Next-Generation Globalization

Oil price spikes, reeling markets, the implosion of global companies—clearly, the onward march toward a borderless world economy has hit a few roadblocks. Yet even as economies across the globe grapple with uncertainty and calls for greater regulation, corporations recognize that the current crisis brings growth opportunities along with challenges.

Those enterprises able to effectively employ innovations and advances in information technology, fast-cycle logistics and transportation networks will emerge from the current chaos positioned to sell and source globally—at a profit. “The opportunities are bright as long as we can get to them,” David Bronczek, president and CEO of FedEx Express, told CEOs gathered for a roundtable discussion sponsored by FedEx. “Getting to them—and getting to them profitably— is the challenge.”

Already, some companies are finding growth in international markets can compensate for a sluggish U.S. economy. “We’re seeing revenues coming out of markets we weren’t in before that is, frankly, offsetting some of the softness [in the U.S.],” reported Lyndon Faulkner, CEO of Torrance, Calif.-based Pelican Products, a marketing and manufacturing firm that made a fortuitous global push two years ago. “The U.S. still supplies 70 percent of our revenue, but we now do millions of dollars a year out of China, which is all new revenue for us.”

For Bronczek, international global profitable growth ranks first on FedEx’s “critical few” list of priorities. Demand in growth markets such as India and China, Eastern Europe and Africa is such that FedEx could easily achieve triple-digit revenue growth, he reported. But profitable growth is a different story. To achieve that, the company has had to take a hard look at both cost structure and resource allocation.

“We’ve become top-heavy in terms of resources we put in the U.S., because this is a saturated, mature market,” he explained. When shifting resources to growth markets became a major priority, FedEx attacked the issue with an early retirement program that cut hundreds of millions from its cost structure. Operational changes, such as moving from three-pilot planes to two-pilot planes, further trimmed expenses.

However, the crisis in the U.S. financial, housing and auto markets— all major customer bases for FedEx—only intensified the need to reorient toward growing markets. A drop in oil prices helped offset some of the downturn, and November brought a bigger boon when competitor DHL announced plans to exit the U.S. domestic package shipping market. “It’s a little bit brighter of a time for FedEx today, but we have a long way to go,” said Bronczek.

Communicate and Conquer

The pressure is on to build up capabilities in markets like China, Russia and India to meet the needs of global players like H-P and Dell. “We’ve acquired a company in China, we have a domestic hub right outside of Shanghai and an international hub in Guangdong,” reported Bronczek. “But I can tell you that in terms of their global logistics and supply chain, we’re failing H-P right now. We’re okay in some areas, but we’re not okay in, say, ocean shipping.”

FedEx works feverishly to address issues like that, in the meantime steadying relationships by meeting quarterly with each of its 100-plus major global accounts to assess and address priorities. “If it’s not me, it’s my executive vice presidents or it’s Fred,” said Bronczek. “We talk about their global needs and their global portfolios, and they tell us what they need and where they want to grow.”

“It’s about customization, about customer intimacy,” asserted Larry Chaityn, CEO of New York Citybased True North Global. “You need to know your customer on multiple levels. So ask the questions, understand how your customers do business and what they need. That’s how we see our clients being successful.”

FedEx is taking a proactive approach to a challenge facing all large companies, noted Anil Gupta, professor of strategy and entrepreneurship at the University of Maryland and author of Getting China and India Right. “The question is, how do we become a global company—not just a U.S. company doing business abroad?”

To Gupta, the answer is both physical— managing the repositioning of resources FedEx is homing in on— and psychological—changing the mindset of the company. Managing the latter, he hypothesizes, may require repositioning not only financial resources but management.

Location, Location, Location

“If 34 percent of the market opportunity is in Asia and only 2 percent of the top 200 managers are from Asia or sitting in Asia, then we have a 10,000 mile gap between where the opportunities are and where the power sits,” he pointed out. “When you have that gap, your insights will be faulty or delayed and your actions will be delayed.”

Some companies, he points out, are exploring addressing that issue by placing top executives in growth markets. In 2006, for example, Cisco moved Wim Elfrink, EVP of Cisco services and chief globalization officer, from San Jose, Calif., to Bangalore. “Over the next five years, he and the rest of his colleagues will engineer that 20 percent of Cisco’s top leaders are sitting in Bangalore,” noted Gupta. “The next-generation global enterprise of 2020 will require not only a shift in resources, but a shift in the mindset of the architecture of corporate leadership, shifted power.”

“That’s a good point,” agreed Bronczek. “When I went to Europe in 1991, all of my top management in Europe were U.S. [people]. So we were a U.S. company trying to be an international player. It’s a huge shift to become global rather than be a U.S. company doing business offshore.”

A company culture that translates well internationally eases the transition, he added. “One thing I found was that people worldwide, from Dubai to Memphis, want to be treated with respect. Our company prioritizes our people first and then our customers, and that translates well all over the world. So if you can line up your organization on strategic objectives, centered on your customers through service and your employee’s discretionary efforts to provide that, everything else cascades from there.”