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ARTICLE COLLECTION Talent Mobility and the Global Organization

As a thank you from Harvard Business Review. Included in this collection:

Building a Company Without Borders ...... Page 2 by Bart Becht

The Cosmopolitan Corporation...... Page 7 by Pankaj Ghemawat

“I Came Back Because the Company Needed Me”...... Page 16 An Interview with Yang Yuanqing by Adi Ignatius

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HOW I DID IT

The Idea: You may never have heard of Reckitt Building a Company Benckiser, but in the past few years the company has Without Borders outperformed its rivals P&G, Unilever, and Colgate in growth—even during the by Bart Becht downturn. Here’s how. •

Reprint R1004K

The Idea: You may never have heard of Reckitt Benckiser, but in the past few years the company has outperformed its rivals P&G, Unilever, and Colgate in growth—even during the downturn. Here’s how.

HOW I DID IT Building a Company Without Borders

by Bart Becht

They say you can’t go home again. If you work is now the leader in its market category. Re- for Reckitt Benckiser, you can go home—but cently we successfully introduced Quantu- you may not want to, and you certainly won’t Matic—an automatic dispenser of dishwasher have to. Many companies, when they describe detergent that doesn’t need to be refilled for themselves as global, mean they have opera- up to a month. With constant innovation like tions around the world, they work virtually this we’ve enjoyed steady, profitable growth, and in all time zones, and their key people are even during the downturn. Since 2005 we’ve developed through stints in other markets. outpaced all our big competitors. During the Our version is more comprehensive. Most of recession we’ve invested more than ever in our top managers haven’t held jobs in their marketing, and we grew at a rate of 8% (at con- countries of origin for years and view them- stant exchange rates) in 2009. selves as global citizens rather than as citizens of any given nation. We have operations in A Company Without a Country more than 60 countries. Our top 400 manag- Reckitt Benckiser resulted from a merger in ers represent 53 different nationalities. We’ve 1999 of Reckitt & Colman—a British purveyor spent the past 10 years building this culture of of household cleaning products with a great global mobility because we think it’s one of stable of brands—and the Dutch-listed Benck- the best ways to generate new ideas and create iser, a much smaller but better-performing global entrepreneurs. consumer goods company. But we don’t want And it has paid off. Products launched in the to be known as an Anglo-Dutch enterprise, or past three years—all the result of global cross- by any other label based on our operations or fertilization—account for 35% to 40% of our history. We’re not any country’s company— net revenue. For example, Finish, an all-in-one we’re a truly multicountry company. dishwasher tablet you drop into your machine, That is by design. Postmerger we mixed the OPYRIGHT © 2010 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. OPYRIGHT © 2010 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. C

harvard business review • april 2010 page 3

Building a Company Without Borders•••HOW I DID IT

national cultures quickly in every corner of our careers. Our idea is that you focus primarily on operations. Premerger many of the local busi- the best job possible for you, regardless of The RB nesses had been running themselves more or country. “Powerbrands” less independent of the rest of the world and That kind of life isn’t for everyone, and not ev- without regard to overall corporate priorities. eryone has to follow that path. But those who Though the company’s corporate We transferred people who embodied RB’s val- love it really love it. It’s exciting, and it gives brand recognition is very low, its ues into key positions in new markets. Manag- pace, challenge, learning, and a buzz to people’s products are well-known. RB focuses ers from one side of the merger were pur- careers—along with the satisfaction of being on 17 powerbrands: posely moved to another territory, and then able to be entrepreneurial and innovative. Air Wick moved again. Now in every country we have We try to put our high potentials in stretch- Calgon (water softener) people of many nationalities as well as local ing situations around the globe. For example, Cillit Bang citizens. Today an Italian is running the UK we had one excellent employee who wanted to Clearasil business, and an American is running the Ger- be moved to an international marketing job. Dettol man business. A Dutchman is running the U.S. We had an opening in India, but that would Finish business, an Indian the Chinese business, a Bel- have been a poor choice for him—he’s Indian. French’s gian the Brazilian business, and a Frenchman Our previous three marketing people in India Gaviscon the Russian business. It’s not that you can’t ad- were German, French, and British. If this em- Harpic vance at RB in your local company. You can. ployee wanted to grow, he needed to acquire Lysol But we also offer unique global mobility and different experiences and learning, so a better Mortein experience to people who want to grow their development opportunity would be for him to Mucinex careers on a world stage. work in Brazil or Mexico. Our high potentials Nurofen To facilitate this mobility, we established have to find their footing very quickly, and Strepsils compensation rules that apply equally to our most of them grow tremendously when we Vanish top 400 managers in all markets, making inter- take them out of their familiar zone. Veet national transfers easy. We have just one em- Even their failures in new markets are im- Woolite ployment contract, and our salary ranges were portant learning experiences for our high po- developed with global benchmarking. Our an- tentials. One of our top managers, who is nual cash bonus structure and long-term incen- Dutch, still talks about the hard lesson he tive plans are the same for everyone, as are our learned when we transferred him to Turkey. In pensions, medical plans, and other benefits. The Netherlands, where he had worked be- We have no expatriates in the traditional sense, fore, billing and receivables were predictable no tax equalization or guarantee of a job back and orderly. In Turkey the currency suddenly in one’s home country. When employees take collapsed by 70%—while he was focusing on jobs in other countries, they’re transferred as market share rather than on delinquent receiv- “local hires.” We’ve built in standard protocols ables. As he puts it, there’s nothing like a cur- to make it easier for people with families to rency failure to change your views on tight fi- move. For example, we fund whatever school nancial management. the employee chooses for his or her children because we understand how important that is Conflict Is Good to a family’s adjustment. That way, we can in- With so many different native languages in stantly accomplish a transfer—we don’t have our company, it was necessary to make English to negotiate a lot of convoluted contractual the official language for all meetings. I’m nonsense. We have moved people to new coun- Dutch, but I don’t speak Dutch with any of my tries in as little as two days. Dutch colleagues, because if others are We also do something pretty rare with grad- around, it excludes them. We are one team uates. In some markets we help foreign stu- with one language. English isn’t most people’s dents to get work permits in the countries native language, and often our English isn’t where they’ve been studying. The very fact pretty. But the way we see it, it doesn’t matter that they have traveled to study means they as long as you give a view. If you don’t express are internationally minded and thus likely to your opinion, you don’t have an opinion, and be keen to work in other countries as well. At a that’s a fatal weakness for people who want to Bart Becht is the CEO of Reckitt lot of companies it’s assumed that employees, do well at Reckitt Benckiser. You have to stand Benckiser, headquartered in having “seen the world,” will sooner or later re- for something, no matter how bluntly you Slough, England. turn to their home countries to continue their communicate it.

