• 03 Apr 2006
  • What Do You Think?

Has Globalization Reached Its Peak?

A new book argues that globalization has led corporations to outsource too much of their work and, more important, their intellectual capital. What with the increasing fluidity of labor markets, is it all too much for global managers to handle?
by James Heskett

Summing Up

The global corporation and globalization in general are poised to achieve new and different heights, if responses to this month's column are to be believed. As Greg Bownik put it, "for globalization to peak businesses would have to stop communicating, marketing, and selling on a global basis . . . nothing short of dismantling the global economy could reverse the trend." Nari Kannan commented, "Clamping down on globalization by any country or company will ensure its own demise that much quicker."

How will we know when globalization has truly peaked? Mark Opperman suggests that "Globalization will have reached its peak when we have global citizens who can pay their taxes where they please and enjoy the benefits of the government that serves them best no matter their geographic location . . . will it be any different from those of ages past who paid their taxes to Rome?" Sunil Unni echoes this point of view: "Globalization is an ongoing process that can only peak when citizens across the world enjoy its benefits without any barriers whatsoever." Henrique Plöger Abreu approaches the question from another direction in commenting, "If we look at all the regional trade barriers, subvention politics, protective measures, and legal and fiscal barriers that exist worldwide, I think one can assume that globalization is far from having reached its peak."

Elisio Neto proposes an interesting notion that "Globalization comes in waves. We are just seeing the aftereffects of one peak . . . this wave will be different from the one before . . . natural resources will play a strong role, and immigration will be an issue." The next step of globalization, according to Akhil Aggarwal, will involve companies currently performing outsourced tasks sending much of their work abroad, enabling them to "further outsource non-strategic work so as to concentrate on strategic issues that their audiences (the U.S. firms) would be more interested in." Gregory Black describes another aspect of change while sounding a cautionary note: ". . . the elephant in the room is the assumption of the availability and cost of petroleum . . . the economics of globalization will change dramatically in the decades ahead."

Will what is true for the world turn out to be true for individual global corporations? Biju Cherian weighs in with this comment: ". . . there could be a rise and fall in global corporations—a rise of corporations from new economy nations and a fall in corporations in old economy nations." As M. P. Jayaprakash puts it, "Like water finding its own level, globalization will go on until such time that disparity between the haves (U.S., Europe, etc.,) and the have-nots is significantly bridged."

One theme common to several of these comments is that globalization (and the outsourcing it promotes) will turn out to be an equalizing force between have and have-not countries and corporations. This is a far cry from the claims of the protesters at the World Trade Organization summits. Is it possible that globalization will be the catalyst that speeds up a process by which the poor get richer instead of poorer and that this process has just fully gotten under way? What do you think?

Original Article

The global corporation is once again under the microscope. Twenty to thirty years ago the concern was whether global corporations would behave responsibly without adequate international law and regulation to contain their behavior. The fear was that they would become as powerful as, and less responsible than, the countries in which they operated. Now the focus of interest seems to be different, if one believes the author of a book published several months ago, End of the Line: The Rise and Coming Fall of the Global Corporation.

The basic arguments of this book are that globalization has led corporations to outsource too much of their work and, more important, their intellectual capital. This has created a worldwide level of interdependency that increasingly threatens to disrupt supply lines and markets at times of earthquakes, explosions, terrorist acts, and other disasters in one part of the world. Operating a lean organization in a global economy, the argument goes, results in more use of just-in-time inventory management and premium transportation for critical parts and other resources that are increasingly sensitive to such disruptions. Further, U.S. manufacturers in particular face a decline in capability as a result of vigorous outsourcing initiatives.

This seems to come at a time when outsourcing is still on the rise. I was reminded of this again in late March: Several MBA student teams, engaged in putting together business plans for the annual contest among budding entrepreneurs here at HBS, were awaiting the arrival of software being designed in India that would allow them to demonstrate smoothly-functioning Web sites important to their prospective businesses. Getting the software completed in India allowed them to concentrate on strategic issues in which their audiences would be more interested. But Indian software was also much more affordable on the limited budgets available to these student teams.

And End of the Line's arguments come at a time when labor mobility is once again being debated on the North American continent. In this case, it concerns the treatment of illegal immigrants already in the U.S. The fact that they are here and that millions of others have arrived in Europe suggests an increasing tendency for labor to seek global solutions. Whether this is good or bad depends on whether one believes that jobs are lost and wages reduced for U.S. citizens and legal immigrants or whether immigrants of any stripe help lower costs for all kinds of goods and services.

Some would argue that more fluid labor markets, increased outsourcing, and the tendency to locate jobs in low-cost labor markets, wherever they might be, could provide a safeguard against any calamity except perhaps a world war. This assumes that astute global managers outsource primarily non-strategic activities, act responsibly, and maintain positive working relationships on the local operating level, as well as establish multiple sources of supply. Is this a tall order for them to fill? Has globalization reached its peak? What do you think?