that ICI, and is a member of the board of CEFIC (the European Chemical Industry Association).

    EY: How has DuPont's view of developed and developing market opportunities evolved in recent years?

    Ian Hudson: The difference is becoming much more blurred. When you start seeing growth rates that are no longer 10% to 15% but around 3% in places like Russia or Turkey, that is certainly not an explosive developing market any more. These markets also warrant a differentiated approach because we haven't been there as long, we don't have the same maturity of employees there, and therefore we can't treat them as we would a developed market.

    EY: How does DuPont strike the balance between central and local decision-making in these global markets?

    Ian Hudson: The unit that drives the growth is the business unit. At the early stage, the role of the corporate is to choose which emerging markets to enter. So for example we opened an office in Nigeria last year and that was a corporate decision. But, over time, the business unit will take over more so that the corporate role becomes much more about putting the infrastructure in place that allows the businesses to succeed.

    EY: How do you select the right market opportunities for DuPont?

    Ian Hudson: You look at GDP growth, population and the types of industries that these markets have and how does that fit with our own competitive advantages. If you look at Nigeria with 180 million people and Indonesia with 180 million people, Indonesia is probably an easier choice – although Nigeria may have bigger potential in the long term. It's those sorts of calls that we have to make as a company because you can't play in every market.

    In the pre-crisis years, you just put up an office anywhere and hoped that it would bring in business. Today you have to have a laser-like focus on pinpointing pockets of growth, but it's become much more difficult to define growth and ensure that it is profitable.

    EY: How has globalization changed the way DuPont thinks about its supply chain?

    Ian Hudson: You constantly need to be looking at supply chains to optimize them, and ensuring that you can keep your margins is a key part of globalization. If you look at a market like Russia, in the past companies had a central hub in Western Europe from which they distributed products to other countries. As critical mass builds up in Russia, you start thinking 'Why do we need to pass through a central hub in Europe, why not do a direct shipment'? Later you might say, 'Well, why does their shipment need to come from Western Europe or the States, when you have got a land border with China?'.

    EY: What's the secret of staying ahead in such a fast-changing environment?

    Ian Hudson: You constantly have to look over the horizon. There is so much technology and information coming at us that it is difficult to get down to the essence. You have to constantly look at your talent reservoir and bring in smart people because they are the ones that will cut through a lot of the information to give you the winning proposition.

    The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

  • Heathrow: Global decision-making takes off

    Capital structure has moved in line with changes to the global economy and focus on rapid-growth markets.

    Over the past decade, the profile of the passengers passing through UK airports, such as Heathrow, Stansted and Glasgow, has changed. Travelers from rapid-growth regions of the world, including Asia and the Middle East, were once rare visitors, but as economic weight shifts to the South and East, the number of passengers touching down from these regions has increased significantly.

    It is not just the passenger profile that has changed for Heathrow Airport Holdings Limited, formerly BAA, which owns Heathrow Airport. Its capital structure has also moved in line with changes to the global economy and focus on rapid-growth markets.

    In October 2012, CIC International, a subsidiary of China Investment Corporation, China’s main sovereign wealth fund, acquired a 10% holding in Heathrow Limited. This deal followed an investment by Qatar Holding that, if approved by European Union competition authorities, would make it the second-largest shareholder in the company with 20%.

    “As growth has moved to the emerging markets, they have been accumulating trade surpluses year after year, and they have the cash to invest,” says Colin Matthews, CEO of Heathrow Limited. “At the same time, foreign pension funds have been attracted because the long-term returns available in the airport industry match their liabilities.”

    These new investors add to an already international base. Ferrovial, the Spanish building company, owns more than one-third of Heathrow Limited’s shares, following the company’s £10.4 billion acquisition in 2006. Heathrow Limited also has significant investors from Canada, the US and Singapore.

    “Heathrow Limited has a well-diversified investor base with a global geographical focus and a range of strategic and financial perspectives,” says Matthews. “Having a global investor base allows us to raise equity capital at a low cost, reducing our cost of capital. And our international investors’ support has also allowed us to continue developing our airports.”

