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Organizing for Global Advantage in China, India,and Other Rapidly Developing Economies

BCG REPORT

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Organizing for Global Advantage in China, India,and Other Rapidly Developing Economies

ARINDAM BHATTACHARYA

JIM HEMERLING

DAVID MICHAEL

RON NICOL

TJUN TANG

KEVIN WADDELL

JOHN WONG

M A R C H 2 0 0 6

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© The Boston Consulting Group, Inc. 2006. All rights reserved.

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Table of Contents

A Word from the Authors 4

The Global Organizational Challenge in Context 6A Misalignment Between Resources and Opportunities 6The Specific Challenges of Operating in Rapidly Developing Economies 7The Organizational Framework for Global Advantage 9

Engaged Leadership 11Setting Bold Goals 11Ensuring Senior-Level Sponsorship 11Orchestrating Resources 12Overcoming Barriers 13

Collaborative Structures 14Optimizing Global/Local Tradeoffs 14Managing the Inherent Tension Between Business Units and Country Management 15Making the Matrix Work 15Enabling Collaboration 18

Continuous Talent Development 20Establishing a Pipeline of Globally Capable Local Managers 20Identifying and Grooming High-Potential Local Talent 20Developing Leaders with Global Perspectives 21Making Succession Planning Explicit 21Creating Continuity in RDE Leadership 22

Common Processes 23Leveraging Existing Global Processes 23Capturing the Benefits of Localization 23Sharing Best Practices Across the Organization 23

Shared Platforms 24Choosing and Deploying Shared Platforms 24Using Shared Services Effectively 24Establishing Value-Adding Platforms 24Forging Effective Alliances and Partnerships 25

Core Values 26Leading by Example 26Implementing Values Deployment Programs 26

Making It Happen 27Facing Reality 27Choosing the Right Organizational Stage and Pace 27Developing an Organizational Road Map 27Leading the Way 28A Call to Action 28

Organizing for Global Advantage in China, India, and Other Rapidly Developing Economies

As globalization continues to accelerate, virtually every major company is confronting unprecedentedopportunities and challenges raised by the emergence of rapidly developing economies (RDEs) such asChina, India, and other countries in Asia, Central and Eastern Europe, and Latin America. Many companiesare already seeking competitive advantage in RDEs, whether through sourcing, manufacturing, selling, orconducting R&D. Others are still exploring the implications of globalization for their customers and forthemselves.

RDEs are not all the same. Their growth patterns, market potential, and competitive environments are allquite different. Today, for example, many companies rank China and India far higher than most other RDEsin terms of their strategic importance for both market development and sourcing. Business leaders need tothink differently about these high-priority RDEs—not just strategically but also in terms of investment,resource allocation, senior-management attention, tolerance of risk and uncertainty, cycle times for man-agement reviews, and organizational tradeoffs and platforms.

Despite the diversity among RDEs, there is remarkable consensus about one aspect of the challenge theypresent. Almost all the senior executives BCG works with, regardless of their particular company’s level ofglobal activity, cite the development of an effective global organization as one of their foremost concerns.In this report, we focus on precisely this issue. Our goal is to answer one very pragmatic question: What arethe organizational practices and design principles of companies that are operating successfully in RDEsaround the globe?

There is no single right form of organization for all companies and no easy answer for any company. Chinais a very different place from the Czech Republic; and even within a given country, individual markets andactivities can present unique circumstances and organizational requirements. Moreover, all organizationsare continually evolving. Our experience suggests—and our research confirms—that certain practices andperspectives are proving to be particularly helpful to companies as they launch or expand their activities in RDEs.

The insights in these pages have emerged from many sources. We have drawn on our own extensive experi-ence working with leading companies in a range of industries as they establish and maintain operationsaround the world. We have also conducted a series of focused conversations on this topic with senior man-agers of leading multinational companies active in RDEs. Our criterion for selecting these companies wasthat they have been successful in increasing their presence in RDEs in terms of at least two of four key activ-ities: sourcing, manufacturing, selling, and conducting R&D. We spoke with executives on the frontlines inthe RDEs and at the corporate center, and with managers in line and functional roles. We also conductedthe BCG 2005 Organizing for Global Advantage Survey—a broad Web-based survey of companies with globaloperations.