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Building a Company Without Borders•••HOW I DID IT

That means our meetings are a bit chaotic. get consumer feedback. Sometimes our big- Everybody wants to be heard, so it’s more like gest ideas come that way. an Italian family dinner than a nicely orga- About six years ago we had a huge internal nized board meeting. What takes over in our debate about a product called Air Wick Fresh- meetings is an intensity and a feeling that we matic, which automatically releases freshener have to fight for better ideas. Conflict is good. into the air on a schedule. It originated when We don’t care about consensus. Not having it one of our brand managers in Korea observed a doesn’t slow us down and doesn’t mean that new kind of automatic scent dispenser in stores people aren’t aligned. We make decisions fast there. In his opinion it was not a well-designed and then all stand behind them. product, but he thought the idea was intrigu- What isn’t tolerated is conflict that simply ing, so he brought it to a group meeting at our slows down decision making or is for political headquarters. Vigorous debate ensued. or personal gain. Almost every key decision is A couple of our managers believed it should made in the meeting at which it’s first dis- be a consumer product in Europe, but a lot cussed. We expect people to come armed with more thought that made no sense—it might facts, be prepared to argue their point of view, work in Korea on a very small scale, but it and be willing to live with the decision we ulti- would never work in Western markets. For one mately make. Get 80% alignment and 100% thing, it would have to be priced well above agreement to implement. And move quickly. the standard air freshener, and it wasn’t clear But I also don’t believe in crushing minor- that the market would support that. Also, this ity views. If we have 10 people in a room, would be our first foray into something elec- eight of them agreeing on one thing and two tronic, with wires, batteries, interval passionately believing something else, we switches—a complex technology combination. don’t try to resolve it to everyone’s satisfac- The product would require new manufactur- tion. We allow those two to experiment with ing facilities if it went to any scale. But two their ideas—even if everyone else thinks people saw the potential and were willing to they’re wrong. At the end of the day, what fight for the chance to prove it. counts is not what the 10 people in that room If somebody wants to stand up under stress think, it’s what the consumer thinks. So we let and say, “No, I passionately believe in this. You them run maverick small-scale experiments to guys are all wrong! We’ve got to do this,” then

Reckitt Benckiser at a Glance

A DECADE OF GROWTH MILLIONS Net Revenue (£M) Net£ Revenue (£M) NET REVENUE Operating Profit (£M) Operating£ Profit (£M) Total Total Employees Employees

OPERATING PROFIT

SOURCE RECKITT BENCKISER harvard business review • april 2010 page 5

Building a Company Without Borders•••HOW I DID IT

I’m willing to take a chance. So in this case I said something very challenging in his market— fine, here’s the money—go figure it out, but do he’d launched one of our “powerbrands,” the it on a small scale. And that’s what they did. sanitizer Dettol, in Latin America. It wasn’t the In January 2004, initial testing of the idea biggest success we’ve ever had, but the point is with consumers in the UK produced extraordi- that he did it. He was the guy who brought nary results. By the end of the year the product Dettol to Chile and created a platform for its was in more than 30 other countries, and we’d growth. That’s his mark on the business. overseen the building of a new factory in China That kind of thing earns you a promotion in to make it—which meant we had to source ma- this company, and the promotion will probably terials we had no prior experience with. take you to another part of the world. Some Today Air Wick Freshmatic is sold in 85 people look at us and think they’d have to be countries, with a wide range of options for con- nuts to work here. We’re looking for people sumers. It generates well in excess of £200 mil- with a certain level of maturity, intensity, and lion annually. That product had the most suc- competitiveness. If you bring all of that to Reck- cessful launch in our history. itt Benckiser, it will be rewarded. (See the side- Of course, things don’t always work out that bar “RB’s Performance-Based Remuneration.”) well. We’ve launched some beautifully As the CEO who has guided the company for thought-out products that we were passionate more than a decade, I’d like to take credit for about—but consumers weren’t. A few years having a brilliant strategy or unique insights ago we introduced a wonderful product to into the global marketplace. But in reality the clean your microwave: You put a little sachet “vision” slide we use today is the exact same into the oven and start it. While the oven is one we’ve used since the merger. We have a heating, the sachet pops and spreads cleaner very simple approach to the business: Focus around. When it’s finished, the sachet has be- on 17 powerbrands in fast-growing categories, come a cloth to wipe your cleaner away. It was innovate and invest behind them—and do so a beautifully designed product. But it turns out in every market. that people don’t actually want to clean their At the end of the day, what is most distinct microwaves all that often, so we pulled it from about Reckitt Benckiser is its people and cul- the market. If we are going to fail, we want to ture. I can tell in three minutes if someone fail small and quickly. would be a good fit for our company. We’d Failure is actually a huge incentive for the rather have a position open for a long time, if kind of people who fit well with our company, necessary, than put the wrong person in place. because they’re so personally competitive that It’s that important. they’ll work even faster for the next success. Ev- eryone wants to do something to get on the Reprint R1004K map. To order, call 800-988-0886 or 617-783-7500 I just moved one manager from Chile to Tur- or go to www.hbr.org. key. He earned that move because he had done

