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Three levels of global competition in the new knowledge economy
The full-fledged metanational corporation does not yet exist. The challenge is to create it ahead of competitors. Some companies already have a head start in the race to build this new type of global advantage. But the challenge of sensing, connecting, and exploiting complex knowledge that is scattered around the world is clearly formidable. To meet this challenge, the winners in the knowledge economy must be able to outdistance their competitors at the three different levels.
The first level of competition is the race to identify and access new and relevant technologies, competencies, and knowledge of lead markets emerging in locations dotted around the world. Where, for example, is the next advance in biotechnology being hatched? Where are consumers experimenting with new uses for mobile phones?
The second level of competition is in the effectiveness and speed with which companies can connect these globally scattered pieces of knowledge and use them to create innovative products, services, and processes. How effectively, for example, can a semiconductor maker marshal technologies scattered around the world to serve a customer need emerging elsewhere, thus creating a radically new "system-on-a-chip?" Which record company is most capable of turning an unknown artist from an obscure location into a global star by fine tuning her repertoire to the tastes of consumers in major international markets?
The third level of global competition is optimizing the efficiency of the global sales, distribution, marketing, and supply chain to leverage these product, service, and process innovations across global markets rapidly and cost-effectively. How efficiently can the record company, for example, gear up to promote, produce, and distribute its innovative album at the right price in the most markets? How efficiently can the semiconductor company adapt, produce, and sell its new chip to customers around the world?
Building metanational advantage requires three distinct capabilities
To build metanational advantage, a company needs to extend its capabilities to compete at each of these three distinct levels. This means honing three distinct skill sets.
Sensing
To become a successful metanational, a company needs to extend its capabilities in identifying new sources of relevant technologies, competencies, and understanding about leading-edge customers. This means learning how to sense and process this complex knowledge into a form that the corporation can use efficiently. But identifying and accessing knowledge that rivals have already mastered will only bring competitive parity. Building new sources of competitive advantage requires a sensing network that can identify innovative technologies or emerging customer needs that competitors have overlooked—a network that preempts the global sources of new knowledge. We term this battle "competing on the sensing plane." The prevailing logic of sensing is discovery and reconnaissance.
Sensing—prospecting and accessing potentially valuable technologies and market knowledge from around the world—is one step toward creating new sources of competitive advantage. But concentrating on the sensing plane alone is not enough. A company that focuses only on sensing creates a well-informed global debating society: Everyone has a fascinating piece of knowledge about the latest technology or market opportunity discovered by his colleague somewhere across the globe. The organization is knowledgeable but impotent.
Mobilizing
A successful metanational therefore needs a set of structures (which may be virtual, temporary, or both) to translate new knowledge into innovative products or specific market opportunities. These new structures (the evidence suggests that existing operating units and systems will seldom do the job) need to mobilize knowledge that is scattered in pockets around the corporation and use it to pioneer new products and services, sometimes with the help of lead customers. PolyGram created such a structure—the international repertoire network—for unlocking the potential appeal of unknown global artists. This new structure enabled PolyGram to connect and mobilize a complex bundle of dispersed knowledge about new acts, international markets, and local capabilities to create international hits.
We call these structures "magnets." They attract dispersed, potentially relevant knowledge and use it to create innovative products, services, or processes, and they then facilitate the transfer of these innovations into the network of day-to-day operations. We term the battle to design and operate a better set of magnets than your competitors "competing on the mobilizing plane." The driving forces here are entrepreneurship and mobilization.
Operationalizing
Once a new product, service, or business model has been pioneered, its profit potential must be realized. This means scaling up the supply chain, improving efficiencies, making incremental improvements, and engineering local adaptations. Most multinationals are already proficient in this arena, which we call "competing on the operating plane." Like the traditional multinational, the metanational must configure and manage these operations for sales growth and profitability. The logic of the operating plane is efficiency, flexibility, and financial discipline.
