Only 1 in 10 Companies Has Fully Mastered Globalization: IMD & BCG Study

Companies have high aspirations and strong global strategies but struggle to execute overseas according to a joint survey conducted by the Boston Consulting Group and IMD, Switzerland

Despite a concerted push to expand their overseas presence in recent decades, few companies are ready to build and run truly global organizations and operations, according to a survey of executives conducted jointly by The Boston Consulting Group (BCG) and IMD business school.

The findings are discussed in The Globalization Capability Gap: Execution, Not Strategy, Separates Leaders from Laggards.

The survey found that:

• Companies have high global aspirations and confidence in their global strategies, but only about 10 percent have mastered the capabilities needed to win overseas. Mergers and acquisitions are critical weaknesses.

• Line managers who run businesses or regions are much more pessimistic about their companies’ global readiness than headquarters staff.

• Midsize companies are at the greatest risk in going global. They are less nimble than smaller companies and do not have the scale or systems of larger ones.

“Companies clearly recognize the need to globalize, but few of them are truly ready to execute and bring to life their global strategies,” said Dinesh Khanna, a partner in BCG’s Singapore office and global leader of the Global Advantage practice. “Companies that want to win overseas should be focusing on the nuts and bolts of going global.”

Several practices essential to globalization, such as establishing a global supply chain and spreading best practices, rank in the bottom third of capabilities. Overall, respondents rated their companies below average on 15 of the 22 capabilities.

BCG and IMD conducted the Global Readiness Survey in order to understand both the aspirations and the preparedness of companies to go global. About 75 percent of respondents reported that their companies plan to increase their international share of business. But only 10 percent believe they are mastering the full set of 22 capabilities required to go global.

Several practices essential to globalization, such as establishing a global supply chain and spreading best practices, rank in the bottom third of capabilities. Overall, respondents rated their companies below average on 15 of the 22 capabilities.

Global expertise in mergers and acquisitions was the lowest-rated capability by a wide margin. Its “readiness score” was 34 percent. (A score of 100 percent indicates that a company has perfected the capability.)

The survey uncovered, however, the potential of M&A in energizing a globalization journey. Companies scoring 75 percent or higher on M&A reported total readiness scores at least 10 percent higher than average.

“M&A can be challenging to master as it requires mastery of several skills, such as target selection, negotiation, and integration. But M&A can also be transformative. Companies can quickly acquire market share and a global footprint, diversify their talent base, and create a more varied portfolio of businesses,” said Margaret Cording, Professor of Strategy and Regional Director of Southeast Asia and Oceania at IMD business school.

Large companies do better than midsize and small companies in core business capabilities such as setting up a global supply chain. But they do relatively poorly on capabilities related to learning and agility, leaving them vulnerable during periods of rapid change.

Headquarters Bias

The Global Readiness Survey also found a disconnect between the views of executives who work at headquarters and those who work in the field. Headquarters staff have a far more optimistic view of their companies’ globalization readiness than line executives. The biggest differences have to do with whether the organization has an open mind-set, aligned performance incentives to support the global agenda, and best practices effectively spread across the organization.

Size Matters

Small, midsize, and large companies have similar globalization aspirations, but vast differences separate their readiness to globalize, according to the survey.

Most strikingly, midsize companies, with annual revenues from $1 billion to $10 billion, underperform their larger and smaller peers across most capabilities. They have neither the scale of large organizations nor the agility and effectiveness of smaller ones.

Large companies do better than midsize and small companies in core business capabilities such as setting up a global supply chain. But they do relatively poorly on capabilities related to learning and agility, leaving them vulnerable during periods of rapid change. Small companies, on the other hand, are fleet-footed but have not mastered local markets overseas and may misunderstand their competitors abroad.

About the Survey

The 362 surveyed executives work for a wide variety of companies throughout the world. Slightly more than one-half, or 56 percent, work for companies based in Western Europe; 11 percent are at North American companies; 9 percent are at Latin American companies; 9 percent are at Japanese and Australian companies; and 6 percent are at companies in emerging Asian markets.

One-quarter of the respondents work for industrial goods companies; almost as many, 21 percent, work for consumer products companies; 15 percent work for technology, media, and telecom companies; and 6 percent work for either financial institutions or professional services firms. The remainder work in health care, energy, insurance, the public sector, and other industries.