We thank everyone who contributed to this report, especially

• the many senior executives at leading global companies who graciously shared with us their first-handexperience; their kind collaboration has deepened our understanding and greatly enriched this report

• our BCG colleagues who offered us their valuable insights into this topic: Felix Barber, Mark Blaxill,Thomas Bradtke, Giles Brennand, Sumeer Chandra, Andrew Dyer, Philip Evans, Grant Freeland, PeterGoldsbrough, Hubert Hsu, László Juhász, Beth Kaufman, Venu Krishnamurthy, Arun Maira, Yves Morieux,Xavier Mosquet, Stefan Rasch, Alison Sander, Ulrik Schulze, Chuck Scullion, Hal Sirkin, George Stalk, CarlStern, Andrew Toma, and Bob Wolf

A Word from the Authors

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5Organizing for Global Advantage in China, India, and Other Rapidly Developing Economies

• the project team of Yan Jiao and Geoffrey Tsang, who provided invaluable research and analysis and sup-ported the development of this report

• the editorial and production team: Katherine Andrews, Gary Callahan, Bonnie Fong, Elyse Friedman, KimFriedman, and Kathleen Lancaster

Our goal in creating this report is to offer practical guidance, gleaned both from our own hands-on experi-ence and from the real experiences of leading companies that are already operating on this exciting newfrontier. We hope you will find this report useful, and we welcome your comments.

Arindam BhattacharyaVice President and DirectorNew [email protected]

Jim HemerlingSenior Vice President and [email protected]

David MichaelSenior Vice President and [email protected]

Ron NicolSenior Vice President and [email protected]

Tjun TangVice President and [email protected]

Kevin WaddellVice President and [email protected]

John WongSenior Vice President and DirectorHong [email protected]

Multinational companies have been grappling formany decades with the question of how best toorganize globally. What is new today is the contextin which such organizations must operate. Recentdevelopments around the world have both raisedthe stakes and intensified the challenges. A largeportion of global commerce is in the process ofquickly migrating from established markets toRDEs, fueled by the five currents of activity drivingglobalization.1 These currents are

• the rapid growth of RDE markets

• the continuing cost and capital advantages of RDEs

• the development of talent and capabilities in RDEs

• the migration of customers to RDEs

• the emergence of RDE-based competitors

Today the prize for getting global organizationright is huge—as is the price to be paid for gettingit wrong. In this section, we examine the potentialfor misalignment between resources and opportu-nities, and highlight the unique challenges of oper-ating in RDEs.

A Misalignment Between Resources and Opportunities

At the macroeconomic level, a massive shift isunder way in the world’s economic center of grav-ity. China, India, Central and Eastern Europe, andLatin America already produce a sizable portionof the world’s gross domestic product (GDP) andare forecast to capture about 40 percent of theworld’s GDP growth over the next ten years.

These global structural shifts are confirmed at thecompany level. Respondents to our survey expect dra-matic increases in manufacturing, sourcing, sales, andR&D activity in RDEs through 2010. (See Exhibit 1.)

The Global Organizational Challenge in Context

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2

Percentage of survey respondents

Manufacturing Sourcing Sales R&D

2005 2010 2005 2010 2005 2010 2005 2010

Percentage of global activity in RDEs:

33

11

36

33

21

31

10

25

41

7

32

39

20

34

720

32

9

49

42

12

34

716

76

18

52

5

9

9

31

10% or less 11%–30% 31%–50% more than 50%

E X H I B I T 1

COMPANIES ARE SHIFTING MORE OF THEIR ACTIVITIES TO RDEs

SOURCE: BCG 2005 Organizing for Global Advantage Survey.

NOTE: Percentages do not necessarily add up to 100 because of rounding.

1. For a detailed discussion, see Navigating the Five Currents of Globalization:How Leading Companies Are Capturing Global Advantage, BCG Focus,January 2005.

Similarly, almost all the companies we surveyedplan to increase their investments in RDEs signifi-cantly in 2006. (See Exhibit 2.) Sales, sourcing, andmanufacturing are areas in which they plan to focusmost of their RDE investment, with R&D spendinglagging.