The traditional view of a global advantage
Compare these requirements with the capabilities and mindset of traditional multinationals. What gives a multinational company a competitive edge over a national champion? Most managers cite two key areas of advantage for the multinational:
- The multinational takes the products, services, technologies, systems, and know-how it has built in its home country and leverages this experience by selling, distributing, and producing around the world. This enables it to reap the benefits of global scale economies and cross-border arbitrage of goods, systems, and people. It also allows it to service multinational customers and attack national champions by using its global resources to bankroll forays into new markets.
- The multinational gains access to cheap labor and raw materials by moving its production or back-office functions to the developing world, leaving only the high value-added activities—for instance, R&D, product design, marketing, strategy, coordination, systems development, and finance—at home.
We call this two-pronged approach "projecting"—leading from the strength of the home base and seeking new market potential and cost advantages abroad. Nike, the global sports apparel giant, offers a prime example. Its headquarters (or "campus") in Beaverton, Oregon, is the nerve center of R&D, product design, brand concepts, quality control systems, finance, and related functions. Nike has a network of dedicated subcontractor production facilities in low-cost locations such as China, Indonesia, and Thailand. It maintains a quality control and purchasing network throughout these Asian countries. It has built local marketing, sales, and distribution centers in its key markets around the globe.
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Five Questions for Yves L. Doz, Jose Santos, and Peter J. Williamson
What does it mean for a company to be "metanational?" HBS Working Knowledge Globalization editor Sara Jane Johnston conducted this email interview with authors Yves L. Doz, Jose Santos, and Peter J. Williamson.
Johnston: What does it mean to be 'metanational'? What kinds of companies should try to be metanational, and why?
Doz, Santos, and Williamson: We chose the name "metanational" using the prefix meta—from the Greek term for "beyond"—to emphasize a key point: Metanational companies do not draw their competitive advantage from their home country, nor even from a set of national subsidiaries. Metanationals view the world as a global canvas dotted with pockets of technology, market intelligence, and capabilities. They see untapped potential in these pockets of specialist knowledge scattered around the world either in their own subsidiaries, or in suppliers, customers, partners, or local universities.
Metanationals' key advantage doesn't come from crossing the borders between nation-states; it comes from transcending them. Their vision of economic paradise is not one of global homogeneity, in which it would be easy to deploy homegrown products, technologies, and systems to customers around the world. Quite the opposite is true. The metanationals will thrive on seeking out and exploiting the uniqueness of specific regions, cities, industrial districts, and local capability clusters. They value geographic and cultural differences. And because they fish for knowledge in a global pond, they can potentially create new and better competencies than can any multinational player's headquarters, national subsidiary, or center of excellence.
Any company that answers "no" to the question: "Is all the knowledge I need to win in the global economy to be found in my backyard?" needs to start learning from the world. Our research suggests that it is increasingly dangerous to rely on technologies and market understanding drawn only from your home territory. You are likely to face critical gaps in the knowledge you need to win. You risk missing important customer trends emerging overseas. You are exposed to competitors coming from "left field" with unfamiliar tactics that catch you on the back foot. Myopic competition, innovating using local knowledge, perfecting your product or service to meet the needs of customers in your home market, and benchmarking yourself against domestic competitors has become a high risk strategy. Today every company, whether it aspires to be a national champion or global competitor, must engage with the world.
In addition to the companies you studied, such as Nokia and PolyGram, did you find other global firms or industries that are successfully following this business model?
In many industries multinational projectors are finding that their time-honored strategy of spreading a formula perfected at home is running out of steam. The cost of distance is falling dramatically as transport and communication technologies improve by leaps and bounds. So the ability to take a homegrown formula and successfully project it into new markets around the world no longer distinguishes one competitor from another. In a sector such as consumer goods, for example, all the major competitors—P&G, Unilever, Nestle, Kraft, Sara Lee, and so on—have perfected the arts of global projection and local adaptation. Far from being a differentiator, these capabilities have become "table stakes" required simply to play the game. In many new economy industries, a strategy based on international projection simply isn't even viable. Before a new portal or e-business site can project a successful formula globally, a crop of local imitators have already copied its best features and incorporated them into their own domestic sites.
