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  • Subject area(s): Business
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  • Published on: 21st September 2019
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HBR 5: Globalization in the age of Trump

Introduction

The article ‘Globalization in the age of Trump: Protectionism will change how companies do business- but not the ways you think’ written by Pankaj Ghemawat was published in Harvard Business Review in July-August 2017 and contains 12 pages.

P. Ghemawat is a global professor of Management and Strategy, director of the Center for Globalization of Education and Management in the New York University’s Stern School of Business and the Anselmo Rubiralta Professor of Global Strategy at the IESE Business School in Spain.

Short summary:

The article addresses the fear of anti-globalization on business leaders’ side. Events like the Brexit and Donald Trump’s presidential election. However, the author recommends not to overreact as globalization is highly overestimated and turning away from globalization would be an unwise and counterproductive decision. Pankaj Ghemawat rather advice managers to overthink their strategy if necessary in regard to the structure of the organization, to the locations where they want to compete, how they want to compete and finally, in what way they want to engage with the society.

One sentence summary:

A business leader should not overreact towards protectionism but introduce some adjustment in their company if required to increase profitability and success.

Body

Summary:

Many countries in North America and Europe experience anti-globalization sentiments. Business leaders believe in a trend towards a flat world. Therefore, business leaders are uncertain about whether to retreat, change or stay with their business strategy.

Several types of research like the evaluation DHL Global Connectedness Index proved that the anti-globalization sentiment is an overreaction on leaders’ sides since globalization rather stayed the same or even increased the last years. Further evaluations of various media show that the intensity of globalization might be overestimated by many people, resulting in that the world is not as globalized as assumed. Moreover, the trade wars in 1930 prove that international trade and investments are too large to ignore in a strategic decision. Therefore, P. Ghemawat advises that companies should not overreact by turning away from globalization but rather make some adjustments when they are not working successful enough.

Firstly, managers should consider that companies’ restructuring could improve the performance. The region-based structure, where companies benefit from the similarities between neighboring countries, and the front-back structure, where companies focus on localizing while employing a centralized back-end platform are the two most important structures that can help boost performance. Additionally, organizations should renew their commitment to tools that strengthen a corporate culture or internal diversity as emphasizing cosmopolitanism in the management levels.

Another question business leader should ask is, where to compete. Managers should resist the idea that a truly global company must compete in all major markets. They should rather try to look for opportunities in countries with cultural administrative/political, geographic, and economic similarities in order to decrease distance and considering staying in the home country as another good option. Additionally, even if e-commerce is less internationalized than offline commerce, companies could use it as to support global trade.

When leaders decide to operate multi-nationally, they should further think about the way how to compete in the markets. Adaptation for meeting the local demands, aggregation, in order to achieve economies of scale and scope and arbitrage, the exploitation of host markets advantages, are three components of globalization strategies. The use of these components in the protectionist world somewhat changed. Adapting to local needs and creating value in the markets seems to be the most effective way for companies since it increases the firm’s responsiveness to differences and helps to reduce the impact of protectionism. However, total localization should not lead to the neglection of the globalization factor because creating value abroad is highly important for MNEs.

Additionally, Ghemawat suggests that organizations should embrace international openness and targeted domestic policy in addressing globalization’s side effects.

In conclusion, as the author states ‘global strategy and practices have advanced well beyond the prescription these historical models would imply’ (Ghemawat, 2017). Therefore, even though globalization is experiencing some degree of backlash going backward would be ill-serving for organizations’ manager.

Strengths of the article:

The strengths of the article are that firstly, the author is the Global Professor of Management and Strategy and director of the Center for the Globalization of Education and Management. This explains that the author has a deep understanding of globalization and all subjects involved. Secondly, the author provides the reader with sufficient data and sources what ensures that the article is reliable.

Another strength is that this article provides many guidelines and recommendation for managers. The author addresses the problems of protectionism but also gives solutions and appropriate examples of strategies manager can apply. The main advice for managers is that they should not overreact and turn away from globalization as stated in the one sentence summary.

Furthermore, the author addresses the issues of distance when operating abroad. This is a strength of the article since many managers underestimate the distance between host and home country. By addressing this topic, the article gains content wise value, especially for business leaders.

Lastly, one can add that the article is highly reliable with regard to the assumption about localization. Ghemawat gives evidence for the assumption that total localization would hinder companies in creating value across borders. He does this by providing a detailed example of the globally successful company GE.

Weaknesses of the article:

However, besides the strengths, this article has a couple of weaknesses are revealed.

Firstly, throughout the article, the author keeps referring to his own written work. This may be seen as a reason that the information used in the article is biased, as the author may see his work as hard evidence and therefore did not elaborate on further information than his past work.

