Manage-Wise

The art of global leadership

Thomas Friedman wrote, “The world is being flattened. I didn’t start it and you can’t stop it, except at great cost to human development and your own future. But we can manage it, for better or worse.”

A quick glance at our lives will reveal the truth of this statement unambiguously. I live in a city which, although Asian by geographic location, could be a microcosm of the rest of the world today. The cars we drive, the clothes we wear, the people we are in contact with, are all global in nature. “Access” is the key word. We have immediate access to the culture, the produce, the language, and the history of the rest of the world. There is a palpable integration, an irrefutable buzzing and spilling over of borders and boundaries.

Victor K. Fung, the Group chairman at Li & Fung, a global consumer products trading company with its headquarters in Hong Kong, illustrated this clearly when he explained the rationale behind the Group’s response to an order from a client for 10,000 shirts. “First, we would consider the best place to source the yarn, perhaps deciding on the Republic of Korea, where we will identify an appropriate factory. For dyeing and weaving the fabric, the client’s need, timing, capacity, and the technology requirements may lead us to select China. We ship the yarn from Korea to, say, two factories in China because we have a tight deadline to meet. Next, we would identify the best place to tailor the shirts, the final process in the chain of adding value. In this case, for reasons of labor, skill, and capacity, we may select three different factories in Thailand. The final products delivered to the retailer will look as if they had all come from one single factory, even though they were manufactured in six factories in three different countries.”

Globalization: a short history

As the world becomes smaller and its people become more connected, the manner in which we interact with everything around us is changing dramatically.

This “flattening of the world” is a reference to the manner in which the boundaries between countries, cultures, and economies are becoming more and more integrated—a process known as globalization. This statement begs the question of what exactly defines globalization. Is it the integration of political, economic, and social systems? Is it an American economic and cultural dominance of the world? Is it a force for overall economic growth and prosperity? Is it an exploitative, destructive force that makes the rich countries even richer, while impoverishing the developing world? The one undeniable thing that can be said is that “since 1950, world trade has increased more than 19-fold, and world output has increased by six times.” This prolific increase in world trade has come about as a result of the removal of the boundaries to international trade (or economic boundaries) that were prevalent prior to World War II—under the auspices of globalization.

Anthony Muh, the Citigroup head of investment in Asia, says: “Uncertainty is the only thing to be sure of.” When we look back at the progression of the world over the past century, I cannot help but agree. The one thing that we can hold constant is change. In the shadow of two world wars, the Great Depression, and the Space Race, we have seen people striving to adapt to the most stringent adversities, to maintain relevance, and hence to survive, in a constantly changing, often turbulent environment. With the end of World War II, a war during which 2% of the world’s population perished, people made a decision aimed at circumventing the possibility of another such terrible disaster. The chosen medicine was liberalism.

On way to globalization

It was in this environment of reconciliation and hope that new lines of international trade were drawn. In 1944, the world’s major powers came together in the town of Bretton Woods, in the United States, to create an institutional forum for global economic governance. At the conference, they agreed to create three institutions: the World Bank, the International Monetary Fund, and the International Trade Organization, which became the General Agreement on Tariffs and Trade (GATT) and, later, the World Trade Organization (WTO). The idea was simple: having rules in place would discourage the kind of behavior that had provoked world war. GATT, and later, the WTO were the unconscious forerunners of globalization, a phenomenon that has had an incredible impact on various aspects of our lives on a global level. The dramatic increases in global trade have accelerated to the point that, today, the WTO boasts 140 members, up from a dozen at the time of GATT, two-thirds of whom belong to developing countries.

Globalization isn’t globalization if it doesn’t include the developing world—Africa, Latin America, and Asia. It is an important point to note. “For globalization to be more than merely the increasing economic integration and political harmonization of the rich countries of North America, Western Europe, and East Asia, it is important that the barriers which separate the North and the South, richer and poorer countries, must be overcome.” As the overall volume and value of trade increases, it is interesting to see how much both the developing and less-developed countries (LDCs) are benefiting from the breakdown of barriers. In 2004, the WTO listed 50 nations as “least developed countries,” and reported that the total trade of all nations was almost US$ 19 trillion. The LDC share of that total, however, was less than 1 per cent, or

just US $ 133 billion. This raises the question of why countries in the developing world would wish to become a part of the globalization project. Mahathir Mohammad, the former Malaysian prime minister, said: “In reality, this concept was designed by the developed countries on behalf of their companies and financial institutions to overcome the regulations set up by developing countries to promote their domestic economy and local firms.” The reason boils down to this: globalization brings opportunity. For an LDC, globalization offers access to a global export market, foreign capital, and advanced technology.

Excerpt from ‘Leadership Without Borders’ by Ed Cohen. Reproduced with permission © 2007, Wiley India Pvt. Ltd.