RB’s Performance-Based Remuneration by Karen Dillon Reckitt Benckiser believes it has designed a com- form of bonuses. A manager who meets all tar- pensation plan to foster its innovative and entre- gets will typically receive 40% of his or her base preneurial culture. The company has touted per- salary as a bonus that year. A manager who blows formance-oriented pay in its annual report as key the targets out of the water (usually that means to RB’s strong growth. According to a 2006 doubling the target numbers) can earn a bonus Harvard Business School case study, the plan, of up to 144%. Long-term compensation, in the which applies to the company’s top managers (in- form of options and performance-related re- cluding the CEO), consists of three parts: base sal- stricted stock, depends on meeting three-year ary, short-term incentives, and long-term incen- corporate growth targets for earnings per share. tives. Base salaries are set near the median for New long-term goals are put into place each year. competitors’ pay. The real benefit comes in the harvard business review • april 2010 page 6 HBR.ORG May 2011 reprint R1105F

The Cosmopolitan Corporation Global success requires that companies appreciate diversity and distance rather than seek to eliminate them. by Pankaj Ghemawat The Cosmopolitan Corporation Global success requires that companies appreciate diversity and distance rather than seek to eliminate them. by Pankaj Ghemawat For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org

Pankaj Ghemawat is the Anselmo Rubiralta Profes- sor of Global Strategy at IESE Business School in Barcelona, and the author of World 3.0 (Harvard Busi- ness Review Press, 2011).

Unbalanced growth, pockmarked by financial dis- It also calls for a reassessment of what it means tress. The threat of protectionism brought on by per- to be a global manager or corporation. Much of the sistently high unemployment, particularly in devel- management writing on globalism adopts the En- oped countries. Tensions, in wealthy nations as well lightenment-era ideal, proposed by the 18th-century as poor ones, around ethnic, religious, and linguistic philosopher Immanuel Kant, of abandoning all “alle- divides, and talk of a new age of secession or tribalism. giances to nation, race, and ethnos” in favor of world

H arting These are some of the developments that contradict citizenship. Take the strategy guru Kenichi Ohmae. the story we had just gotten used to—the one about In 2000 he published his famous book, The Invisible how markets were becoming perfectly integrated Continent, depicting a world in which businesses across borders, technology was obliterating distance, largely ignore geographic boundaries when serving Uand national governments were now irrelevant. The markets and building supply chains. This kind of aftermath of the financial crisis of 2008 reminds us of thinking isn’t confined to management experts with

photography: Christopher photography: the many ways in which differences still matter. an avant-garde view to promote: Forty-eight percent

May 2011 Harvard Business Review 9 The Cosmopolitan Corporation

of the respondents to an online survey that HBR con- ­speaking countries didn’t stop him from making ducted for me in 2007 agreed with the proposition some tremendous blunders in Asia. “The truly global company has no home base.” And Murdoch’s original strategy for Star was to lever- among people with more than 10 years of interna- age News Corporation’s English-language program- tional experience, 63% agreed. ming library across Asia, because many Asians of the Unfortunately, enticing though they may be, such target demographic spoke English. The company beliefs don’t bear up upon closer examination. Of paid no attention to evidence from continental Eu- course, they never did. rope that audiences strongly prefer local-language content, even if they understand foreign languages. The Reality of Roots Star TV’s travails with language and culture paled in The vast majority of firms are deeply rooted in their comparison with its political missteps. Shortly after home countries. In 2004 less than 1% of all U.S. com- acquiring Star, Murdoch pronounced satellite TV “an panies had foreign operations, and of those, the larg- unambiguous threat to totalitarian regimes every- est fraction operated in just one foreign country. The where.” The Chinese government reacted by banning median operated in two foreign countries, and 95% satellite TV dishes. Much of Murdoch’s China strategy in fewer than two dozen. Among the U.S. companies has since involved digging out of this hole. The bot- that were in one foreign country, that country was tom line: Though News Corporation had transcended Canada 60% of the time and the United Kingdom its Australian origins, it was still deeply rooted in a 10% of the time. particular set of Anglo democracies that bore little Even the icons of globalization are less global than resemblance to Star TV’s target markets along some % the rhetoric suggests. Remember ABB? Back in 1990, important dimensions. when BusinessWeek ran the cover story “The State- If you’re skeptical about the relevance of a corpo- 90 less Corporation,” that company, with its global no- ration’s nationality or the locations of its owners, ask of the world’s people will never mad of a CEO, Percy Barnevik, was the lead example. yourself: Why are large export deals involving pri- The boundaries between ABB’s Swedish predecessor vate firms often announced at meetings between the leave the country ASEA and Swiss predecessor Brown, Boveri had os- heads of national governments? Why do employees where they were tensibly been broken down by putting the merged of foreign-owned companies often fear their career born. company’s headquarters in Switzerland to balance opportunities will be limited relative to their counter- the Swedish nationality of the controlling investors, parts from the firm’s home country? Which govern- the Wallenberg family, as well as of some key man- ments do firms call to represent them in World Trade agers, particularly Barnevik. But the years after the Organization disputes (and to lead their bailouts in a merger were marked by what one insider character- crisis)? Why do foreign-ownership restrictions persist % ized as internal warfare between the Swedes and the in industries like media (as well as various others, like Swiss. Although things seem to have calmed down airlines)? 2 since then, it’s more accurate to think of ABB as a It’s not just firms and their business operations of all telephone calling minutes company with a global presence but with particularly that remain deeply rooted. More important, it’s the people who are their customers, employees, inves- are international. strong roots in Northern Europe and runners or prop roots in other geographies in which it has significant tors, and suppliers. Ninety percent of the world’s operations. Not as a company without any particular people, it is estimated, will never leave the country roots. That much is evident from looking at ABB’s where they were born. Two percent of all telephone directors and top management (although a U.S. CEO calling minutes are international. People get 95% of was brought in from GE not long ago) and at its geo- their news from domestic sources, and those sources % graphic distribution of assets and shareholdings. focus most of their coverage on domestic news. Only Or, for an example in Asia, consider Rupert Mur- 21% of U.S. news coverage is international, and of 95 doch and News Corporation’s satellite TV network, that, half deals with U.S. foreign affairs. In European of the news people get is from domes- Star TV. Murdoch and News Corporation had some countries about 38% of news is international, but al- elements of statelessness. They were major players most half relates to stories involving other countries tic sources. from Australia to the United Kingdom to the United in Europe. Only 5% to 10% of private charitable giv- States, and Australian-born Murdoch had already be- ing crosses national borders, and rich countries’ gov- come a U.S. citizen so that he could buy a set of Amer- ernmental aid to the foreign poor, per person, has ican TV stations. But his experience across English- been calculated to be one thirty-thousandth the size