The rise of this global knowledge economy means that the opportunities and challenges of exploiting knowledge scattered around the world will become a key concern of senior managers across the spectrum of industries from mining to manufacturing and professional services. The impact won't be confined to a few sectors such as electronics or so-called knowledge-intensive industries. And mobilizing and leveraging globally dispersed knowledge will be just as vital to today's successful American multinationals (such as General Electric or Procter & Gamble) and Japanese giants (such as Matsushita and Toyota) as it is to European companies struggling to overcome Europe's fragmented markets or to Asian and Latin American corporations that have only recently joined the global game.
Where in the world are companies more likely to take this approach? Where less likely?
Somewhat unexpectedly, but in retrospect rather logically, we found that the companies most likely to adopt a successful metanational strategy weren't today's leading companies from large home markets, like the U.S. or Japan, with a strong technology and skill base to be found in their own backyard. Instead, the metanational pioneers tended to come from unusual locations like Nokia from Finland, ST Microelectronics (who have created more shareholder value than any other semiconductor company bar Intel) from a base in France and Italy, ARM from Cambridge, England, Acer from Taiwan in the PC business, or SAP that became the world's largest supplier of integrated business software starting from Germany.
All of these companies were born in the "wrong" place, in the sense that they were outside the traditional capitals of their industries. A large part of the knowledge they needed to compete globally was not available in their home country. At first glance, they may seem an unlikely place to look for the keys to future competition in the global knowledge economy. But in fact, it is these global leaders born in the wrong place that are most advanced in the game of unlocking the potential of knowledge imprisoned in local pockets scattered around the world. Because the knowledge they needed was not available at home, they had to develop the skills of sensing, mobilizing, and operationalizing technologies and market knowledge drawn from abroad. They learned these metanational capabilities because they had to. Necessity was the mother of invention.
What lessons would our business readers find most interesting and useful?
Shutting out the world is no longer an option. In an increasingly dangerous and uncertain world, hunkering down in home base might look more appealing. Such logic is flawed. Today, more than ever, no company or country is an island. As goods, information and knowledge become ever more mobile, even if we don't choose to engage with the world, it will engage with us. Companies that are serious about winning in today's high mobility knowledge economy will need to expand the net they cast for new knowledge: prospecting for interesting new technologies and consumer trends beyond those locations that dominate today, anticipating new hotbeds of technology and bellwether customers. Multinationals will also have to unlock the potential of knowledge that lies under-utilized in their local subsidiaries. Those who doubt this need to ask one basic question: What share of all new knowledge relevant to my company's future I am capturing today? If you don't like the answer, it's time to engage with the world in a new way…
To become metanationals CEOs must augment their existing organizations on three levels: sensing, mobilizing, and operationalizing. The first level is the race to identify and access new technologies, competencies, and knowledge of lead markets emerging around the world. The second is in the effectiveness and speed with which companies can connect these globally scattered pieces of knowledge and use them to create innovative products and services. And the final is optimizing the efficiency of the global sales, distribution, marketing, and supply chain to leverage these innovations across global markets. Tomorrow's metanationals will need to build organizations that can win in all three of these levels in order to succeed in the knowledge economy.
Have any other research projects evolved from your findings? What is your next big project?
Two major new projects have come out of this research.
First, we are extending our investigation of how today's national champions and startup companies can leapfrog their competitors and go straight to a metanational structure rather than treading the well-worn path of internationalization of the past.
Second, we are exploring how governments and local officials can forge a leading role for their region in the global, knowledge economy by addressing where their city or region fits in a global knowledge economy, what its key roles are, and how a region can thrive by developing a fertile environment for metanational companies.