What Globalization Really Means

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A dozen years ago, Peter Drucker predicted what multinational corporations of the future would look like, saying that they were going “to be held together and controlled by strategy” rather than defined by who owned them.

“There will still be ownership, of course,” Drucker wrote in Managing in the Next Society. “But alliances, joint ventures, minority stakes, know-how agreements and contracts will increasingly be the building blocks of a confederation.”

Last week, Drucker’s vision came into full view. Bo Andersson, a Swede who served as a top executive at the American auto giant General Motors, was nominated to become the first foreign president of OAO AvtoVAZ, Russia’s biggest car maker, in anticipation of its takeover next year by a French-Japanese alliance of Renault and Nissan. (If you weren’t counting, that was five different countries mentioned in the preceding sentence.)

It is hardly news that the world is now tightly stitched together. But it is easy to lose sight of just how quickly and thoroughly globalization is taking place, and just how much it is changing the way businesses are being managed.

Andersson’s rise neatly captures the trends. AvtoVAZ tapped the 58-year-old industry veteran nine months or so before the Renault-Nissan deal is scheduled to be completed. The Russian government will retain a minority stake in the venture.

Renault and Nissan hope to revive AvtoVAZ, which has seen demand shrivel for its once-ubiquitous Lada, a boxy contraption long the butt of one-liners. (My favorite: What do you call the shock absorbers on a Lada? Passengers. Another: What do you call a Lada driver who says he has a speeding ticket? A liar.) The vehicles built by the reconstituted enterprise will be decidedly more Western in their look and feel, feeding a sensibility that Drucker believed was at the heart of our shrinking world.

“Globalization is not an economic event; it’s a psychological phenomenon,” he observed. “It means that all of the developed West’s values—its mindset and expectations and aspirations—are seen as the norm.”

This idea crystalized for Drucker when, in 2001, he was visited by an old student of his—a native of Taiwan who was then working in Shanghai. “What’s the most important thing that has happened in China the last three to five years?” Drucker asked him.

The former student thought for a few seconds and then replied: “That we now consider owning an automobile a necessity, and not a luxury.”

The same is true in Russia, which analysts expect to pass Germany and become the largest car market in Europe. But exploiting such opportunities requires a particular set of skills that many companies—even big companies—lack.

For example, there is a need to choreograph the actions of an ever more complex web of global suppliers, extracting value at every turn. “Knowing the cost of your operations . . . is not enough,” Drucker wrote in Management Challenges for the 21st Century. “To succeed in the increasingly competitive global market, a company has to know the costs of its entire economic chain and has to work with other members of the chain to manage costs and maximize yield.”

Andersson, who oversaw worldwide purchasing for GM, is especially well suited for this task. While at the Detroit company, he earned a reputation for his mastery over the details of a vast supply chain, as he pushed for more and more accountability from GM’s parts manufacturers. When an executive from one of them offhandedly accused Andersson of sucking his suppliers dry, he responded by donning a vampire costume.

But Andersson is far more Drucker than Dracula. For the past four years, he has spearheaded an impressive turnaround at Russian truck maker GAZ Group. He began by taking the necessary step of cutting tens of thousands of jobs (no simple thing in a country with a strong Communist legacy) and more recently started offering employees generous incentives (through a profit-sharing program). But while these moves have depended on a keen grasp of local politics and culture, Andersson has also kept an eye on the international scene, with GAZ becoming a contract assembler for GM, Volkswagen and Daimler’s Russian subsidiary.

Drucker saw this balancing act as a hallmark of business today—“the need to operate in both a global world economy and a splintered world polity.”

Finally, Andersson insists that all of his operations are truly first-rate, or are at least moving in that direction—another trait that Drucker deemed essential.

“No institution can hope to survive, let alone succeed, unless it measures up to the standards set by the leaders in its field, anyplace in the world,” Drucker wrote. “This is true particularly in manufacturing. . . . Performance below the world’s highest standards stunts, even if the costs are very low and even if government subsidies are very high.”

At GAZ, Andersson modernized factories, improved logistics and had his workers trained in the latest production techniques. At AvtoVAZ, he is sure to do the same.

If he rejuvenates the company—and it’s a good bet that he will—you can then forget all those old Lada jokes. Andersson, the globetrotter, will have had the last laugh.