10 Harvard Business Review May 2011 For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org

Idea in Brief Much of the management writing on globalism Strategy Organization People adopts the Enlightenment-era ideal of world citizen- In the medium Companies must Corporations will ship. Unfortunately, this is not realistic. The vast term companies think about how to have to develop majority of firms are deeply rooted in their home should emphasize reduce or exploit a cosmopolitan countries. Even more important, so are the firms’ adaptation more external differences mind-set in people customers, employees, investors, and suppliers. than aggregation by managing inter- who have normal Given this reality, global firms and managers must or arbitrage. nal, organizational or typical attitudes adopt a cosmopolitan approach of understanding distances. and biases. and working with differences rather than against them. This has three implications:

of aid to the domestic poor. As another 18th-century It’s not just firms that are deeply philosopher, David Hume, pointed out, “Sympathy… [is] much fainter than our concern for ourselves, and rooted in their home countries; it’s sympathy with persons remote from us much fainter their employees and customers. than that with persons near and contiguous.” This is the reality of what I call World 3.0, a world that is neither a set of distinct nation-states (World map resembles world maps that size countries ac- 1.0) nor the stateless ideal (World 2.0) that seems im- cording to measures such as population and GDP, but plicit in the strategies of so many companies. Home it focuses on measures that reflect a particular coun- matters in such a world, but so do countries abroad. try’s perspective. An Indian IT services company, for And instead of everything being equally near or far, example, might use rooted maps like those in the as German philosopher Martin Heidegger proposed exhibit “How Important Is Distance?” The first map in 1950, the law of distance continues to apply to takes a general Indian perspective by sizing countries many activities. As distances—geographic, cultural, according to their share of India’s international trade. administrative/political, and economic—increase, The second takes an industry view, with each country cross-border interactions tend to decrease. It’s cer- drawn according to the size of its IT services market. tainly possible to have a global strategy and a global The third map combines the two perspectives, sizing organization in such a world. But they must be based countries on the basis of their purchases of Indian IT not on the elimination of differences and distances services. among people, cultures, and places, but on an under- To gain insights, you need to make comparisons standing of them. The mind-set, strategy, organiza- across maps and think about what kinds of distance tion, and employees of these firms will not be ori- influence the patterns they reveal. In this case, the ented toward the global citizenship model implicit in first map shows how India’s general trade pattern is corporate rhetoric. Instead, they’ll start with a strong sensitive to geographic distance, natural-resource grasp of one’s roots and what’s distinctive about availability, and historical connections. Nearby coun- them, recognize relative similarities and differences, tries in Asia and along the resource-rich Persian Gulf and flag the differences particularly worth watching are among its major trading partners, and we also see out for. Because denying the existence of differences the legacy of India’s historic ties to the former British doesn’t make them any easier to deal with. Empire. The second map shows, unsurprisingly, that the largest IT services markets are the most advanced Building a Cosmopolitan economies, whose per capita incomes make them Understanding distant economically from India. Most executives’ opportunity assessments rank The first two maps suggest that without a more markets by size, growth rate, and other indicators of careful analysis, an Indian IT firm might follow India’s long-term potential, such as demographics. In this general trade ties to the nearest major market—conti- approach, distance from a firm’s home base or cur- nental Europe. Indeed, one of the first large software rent markets is always a challenge to be overcome. projects offshored to India was for a Swiss clearing- One way to break out of this trap is to use what house. But the third map reveals that in IT services, I call a rooted map to ground your analysis. A rooted linguistic distance matters more than geographic

May 2011 Harvard Business Review 11 The Cosmopolitan Corporation

How Important Is Distance? The rooted maps below size countries according to their share of trade with India, their share of global IT spending, and their consumption of Indian IT services. They highlight how different kinds of distances matter for an Indian IT firm in search of growth. distance. Upwards of 85% of India’s IT exports go to English-speaking countries. Though that makes con- tinental Europe an obvious area for potential growth, india’s Bilateral india’s general trade pattern is sensitive to geographic distance, natural resource avail- operations there are usually less profitable than those trade pattern ability, and ties to the former British empire. in the major English-speaking geographies. This example should make clear the importance GermAny 4% irAn 3% ChinA 12% of considering multiple types of distance and con- ducting analyses at the industry level. Your sensitiv- UK 3% ity to 1,000 miles of geographic distance is obviously USA 9% much greater if you manufacture heavy goods than if you offer an online service. On the other hand it’s less important to share a common language if you export cars than if you provide online training.