Of all the RDE countries and regions, China isreceiving the most investment across all four areasof business activity. However, India, Central andEastern Europe, and Latin America are stronginvestment destinations as well. (See Exhibit 3,page 8.) The trend toward broader RDE investmentportfolios involving a mix of activities across moreregions will pose major challenges to companies’traditional organizational paradigms.

Although these companies expect to achieve some34 percent of their sales from RDE markets by 2010(up from 21 percent at the end of 2005), they havelocated only 18 percent of their employees, 13 per-cent of their assets, and 10 percent of their top 200managers in these regions to support that growth.(See Exhibit 4, page 8.) The vast majority of verysenior managers—some 90 percent—are locatedfar from their companies’ RDE operations. Increas-ingly, companies’ corporate centers are located far-ther away from the focal points of future growth.

But the misalignments are not just in the numbers.There are misalignments also in the seniority ofmanagers and the quality of resources that compa-nies put on the ground in RDEs; the length of timethese critical human resources are committed tothese markets (and whether they see these assign-ments as just stepping stones to other jobs); andhow their objectives and incentives are structured.In our view, these misalignments represent particu-larly important issues.

The Specific Challenges of Operating in Rapidly Developing Economies

In many ways, operating in RDEs is similar to oper-ating in developed markets. So companies shouldnot think that they need to throw out their existingplaybooks. However, organizations operating inRDEs must cope simultaneously with five specificchallenges.

Operating on Multiple Fronts. Companies that areleveraging RDEs most successfully are working toexpand their operations simultaneously on multi-ple fronts. These efforts include achieving rapidsales growth, finding cost-advantaged sourcing,migrating and expanding manufacturing, off-shoring services, and leveraging RDE talent poolsfor R&D. This array of simultaneous activities putsenormous strain on management. It also signifi-cantly increases complexity and the need for globalcross-functional collaboration, decision making,and deployment.

Driving Hypergrowth. Businesses in mature, slow-growing markets tend to pride themselves, oftenrightly, on running lean organizations that mini-mize costs and head count. They also take pride inprotecting established market share. In contrast,


Percentage of survey respondents planning to increase or decrease their investments in activities in RDEs in 2006

0

20

40

60

80

100

Sales R&DSourcing Manufacturing

67

28

5

26

42

32

49

44

7

51

29

18

1

Decrease significantly Decrease slightly1 Keep unchanged

Increase slightly Increase significantly

E X H I B I T 2

COMPANIES PLAN TO INCREASE THEIR INVESTMENTSIN RDEs SIGNIFICANTLY


NOTE: Investments include capital, human resources, management time, and

other forms of operational involvement. Percentages do not necessarily add up

to 100 because of rounding.

1Responses in this category were statistically negligible.

businesses in RDEs, where markets may be growingat 20 to 50 percent and more per year, must be pre-pared to invest—quickly, decisively, repeatedly, andoften in advance of demand—to acquire the righttalent and resources to capture that growth. Thisrequirement entails a fundamentally differentmindset and skill set in the people leading theseoperations. It also means that frontline managersmust be constantly building and adapting theirorganizations, or they risk diminished growth.

Coping with Complexity and Change. Comparedwith developed markets, most RDEs are highly com-plex operating environments. For expatriate man-agers, unfamiliar legal and employment practices,compounded by pervasive cultural differences, alladd to the tension. Companies must learn to func-tion effectively and grow while competing withlower-cost local companies with better ties to regu-lators, deciphering rapidly developing regulations,decoding unfamiliar customer preferences, andmastering unique local business practices. In mostRDEs, massive change is taking place continuouslyon many fronts at once: customer needs, aspira-tions, and expectations; competition from foreignand local companies; regulations and their enforce-ment; distribution channels and methods; logisticsand infrastructure; and the market for talent.

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Percentage of survey respondents planning to grow activity in each region

0

10

20

30

40

50

60

70

80

9082

80

67

46

75

44 43

22

60

53

38 41

57

2528

9

Sales Sourcing Manufacturing R&D

China Central and Eastern Europe India Latin America

E X H I B I T 3

GLOBALIZATION WILL CONTINUE ACROSS RDEs, WITH MOST COMPANIES TARGETING CHINA


0

5

10

15

20

25

30

35

40

34

21

18

13

10

Expectedshare

of salesin 2010

RDEs’ share of companies’ global totals (%)

Share ofcurrentsales

Share ofcurrent

employees

Share ofcurrentassets

Share ofcurrenttop 200

managers

E X H I B I T 4

MOST COMPANIES ARE UNDERDEPLOYING RESOURCES IN RDEs

SOURCES: Economist Intelligence Unit, 2004 GDP estimates and 2009 GDP

forecasts; BCG 2005 Organizing for Global Advantage Survey.