    International investors also own Heathrow Limited’s debt, with bonds issued in sterling, Swiss francs, Euros, and Canadian and US dollars. “In the current context, companies like ours offer attractive returns to investors who otherwise might have lent money to governments,” says Matthews.

    The Qatari and Chinese investments will mean that representatives from these investors will gain a seat on the airport’s operating board. For Matthews, this heralds a new phase in the company’s globalization, in which its decision-making will also become international. “It’s going to be interesting having a group of investors sitting around the board table who are plugged into a very global set of views on investment and trade,” he says.

  • The National Football League: Scoring with technology

    Social media and online are powerful new ways that the NFL can engage with a growing international fan base.

    The National Football League (NFL) has experienced numerous bumps on the road to globalization. Efforts to make American football a global sport began in the 1970s with occasional exhibition games played in various countries around the world.

    The following decade, the NFL established a European League, but closed it down in 2006, disappointed by its performance. “Ultimately, our European fans wanted to access the best product, and that was the NFL games that were played locally in the US,” says Chris Parsons, the NFL’s Vice President of International Business.

    Since then, the NFL has sought to bring the real product to the fans directly in key markets, by playing regular NFL season games overseas. “We focused on a number of strategic geographies, like the UK, Mexico and Canada, where we felt we could create forward momentum,” says Parsons. “These are markets with good scale, a sizable business opportunity, and a competitive media market with strong demand for good sports content.”

    At the same time, the NFL built up local organizations in these key markets to drive fan interest and engagement throughout the course of the season. “The aim was to create local events, bring on board sponsorship, and work with our licensing partners to create comprehensive marketing strategies that activate fan engagement,” says Parsons.

    “This has been key to succeeding in overseas markets.”

    Perhaps the biggest enabler of all; however, has been technology. In the past, the NFL relied on broadcasting as its primary route to market, but new channels, such as social media and online, have created powerful new ways through which the NFL can distribute its product to a growing international fan base.

    “Technology has allowed us to have much more localized messaging and communications,” says Parsons. “In addition to broadcasting games, we now have multiple digital products that allow our fans to access the NFL, such as subscription products to stream games and websites in local languages.”

  • Tata Power: Energizing the community

    Companies must do more than just deliver a product or service tailored to the needs of the local population in rapid-growth markets.

    To succeed in rapid-growth markets, companies must contribute to society in ways that often go well beyond the scope of making a profit.

    With many of these markets in urgent need of many services, global companies should to work closely with local governments and communities to combine commercial interests with long-term social development. These include:

    • Health care
    • Education
    • Infrastructure

    Tata Power, India’s largest integrated power company, pays close attention to how it can help the communities in the rapid-growth markets where it operates. In recent years, the company has been expanding its geographical reach into four key regions: Africa, the Middle East and Turkey, South Asia, and the ASEAN region.

    “When we are expanding into a new geography, there is one key concern at the top of our mind: not to act like a foreign company,” says Anil Sardana, CEO of Tata Power.

    “We try to behave like a local company by partnering with government and local players and by developing a genuine sustainability program.

    This encompasses corporate social responsibility, biodiversity and engaging with every stakeholder. And all of this goes hand-in-hand with a long-term commitment to the markets.”

    Underlying this strategy is a deeply held belief that companies need to give back to society before they earn the right to expand. “You have to make sure you make a positive impact before you can expect society to share their land or resources,” says Sardana. “Otherwise, you don’t earn the entitlement to stay.”

    A year ago, for example, Tata Power embarked on a 50/50 joint venture with Exxaro, a South African mining group, to develop a portfolio of renewable and non-renewable fossil-fuel based projects. As part of the investment, Tata committed to developing schools and supporting village programs, water projects and other community-related efforts.

    “Working closely with the local government helps develop long-term relationships based on trust,” says Sardana. “People have faith that we have not come to take advantage of them. There is a sense of equality and of being all in it together.

    ” This philosophy is at the heart of Tata and embedded in the company’s governance. Philanthropic trusts endowed by members of the Tata family hold approximately two-thirds of the equity capital of Tata Sons, the parent company of Tata Power.

    “The main goal of these trusts is to invest the dividends back into society,” emphasizes Sardana. “And they have been doing this every year for the past 100 years. It is literally in our DNA.”


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