UAe 7% Rooted mapping is not just a global exercise. You need to analyze differences across regions and within SAUdi ArAbiA 5% countries as well. Indeed, the bulk of economic activ- SinGApore 4% ity still takes place within national borders, and large gains can be achieved by carefully managing differ- ences between provinces, ethnic groups, or language World it services advanced countries are the largest it communities. For example, though nationalism and spending services markets. separatism are prominent in Spain’s Basque Country, that region’s trade with the rest of Spain is still 50% GermAny 6% greater than its trade with the rest of the world. If ten- sions between the Basque Country and the central government in Madrid were reduced, Basque trade with the rest of Spain would presumably rise. UK 11% USA 40% Companies and individuals vary in their ability to FrAnCe 4% JApAn 12% manage the same external distances. Businesses and executives from small home countries, for instance, are often more accustomed to dealing with cross- ­border differences than those from large home coun- tries. Since Finnish norms aren’t common in most of the markets Nokia sells to, its managers have had to learn how customers in other countries think. Ameri- cans, by contrast, are more likely to project their val- ues or feel that other people need to do the changing. exports and Domestic For indian it firms, linguistic distance is an especially large consideration: english- Executives also need to think about how rooted Consumption of indian speaking countries account for most of their maps are evolving. Which kinds of distances are it services business. expanding and which are contracting? What factors are driving those changes? In the current environ- ment of protectionist rumblings and more-assertive governments, administrative and political distances seem to be increasing. And the shift in the locus of UK 18% growth to large emerging markets—especially to USA 61% the smaller interior cities within them—also adds distance along several dimensions for a typical U.S. or European multinational, which must learn how to bridge cultural and political differences and vast economic and geographic divides. On the other hand, trade agreements and new communications

and transportation technologies can contract dis- Beehive Cartography: Mapping

12 Harvard Business Review May 2011 For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org

Companies are realizing that widely dispersed, low-cost supply chains make them vulnerable to protectionism, rising transportation costs, and quality issues.

tance (though the impact of new technologies is of- tive foreign investor across many locations but will ten overblown). In each case, the insights you glean pay careful attention to the cultural, political, and from a careful analysis will inform your strategic and economic impact of its investment decisions. (For an organizational choices. influential conception of rooted cosmopolitanism at the individual level, see Kwame Anthony Appiah’s Crafting the Cosmopolitan Strategy book The Ethics of Identity.) In my 2007 book, Redefining Global Strategy, I de- Finally, and perhaps most important, adapta- scribed three fundamental ways that companies can tion strategies are better suited to the opportunities create value across borders: the “AAA strategies” of opened by the shift in the locus of global growth. adaptation, aggregation, and arbitrage. Adaptation With growth slow in Western markets, Western strategies try to adjust to differences between coun- companies must compete in big emerging markets tries and respond to local needs. Aggregation strat- like China and India. But they can’t force their way egies attempt to overcome differences to achieve in. They also cannot prosper by continuing the old economies of scale and scope across national borders. practice of targeting elite customers in big cities, Arbitrage strategies seek to exploit differences—by, who tend to be more like customers back home. say, buying low in one country and selling high in an- Western firms will need to take local competitors other. I advised managers to tailor a combination of seriously and consider extending their presence to these strategies to their company’s industry, position, second- and third-tier cities, where more adaptation capabilities, and intent. will be required. Though the AAA strategies remain the relevant But it is unfeasible to invest in every market in the consideration set for cosmopolitan corporations, in world in an adaptive way. You need to zero in on the the medium term it may make sense for many compa- places where you’re best positioned to add real value. nies to emphasize adaptation more than aggregation That requires really understanding selected mar- or arbitrage, given the public’s current sentiment to- kets and demonstrating deep commitments there to ward globalization. Such medium-term adjustments, customers, suppliers, governments, and the public however, must be checked against longer-­term plans at large—a far cry from the imperialist approach of and expectations about how a firm’s industry might pushing globally standardized products and pressing evolve, because it can take years for companies to ex- others to conform to your way of doing business. ecute meaningful shifts among the AAA strategies. The rationale for strengthening adaptation is Designing the Cosmopolitan threefold. First, if companies become more respectful Organization of differences, people may be less inclined to demand When making choices about supply chains, organiza- protectionism. Second, when companies acquire for- tional structure, foreign investment, and cross-border eign assets with little apparent rhyme or reason, as innovation, a cosmopolitan firm thinks about how to many did before the crash, they come across to the alter internal, organizational distances in response to public as voracious and greedy. Showing regard for changes in external differences. Take supply chain the sovereignty, uniqueness, and internal diversity of decisions. The trend toward significant offshoring foreign markets can go a long way toward improving will most likely continue. But many companies are companies’ reputations and, more broadly, the envi- becoming concerned that widely dispersed, low-cost ronment in which business as a whole has to operate. supply chains make them vulnerable to protectionist The rooted cosmopolitan corporation will be an ac- governments, rising transportation costs, and quality