Moreover, as companies expand their operations inRDEs, the complexity and scope of changeincreases. For example, moving from sourcing andmanufacturing to establishing R&D operationsmeans dealing with an entirely new set of regula-tions—and risks.

Overcoming Organizational Barriers. Companiesthat are pushing the boundaries in RDEs oftenencounter significant organizational resistance.Often, key drivers of this resistance are incentiveand reward systems that are not aligned to encour-age growth in RDEs andmay, in fact, do just theopposite. RDEs also pre-sent a bewildering arrayof risks, both real and per-ceived. These includeexternal risks, such aspolitical upheaval, intellectual property encroach-ment, and competitor actions, as well as internalrisks arising from execution. Some risk is inherentin the fact that companies enter RDEs withuntested strategies and tactics administered byyoung, equally untested organizations. Overcomingthese barriers places a tremendous burden on busi-ness leaders, both on the frontlines and at the cen-ter. The ways of doing things that historically servedthe company well may not meet the demands ofRDE markets and organizations.

Coordinating Globally. Leaders on the frontlines inRDEs and those at the center of global companiesexperience daily the demands of coordinatingactivities across time zones, cultures, functions, andbusiness lines—as well as, increasingly, across RDEregions. These demands are commonly exacer-bated by a lack of resources in the RDEs themselvesand by the absence of coordinating mechanisms,processes, tools, and policies. It’s frequently notclear where best to locate the critical decisionrights (about operating expenses, capital expendi-tures, and project budgets) that should govern theallocation of scarce resources. Too often, such deci-sions are made in uncoordinated ways.

The Organizational Framework for Global Advantage

Companies that are successfully operating in RDEsare developing organizations that address both themisalignment of global resources and the special

challenges of operating in RDEs. Although eachcompany is unique, most companies have adoptedsix key organizational practices: engaged leader-ship, collaborative structures, continuous talentdevelopment, common processes, shared plat-forms, and core values. (See Exhibit 5.)

Ensuring that organizations can cope with RDE-related complexity, risk, and continual change—issues that are compounded by having relativelyinexperienced staff members located vast distancesfrom the most experienced executives and ex-

pert resources—requireshighly engaged leader-ship. Senior leaders inthe most successfulorganizations are distin-guished by high levels ofengagement in RDEs.

They actively set direction, ensure senior-levelsponsorship, orchestrate resources, and overcomebarriers.

Most of these companies recognize the importanceof structure and are striving in various ways to opti-mize global/local tradeoffs and manageglobal/local tensions. Toward that end, the bestcompanies have collaborative structures—coordi-nating mechanisms and practices that can bring


Coping with RDE-relatedcomplexity, risk, and

change requires highlyengaged leadership.

Engagedleadership

Sharedplatforms

Core values

Collaborativestructures

Commonprocesses

Continuoustalent

development

E X H I B I T 5

THE ORGANIZATIONAL FRAMEWORK FOR GLOBALADVANTAGE CONSISTS OF SIX KEY PRACTICES

SOURCE: BCG analysis.

together from across the company the right deci-sion makers, with the right expertise and authority,at the right speed.

The persistent scarcity of local resources, exacer-bated by hypergrowth and relentless poaching bycompetitors, makes continuous talent developmenta top priority. RDE managers must spend hugeamounts of time attracting, training, and retainingmanagers and leaders with the right skills and moti-vation.

The scarcity of resources also requires managersto fully leverage the resources they have. Itbecomes critically important to maximize theirefficiency, access, and utilization by establishingcommon processes. Such processes capture thebenefits of globalization and localization, enablethe sharing of best practices, and create efficientconnections throughout the organization. Themost successful companies also establish sharedplatforms that let them find, share, and leveragescarce resources both inside and outside the com-pany. To ensure that the day-to-day actions of

these employees conform to expected behavioralnorms, promulgating core values is critical. Whilevalues may seem very soft, they are, in fact, core tothe success of organizing for global advantage. Ahallmark of successful companies is the degree towhich they lead by example and institutionalizeglobal values.