Moreover, another weakness is that a proper conclusion is missing, for a vast article like this it is rather important to conclude the main results of the article, to prevent the reader from having to read through the whole article again. Furthermore, the author compares 2017 to 1930, while today’s companies are more advanced than they were in 1930 and it is easier for companies to deal with distance in 2017. Therefore, it is unreliable to take the past as evidence for future assumptions, as the author does.

Lastly, although the article is written one year ago and may seem up to date, Trump’s day-to-day decisions highly influence politics and therefore a lot has changed over the year causing the article to be slightly outdated. For example, the article belittles the trade war under Trump’s leadership, while other latest articles discuss the fact that the trade war between the US and China is getting wider.

What manager can learn:

The article gives advice for managers in regard to how they should act towards the anti-globalization wave. The author highly emphasis the role of managers in the strategic decision of organizations. He recommends, as stated in the one-sentence summary, that manager should not overreact and rather make some adjustments in strategies if their company’s profitability is not high enough. Thereby, the choice of structure, the selection of an appropriate host country and the decision on how to compete is crucial for a manager to consider. Before creating the strategy, they should be aware of the fact that globalization seems to be bigger than it actually is. Managers should focus on reliable data instead of being influenced by information published in the media when evaluating the effect of globalization. Moreover, it is important to consider the staying home option as an effective approach for achieving companies’ success and also, that being a multinational company does not mean operating in every country but rather means benefit from operating in countries with similar characteristics. To conclude, managers should not overreact but realize that making a step backward by turning away from globalization would be ill-serving for the business.

Relation to the course Introduction to International Business:

Our course, introduction to IB, introduces globalization and the importance it has to MNEs. In IIB it is mentioned that the distance between countries can give difficulties, partly because of the bounded rationality an MNE can have in a country that completely different than their home country. The strategy of the MNE should be adjusted and thorough research should be done to resolve those problems to successfully perform in foreign countries. What the article added to the course is that not only globalization itself can be an obstacle for an MNE, but also the perception that an MNE has on globalization could be the problem. As stated in our one-sentence summary should business leaders not overreact towards protectionism, because this is a recurring problem at the moment. IIB states that globalization can be a source of profitability and success. The one-sentence summary from the article elaborates that adjustments in the company regarding globalization can be made to reach profitability and success if that is necessary.

Conclusion

In conclusion, the article is about the misperception of business leaders that anti-globalization is occurring. Recommendations are given by the author on how business leaders should decide where to compete and in what way. Globalization is a complex, yet businesses should not overreact as retrieving from globalization is counterproductive and ill-considered.

The article contains a few strengths. The first one is that the author of the article is an expert in the field that the article is about, this gives her complete understanding of the subject. Secondly, the provided data and sources make the article reliable. Furthermore, contains the article very useful guidelines and recommendations of articles that can be of use for managers, including solutions and examples. The author mentioning the issues of distance when operating abroad is a strength as well, it is often underestimated but in reality, of high value for business leaders. The evidence given for the assumptions made in the article about localization increase reliability as well.

Besides strengths contains the article also weaknesses. Firstly, uses the author a lot of his own work, this could imply that the article is biased. Another weakness is that the article lacks a proper conclusion, which is important for a broad article like this. Thirdly, a comparison is used that extends from 1930 till 2017, making assumptions for the future from experiences that many years ago makes the article unreliable. At last, the article is slightly outdated, this is due to the highly influential political decisions Trump makes, a lot has changed since 2017 already.

Managers could learn several things from this article on how to act toward any anti-globalization. Managers should not overreact and rather adjust in the strategy if necessary. Picking the best host country to operate in should be thoroughly examined. Managers have to keep in mind that globalization is not as big as they think it is, they should use reliable data instead of media to keep up to date on the depth and breadth of globalization. Staying home can be an option that should be considered by managers as well as operating in only a few countries.

Finally, we learned from the article that globalization is not what it seems like to be. Media and businesses overestimate globalization yet underestimate the breath of globalization. Before reading the article, we did not realize how complex the understanding of globalization is. Making the decision to retrieve completely or partly from globalization should really be thought over, as well as the countries a company chooses to operate in. This is really important for their profitability.

After reading and analyzing the article, we still have the following questions for the author:

  • As you stated in the article events like Brexit and Trump’s presidential election cause a sentiment of anti-globalization. How would further movements of protectionism as the trade wars between the US and China influence the strategies of companies?

  • Since the article emphasize the overestimation and overreaction of the ‘anti-globalization sentiment’, do you think that a state of almost total globalization is possible in long-term future?

  • As you stated in the article, companies should rather focus on operating in countries with lower distance. Do you think the advanced experience and learning progress of today’s companies influence the strategic decision ‘where to compete’?

    Reference:

    Ghemawat, P. (2017). Globalization in the age of trump. Harvard Business Review 95, 112–123.

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