May 2011 Harvard Business Review 13 The Cosmopolitan Corporation

teams are much less international. This is true even The most critical ingredient for the very largest firms. But simply adding foreigners to the management in a world that demands ranks won’t make a firm cosmopolitan. First, their adaptation is a diverse numbers must reach a critical threshold; a few to- ken foreigners will probably have little impact. And management team. second, when you put people of various nationalities together in a single corporation, you have to manage that diversity very carefully. Research suggests that problems. Some are taking steps to make their sup- unmanaged diversity is more likely to have negative ply chains shorter, simpler, and stronger, in effect than positive effects on group performance. People reducing internal distance within their production are more inclined to trust their fellow nationals, networks to better manage their exposure. which often exacerbates tensions between headquar- When it comes to innovation, many firms are sim- ters and managers in far-flung foreign operations. ilarly readjusting internal distances to reduce their And other research indicates that people’s inclination sensitivity to external distances. In some cases this to show sympathy is even more sensitive to cultural leads to an increase in internal distances. Innovation similarities. for emerging markets, for example, often requires People whose backgrounds are rooted in multiple different business models, not just whiz-bang tech- cultures—so-called biculturals or triculturals—can nology. Corporate R&D labs located close to home in play useful bridging roles in organizations. Studies advanced markets may excel at creating technology, also show that nationalism and suspicion of outsid- but firms seeking to develop products and business ers both decrease as a person’s education level rises; systems for markets abroad will increasingly need the one study found this to be true across the board in informed creativity that only boots on the ground in 10 countries with quite different educational sys- those markets can provide. This suggests that West- tems. But large corporations can’t rely on filling their ern multinationals may keep research mainly in the management teams with individuals possessing West but push development out to the large emerging bicultural or tricultural backgrounds and advanced markets. The street isn’t one-way, of course; there’s a scholarly degrees. They will have to develop rooted lot of discussion now about transferring innovations cosmopolitanism in people who have an average up- from the emerging markets back to developed coun- bringing and education. tries and adapting them for wealthier customers. As the mix of a company’s activities across coun- Cultivating the Cosmopolitan Leader tries changes, it’s often wise to reexamine reporting My own perspective is greatly influenced by my par- relationships. Do they create unnecessary internal ticipation over the past two years in the Globalization distance by routing too much through headquar- of Management Education Task Force of the Asso- ters? Which decisions should be made at the coun- ciation to Advance Collegiate Schools of Business. I try level? The regional level? The global level? More wrote the portion of that group’s report that focused adaptation in a strategy might mean giving more au- on what business schools should teach their students thority to country managers. Should some functions about globalization and how—advice that could also be shifted from headquarters into regions where help companies develop more-cosmopolitan manag- more of the related work actually gets done? ers. (See “Responses to Forces of Change: A Focus on Perhaps the critical organizational ingredient in Curricular Content,” The Report of the AACSB Inter- a world that demands adaptation is the composi- national Globalization of Management Education Task tion of the management team. Most corporations Force, February 2011.) Four of the levers I identified are far from cosmopolitan. Even though GE deploys seem particularly well suited to a corporate context. roughly half its assets in and generates half its rev- Conceptual frameworks. It’s overwhelming enues from markets outside the United States—and to try to develop an understanding of diverse places is justly famed for the breadth and depth of its top by studying them one by one—not to mention, to management—I reckon that about 80% of its top 200 develop general knowledge of a variety of places all managers are Americans. And among the vast major- at once. But a survey of academic thought leaders ity of firms from emerging economies, management points to the usefulness of conceptual frameworks

14 Harvard Business Review May 2011 For article reprints call 800-988-0886 or 617-783-7500, or visit hbr.org Fostering the Right Mind-set Companies can help their employees develop that emphasize the multiple dimensions of differ- cosmopolitan just make a platform available and expect it to be ences among countries. My own CAGE framework, attitudes by readily embraced worldwide. which categorizes distance along the dimensions pulling on four Assessment tools. Scholars have created a vari- of culture, administration/politics, geography, and key levers: ety of assessment tools to reinforce programs aimed economics, is a fairly widely used one. Such frame- at improving international skills. In the AACSB re- works bring order to masses of facts and fine-tune port, I propose that every MBA graduate—and pre- one’s perceptions of foreign countries. Incorporat- sumably, every global manager—have a minimum ing them into executive training can be very helpful. body of globalization-related knowledge, including: When businesspeople can make only short trips into Conceptual • A handle on levels of and changes in cross-border a particular country, the ability to draw on frame- frameworks integration of markets of various types. works can amplify what they learn on their visits— bring order to the mass • An understanding of how differences between of facts about foreign and help reduce the chances that they’ll make costly countries and help fine-tune countries can influence cross-border interactions— missteps. executives’ perceptions. and how to look at them at the industry level. Longer and deeper immersion. Research • Awareness of the benefits of additional cross- shows that living abroad expands your mental hori- border integration, and some perspective on the zons and increases your creativity. However, merely problems it’s alleged to produce. traveling abroad doesn’t produce this benefit. Ex- Longer and Other assessment tools focus on mind-sets rather ecutives report that it takes at least three months deeper immersion than knowledge. One that will allow readers to com- to become immersed in a place and appreciate how is necessary to develop a pare their mental openness to the world with that of the culture, politics, and history of a region affect true appreciation of how the a highly international group of MBA students at a top culture, politics, and history business there. A number of leading MBA programs of a region affect business school is the Global Attitude Protocol that I devel- therefore incorporate long visits to sister or second- there. That tends to require oped, which can be found at www.ghemawat.com. ary campuses abroad rather than short visits that are months, not weeks or days. In addition to pulling on these four levers, compa- often privately acknowledged to be little more than nies need to beware of behavioral and cognitive traps. business tourism. So, though an anti-expatriation For example, when managers do look at differences, bias exists in many companies, it’s important for they often focus on the most obvious ones while ig- executives to recognize that short-term stays have a Projects and noring smaller ones. Yet smaller differences may be limited impact. My advice to companies is to recon- networks more important. For a Portuguese firm thinking of sider expatriation, especially for their high-potential that cross international bor- selling abroad, at least some of the differences and ders soften the ethnocen- managers. Of course, the high potentials may resist trism of the executives that the challenges of the Chinese market will be obvious. leaving their home countries for family reasons—or participate in them. But those of the Spanish market may attract less at- because it still seems to take longer to get promoted tention, even though Spain is the first foreign target at many multinationals if your career path has taken for many Portuguese firms, and many stumble there. you far from home base. Senior executives will need to create the right incentives for emerging leaders to Assessment tools We should have been skeptical about the false ideal invest in a cosmopolitan education. can help companies get of statelessness from the start. “The Stateless Corpo- a read on managers’ Projects and networks. Participation in inter- global skills and knowl- ration” came out only three months after Business- cultural activities and networks (which corporations edge, and target areas for Week had run another cover story, with the subtitle can easily facilitate through international projects) improvement. “Does the U.S. Need a High-Tech Industrial Policy to tends to soften ethnocentrism. Here, businesses have Battle Japan Inc.?” It’s no different today. For every certain advantages over business schools. They can article or book you read about the world being flat, provide stronger incentives promoting particular be- you’ll read another that highlights the rise of state haviors that cultivate cosmopolitanism, have the op- capitalism and the economic rivalries between China, portunity to work with key executives over a longer India, and the United States. It’s worth reemphasizing time horizon, and can bind together diverse groups that the world is neither a collection of autonomous by promoting shared values, culture, and processes. nations (World 1.0) nor perfectly flat (World 2.0), but They also have more scope to leverage online col- semiglobalized, with some places being much closer laboration, translation, and social-networking tools, to home than others. In such a world, rooted cosmo- which very few companies (or business schools) fully politanism is a more realistic and, ultimately, more exploit. But they must be mindful of cross-cultural useful objective than statelessness. differences in the use of such technologies; you can’t HBR Reprint R1105F