It’s important to note that companies approach thisframework from a number of starting points, reflect-ing their different stages of globalization, theirindustry dynamics, and the development of theirRDE-based operations. In addition, the way a com-pany is organized—by business unit or by region—and the degree of centralization or decentralizationof power across the organization significantly affectthe way it goes about pursuing global advantage.

In the next six sections of this report, we examineeach of the six key elements that companies musttake into consideration in shaping and continuallyrefining their global organizations. For each ele-ment, we highlight the actual practices of compa-nies that are operating successfully in RDEs.

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Engaged Leadership


Leaders at every level—from corporate CEOs toheads of business units, functions, and countries,along with members of boards of directors—play asignificant role in ensuring that their company ison the right path to capture opportunities inRDEs. With respect to organizing for global advan-tage, leaders fulfill four specific roles: setting boldgoals, ensuring senior-level sponsorship, orches-trating resources, andovercoming barriers.

Setting Bold Goals

When General Electricannounced in its 2005Citizenship Report, “We now expect to get as muchas 60 percent of our future revenue growth fromemerging markets including China, Russia, EasternEurope, India, and the Middle East,” the companywent on to translate that goal into specific targetsfor each business unit and country. Top-down tar-gets such as GE’s are particularly important inorganizations with aspirations to drive growth inRDEs, because they help clarify direction and alignlocal and global management.

A key aspect of setting goals is adopting RDE-spe-cific performance metrics and incentives.Companies that emphasize mature-market meas-ures to gauge performance in RDEs can end upwith misaligned incentives. Such measures canplace undue pressure on local managers to opti-mize short-term, bottom-line results when theyshould be investing for growth. Moreover, invest-ments in RDEs often have longer investment hori-zons and lower returns, which are not attractivewhen measured by mature-market standards.

So to ensure that they make the right investmentdecisions, some companies have modified theirmetrics for RDEs. For example, some have relievedRDE managers of the pressure of meeting short-term earnings targets; instead, these RDE managersare evaluated on their ability to deliver medium-to-long-term growth, establish brands, build capabili-ties, and create a pathway to profitability (as meas-ured in terms of both market share and pricerealization).

Ensuring Senior-Level Sponsorship

When companies first try to set up operations inRDEs, it is crucial to have the backing of the cor-porate CEO and other senior executives at thecenter in order to achieve and sustain momen-tum. Leaders of business units and functions mayhave a hard time taking a global-portfolio-based

view of the company’soperations and makinglonger-term decisionsabout investments inRDEs. Therefore, seniorleaders must set thevision, develop a list of

RDE initiatives, align the mindsets of the man-agers involved, and initiate a companywide pushto get momentum going. And then senior leadersmust stay involved to ensure progress. This cannotbe delegated.

Companies often find it useful to designate seniorsponsors to take ownership of RDE initiatives andmake sure they are implemented. Each senior spon-sor acts as a direct channel to the CEO and as acoordinator to mobilize cross-functional resourcesfor faster decision making. For example, some com-panies have senior executives from various func-tions acting as “godfathers” who shine light on allaspects of the company’s activities required to makeRDE initiatives successful.

Beyond announcing bold, long-term targets, sen-ior leaders of successful companies make frequentvisits to RDEs and public statements aboutincreased investments there, to support themomentum for growth. Many companies havefound that such indications of sustained commit-ment are instrumental in cultivating favorablepolitical relationships in RDEs. For example, fre-quent visits to China by Motorola’s CEO andCOO, together with announcements of Motorola’splanned R&D investments there, helped the com-pany win key contracts with the Chinese govern-ment and become one of the largest foreign com-panies in China. Another effective signal ofcommitment is the relocation of top and high-potential executives to RDEs.

Top-down targets help clarify directionand align local and global management.

