SIX KEYS TO GLOBALIZATION

President & Representative Director, Arthur D. Little (Japan), Inc. Past President, American Chamber of Commerce in Japan Glen S. Fukushima

July 2000

要旨

How can companies cope effectively with globalization? This is the central business question as we approach the dawn of the 21st century. It is the question that all companies must confront and answer as deregulation, megacompetition, and information technology have led to an acceleration of the pace of change for companies competing in the global marketplace. And more than at any time in the postwar period, Japanese companies are being forced to respond to the new realities posed by market forces.

For companies that want to compete effectively on a global scale, rapid changes in six elements of globalization are key for formulating and implementing effective corporate strategies:

（1）Political environment. The end of the Cold War, symbolized by the fall of the Berlin Wall in November 1989, has created a world in which political borders are receding and market forces are spreading, thereby opening up new markets for trade and investment. China, Vietnam, Russia, the countries of Eastern Europe, and others are now adopting market-oriented policies to promote economic growth and development. Recent developments on the Korean Peninsula may augur a significant opening of even North Korea to market forces in the not too distant future. Global companies are now being forced to prioritize their businesses and to deploy their resources in the most efficient way in order to compete effectively in the global marketplace.

（2）Demand-side factors. New and more rigorous requirements are being made on governments and companies by constituents, clients, and customers. The globalization of companies and the intensification of competition have resulted in new products and services that must be developed to satisfy the needs of these companies and individuals. A good example is the heightened demand for seamless, high quality, low priced, reliable telecommunications services by companies that are expanding their global presence and by individuals who are traveling globally, either for business or pleasure. The ability to respond quickly and effectively to increasing demand from users is key to determining which companies will survive and prosper and which will wither and die in the 21st century.

（3）Supply-side factors. These are the behaviors of companies and other actors that are forcing competitors to respond. For instance, cross-border megamergers, consolidations, joint ventures, and strategic alliances are being concluded almost every day in finance, telecommunications, automobiles, chemicals, energy, pharmaceuticals, and other global industries. This has in many cases intensified competition and brought about fundamental changes in the structure of certain industries. It has also created new challenges for government regulators, who must deal with novel cross-border and, in many cases, cross-industry arrangements whose impact on competition may be difficult to predict.

（4）Deregulation. Market-oriented government policies encouraging liberalization, deregulation, and competition are having a profound impact on the structure, conduct, and performance of companies. And this is taking place at the global, regional, and national levels. Japan's telecommunications industry, for instance, is experiencing more change now than at any time in recent history as a result of the global (e.g., WTO and ITU), regional (e.g., APEC), and national (e.g., restructuring of NTT) initiatives for change and reform taken by the national government and other regulatory authorities. In the United States, the enactment of the Telecommunications Act of 1996 has dramatically shifted the terms of competition for telecommunications companies. Similarly, the recent abolishment of the Glass-Steagall Act of 1934 allows for the same firm to engage in the banking, insurance, and securities business. Thus, changes in laws and regulations are having a profound impact on the strategy and behavior of individual Japanese companies. And unlike the past, the so-called "convoy system" has been attenuated so that firms are finally feeling the need to come up with a distinctive, firm-specific strategy focused on core competencies.

（5）Technology. New developments in the technology of production, operations, logistics, administration, transportation, and telecommunications are resulting in dramatic changes in the nature of competition. For instance, the use of the Internet, especially in the context of electronic commerce, is revolutionizing practically every industry in the United States, from bookstores to stock brokerage firms to travel agencies to banks. Japan is just beginning to adopt new information technologies that will reduce time, distance, and transaction costs and increase the quality and quantity of information available to both sellers and buyers. The Internet is increasing the productivity of individuals, the competitiveness of companies, and the efficiency of governments. According to a report on the "Digital Economy" released by the U.S. Department of Commerce on June 5, 2000, more than one-third of the growth of the U.S. economy between 1995 and 1999 can be accounted for by the use of information technology. In the United States, information technology is seen as a second industrial revolution that will dramatically change not only how business is done but also such diverse areas of life as government, politics, education, medicine, leisure, sports, culture, and lifestyle as a whole.

（6）Workforce. The globalization of corporations is leading to greater mobility, diversity, and specialization of the workforce. It is no longer uncommon to find, say, a Swiss national working in the Singapore office of an American company. Global corporations are competing for the best talent, regardless of nationality and gender, and it will increasingly be common to find no alignment between the place of work, the nationality of the employee, and the country where the company's headquarters are located. Japanese companies that expect to compete effectively on a global scale will also need to recruit and retain the best talent, even if it means not selecting the traditional Japanese male for every decisionmaking position. And managing the increasing diversity of the global workforce will be another major challenge.

Dealing effectively with rapid change in these six sets of factors - political environment, demand-side factors, supply-side factors, deregulation, technology, and workforce - are top priority issues for every CEO who heads a global company. In fact, one could argue that it was the inability or unwillingness of many Japanese companies to respond effectively to these rapid changes in the business environment in the 1990s that has led to the current stagnation. In some sense, confidence in the success of the past has made it difficult to undertake fundamental change in Japan, rhetoric to the contrary notwithstanding.

For a variety of historical, social, cultural, and other reasons, the pace and scale of "change" in Japan may be more modest, incremental, and carefully managed than in many other industrialized countries. Thus, although there is considerable change taking place in Japan if one compares Japan today to Japan ten or even five years ago, this is not to say that Japan is converging to become like the advanced industrialized countries of the West. Nor is there any need for Japan to do so.

At the same time, it is no longer possible for Japan to be sheltered completely from the market forces that are operating around the world. I am confident that Japan, true to its history and tradition, will exhibit considerable flexibility, ingenuity, and resourcefulness in responding successfully, and in its own way, to the growing forces of globalization.