May 2011 Harvard Business Review 15 HBR.ORG JULY–AUGUST 2014 REPRINT R1407J

THE HBR INTERVIEW “I Came Back Because the Company Needed Me” An Interview with Yang Yuanqing by Adi Ignatius THE HBR INTERVIEW Lenovo CEO Yang Yuanqing FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG

“I Came Back Because the Company Needed Me”

SOME CEOS COME ACROSS AS PHILOSOPHERS, AND SOME JUST SEEM TO love selling stuff. Yang Yuanqing, the 49-year-old head of the Chinese com- puter giant Lenovo, is among the latter. And he’s one of the best in the game.

Yang, who studied computer science in his na- Yang has turned things around, pursuing a strat- tive China, assumed the reins in 2001, when the egy the company calls “protect and attack”—de- company’s founder, Liu Chuanzhi, moved on to fending its core market in PCs while moving into become chairman. Yang served as CEO for three new growth areas such as mobile and the cloud. years before succeeding Liu as chairman, and he Earlier this year the company made two more eye- and Liu engineered the stunning 2005 acquisition popping acquisitions, spending $2.3 billion for IBM’s of IBM’s personal computer business. The deal sud- low-end server business and $2.9 billion for Google’s denly made Lenovo (formerly known as Legend) the Motorola Mobility unit. world’s third-largest computer maker. In 2009, after As a leader, Yang is probably best known for his Lenovo had begun to falter during the global reces- efforts to break down Lenovo’s hierarchies and sion, the board asked Yang to return as CEO, a post empower employees at every level—and for his

PHOTOGRAPHY: LISSA GOTWALS PHOTOGRAPHY: he’s held ever since. well-publicized generosity. In 2012 he opted to share

COPYRIGHT © 2014 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. July–August 2014 Harvard Business Review 18 “I CAME BACK BECAUSE THE COMPANY NEEDED ME”

well more than half of his $5.2 million bonus—and We pursue a clear strategy and execution; we have in 2013 more than three-quarters of his $4.23 million an efficient business model; we innovate on our bonus—with Lenovo employees. Yang spoke with products and technology; and we have a diverse HBR’s editor in chief, Adi Ignatius, in Morrisville, team and culture. Innovation is in our genes. We’ve North Carolina, where Lenovo maintains one of its developed products such as the ThinkPad, which two headquarters (the other is in Beijing). has become iconic in the commercial-customer seg- ment. And we’ve expanded innovation to the con- HBR: Lenovo recently became number one in world- sumer space, with our Yoga PC and tablet. wide PC sales. That’s obviously a great accomplish- ment, but is it also a reason for concern, given that OK, but people tend to talk about Apple as the the global PC market is shrinking? ideal example of an innovative company. What Yang: When we bought IBM’s PC business, almost 10 does Lenovo do better than Apple? We know how years ago, we never thought such a thing was pos- to balance innovation and efficiency. For some sible. It’s a dream come true. But we know the world companies, innovation means an expensive prod- is changing. This is no longer the PC era; it’s the “PC- uct. That’s not Lenovo’s philosophy. We want in- plus” era. So we want to win in other areas: mobile, novation to be affordable for most of our custom- tablets, back-end servers. ers. We have premium products, sure, but we aim most of our products at mainstream or entry-level Who do you think are your biggest competitors in customers. the PC-plus world? Apple and Samsung, of course. For now, we’re a solid number three. But we won’t Apple has very few products and a relatively lim- stop there. Over time we’ll challenge them. ited product range. Lenovo has lots of products for different sectors of the market. Do you plan to How do you take on giant, innovative companies change your approach? No, we don’t. We want to like Apple and Samsung? We are an innovative cover more customers with rich product offerings company as well, and we have a successful formula. along the full price range.

Lenovo Goes Global BIG ACQUISITIONS HAVE HELPED DRIVE BUSINESS SINCE THE COMPANY’S FOUNDING (AS LEGEND) IN BEIJING IN 1984.

REVENUE $2,594M $2,971M $2,892M $13,276M $14,590M $16,788M † OPERATING $125M $119M $133M $112M $195M $456M PROFIT 2003 2004 2005 2006 2007 2008 announces its new acquires IBM’s debuts worldwide name—Lenovo— personal computer the first Lenovo- in preparation division and branded products for overseas introduces the outside China expansion industry’s thinnest, lightest, and most secure tablet PC, the ThinkPad X41

Yang steps down as CEO to become chairman

STOCK PRICE

†NUMBERS HAVE BEEN RESTATED AFTER TAKING INTO ACCOUNT THE RESULTS OF THE MOBILE HANDSET BUSINESS (WHICH LENOVO SOLD ON MARCH 31, 2008, AND BOUGHT BACK ON JANUARY 31, 2010); NET GAIN ON DISPOSAL OF THAT BUSINESS ($58,223M) WAS EXCLUDED FROM THE NET PROFIT OF 2008 FOR COMPARISON PURPOSES. ‡FINANCIALS FOR THE MOBILE HANDSET BUSINESS ARE EXCLUDED DURING THIS PERIOD. SOURCES LENOVO; YAHOO FINANCE

19 Harvard Business Review July–August 2014 FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG

What do you think your best-selling product will be North America and Latin America. In China, too, in five years? Today PCs account for 84% of our total even though Motorola is hardly present now. We business. I think they will continue to be our core, plan to bring the brand back to China. And we with the tablet now part of this market. But I believe need this kind of IP to be a global player, particu- that two other markets—smartphones and the en- larly in mature markets. Plus, Motorola has strong terprise business—will grow faster than PCs. So in relationships with carriers and retail networks. five years, I hope to see a more balanced business. You also recently bought IBM’s server business. Let’s talk about your decision to buy Motorola from What’s your strategy in choosing acquisition Google. Why do you think Google couldn’t make it targets? We use what we call a triangle process. successful? Hardware is not its strength. Google is When deciding on developing a business, we an ecosystem business—with advertisements, apps, consider whether the market is big enough or at- and so on. It bought Motorola mainly for the IP, so it tractive enough; whether the business fits with wasn’t focusing on the hardware. our core; and whether we have the resources to make up for any strengths we might lack to make How did the deal come about? Right after Google it work. bought Motorola, in 2012, I had dinner at my house with [Google’s executive chairman] Eric Schmidt. Lenovo is often cited for sustaining a healthy I said to him, “Do you really think you can handle corporate culture. What’s the secret to that? We the hardware business? And if someday you can’t, focus on three elements. The first is an owner- just call me and I’ll buy Motorola from you.” A ship culture: We try to empower people to think year and a half later, he called me, and we quickly for themselves, to make decisions for themselves. reached an agreement. Everyone is an engine. The second is a commit- ment culture: If you commit to something, you What is Motorola’s value to Lenovo? The IP? The must deliver. And the third is a pioneer culture: branding? Both. The brand is very important in We encourage our people to be more innovative.

$14,901M ‡ $16,605M ‡ $21,594M $29,574M $33,873M ($192M) $219M $382M $584M $800M

2009 2010 2011 2012 2013 2014 Yang becomes introduces forms a joint acquires acquires CCE, a reaches Lenovo’s CEO for LePhone, the venture with NEC, Stoneware, a leading Brazilian agreement the second time company’s first creating the largest software firm electronics to buy smartphone PC company focused on cloud company; becomes Motorola in Japan, and computing, and number one in Mobility acquires Medion, enters into a global PC sales and IBM’s later becoming joint venture with x86 server the number one EMC to produce business PC company in external, portable, Germany and networked storage solutions

July–August 2014 Harvard Business Review 20 “I CAME BACK BECAUSE THE COMPANY NEEDED ME” HBR.ORG

How do you actually promote innovative behav- I understand that Lenovo doesn’t employ many ior? Is it a matter of creating the right incentives? expats. It’s true. We don’t assign people to other There are a lot of ways to do it. For example, I hold countries; we rely on local talent. That helps build monthly brainstorming sessions with our R&D team. a culture of trust and helps us understand different At each session we focus on one topic—it might be markets and industries. Throughout the company a product, a service, or a technology. Another ap- we employ only about 50 expatriates among our proach is through the budget. For our R&D people, 54,000 employees. we allow 20% of the budget to be flexible, so they can decide which areas they want to focus on and How important is your share price? Do you think what they want to develop. it’s a good measure of Lenovo’s performance? We don’t usually comment on our share price. It’s Are you a student of management ideas, or more how the market sees us. But our shares dropped of an instinctive leader? I tend to learn as I go, from to some extent after the two recent acquisitions. our company’s own experience. Investors worry about whether we can turn around Motorola’s business and whether we can make the IBM server business more profitable. We need to During my first stint as prove that we can make those deals work.

CEO, we went in a lot of Some analysts look at your “protect and attack” strategy and say you’re doing well with “protect” directions. We tried to but not as well with “attack.” That’s not right. When we bought IBM’s PC business, Lenovo was a $3 billion company. This year our revenue will be do too many things close to $40 billion. If we were just trying to “pro- tect,” we couldn’t reach such a level. Originally we simultaneously and lost bought only IBM’s commercial PC business. But after I returned as CEO, we decided to attack the sight of our core competence. consumer business, too. In just five years we be- came number one worldwide. And a few years Have you been through an instructive failure at ago I bought back the phone business that my Lenovo? Yes. During my first stint as CEO, I de- predecessor had sold. Today we’re the number cided to diversify away from the PC business. We two smartphone player in China and number four went in a lot of directions: internet service, IT ser- worldwide. These are clear examples of “attack.” vice, contract manufacturing, phones. We tried to do too many things simultaneously and lost sight People often say that no Chinese company has of our core competence. It was my mistake, and it become a truly global brand. Do you think you’re failed. But we learned how to think about finding there yet—a global brand like Apple or Coca-Cola? the right strategy. I can’t say we’ve made it. But we’re a pioneer— among the first brands that originated in China and Why did you come back as CEO in 2009? I came are now global. back because the company needed me. During the 2008–2009 financial crisis, Lenovo’s performance You moved your family to North Carolina sev- dropped significantly. We lost $200 million in one eral years ago. What has surprised you most quarter! It was very dangerous. So we had no choice. about the United States? I’m impressed with the The board asked me to do the job. education system. In China kids study mainly for the test, to get high scores. In the United What can U.S. companies learn from how Chinese States schools give kids the flexibility to learn what companies do business, and vice versa? I think they like. I’ve also discovered the value of work/life both can learn from us, because we’re not a U.S. or balance. In China we don’t go for balance. We just a Chinese company but a global company. Our top work all the time. 10 executives come from six different countries. HBR Reprint R1407J

21 Harvard Business Review July–August 2014