It can be very valuable to include people with RDEexperience on the company’s board of directors,where they can help the company understandRDE-related issues. In addition to bringing inter-national perspectives, such directors can con-tribute to the board’s decision-making process forentering and developing new markets.Internationally experienced directors can alsoopen doors in those markets and help the com-pany gain credibility there. However, our analysisof U.S. Fortune 100 companies found that although85 percent of companies had non-U.S. sales, only20 percent had at least one non-U.S.-based direc-tor on their boards.

Orchestrating Resources

Resource constraints are a major issue for virtuallyall RDE-based organizations. Our investigationpointed to opportunities to address this issue byorchestrating the way global internal resources areallocated across the organization. For example,when Hyundai Motor Company was setting up itsoperations in India, the India-based organizationrelied on sharing know-how, experience, and tech-nical expertise with the head office in SouthKorea. The South Korean headquarters trans-

ferred knowledge to India in the form of experts,who provided processes, success stories, advice,and guidelines, while the India-based organizationsent technicians, engineers, and other staff mem-bers to South Korea to acquire knowledge andexpertise through hands-on experience. Throughthis orchestration of internal resources, HyundaiMotor India was able to expand its knowledge veryquickly.

Orchestrating resources typically entails a range ofactivities, including maintaining effective relation-ships with all parties involved and controlling andmonitoring quality. (See Exhibit 6.) For RDE-based managers to orchestrate their global organ-izations’ resources in support of RDE operations,they must have good relationships with key peopleat the head office. The importance of a deep levelof trust and direct access cannot be overstated.Part of the task is to help senior managers form asolid understanding of the RDE market, often byholding regular meetings with key executives.RDE-based managers must also maintain goodrelationships with working partners both insideand outside the company, and must orchestratethe sharing of expertise, knowledge, and bestpractices across the region.

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• Leverage best practices from other locations or functions

• Adapt to the local environment and implement best practices

• Bring the project to top management’s attention to secure the necessary resources

• Educate all involved parties about the importance of the project

• Understand the relevant differences between local and global markets

• Coordinate between global and local productdevelopment teams for local customization

• Leverage global technical expertise to augment the technical capabilities of local workers, technologies, and infrastructure

• Maintain good relationships with working partners

• Agree on common rules and standards

• Ensure that all efforts add value to developing the business in RDEs

• Assist in global budget setting and the allocation of capital expenditures and project spending

• Enable knowledge transfer along the value chain and among functions

• Set up control mechanisms to ensure quality

• Monitor the project and act on issues as early as possible

Shared bestpractices

Marketing

Productdevelopment

Technicalexpertise

Partnerships

Businessdevelopment

Knowledge

Control andmonitoring

E X H I B I T 6

LEADERS PLAY A KEY ROLE AS ORCHESTRATORS

SOURCE: BCG analysis.

Overcoming Barriers

Some 60 percent of the senior executives we sur-veyed acknowledged that their companies wereunderinvesting in RDEs. Underinvestment in RDEscan be caused by organizational barriers, such as amisalignment of incentives and responsibilities,rather than by a lack of capital. The central mecha-nisms of most multinational companies focus ontheir business or product units, whose managerstypically must deliver short-term returns. So thesemanagers find themselves making tradeoffs in favorof more mature markets, in which short-termresults are both larger and more certain. In addi-tion, business leaders may lack the authority tomake global tradeoffs.

The misalignment problem commonly arises not atthe top of an organization but a couple of levelsdown, at the business-unit and functional levels. Inour experience, most senior executives recognizethe RDE imperative and the need to align resources.Two levels down, however, is where the really tough

decisions and tradeoffs must be made. It is very hardfor executives in these positions to wear their “cor-porate hats” in allocating resources across a globalportfolio of opportunities, when at the same timethey are being asked to deliver on specific business,product, and market commitments.

For example, there may well be a compelling rea-son for the corporation to open new manufacturingcapacity in an RDE while closing capacity in amature market. However, this shift may directlyconflict with the rewards and incentives of thehome country manager, the product manager, orthe logistics manager, or it may conflict with allthree. Moreover, these three individuals may alsobe unwilling to move their resources to RDEs, per-ceiving such a move as forfeiting control while stillbeing held accountable for results. Companies alsocite as reasons for such misalignment a dearth ofglobally capable managers with knowledge of RDEsand the fact that many senior managers are notwilling to relocate themselves and their families to RDEs.


Collaborative Structures

14 BCG REPORT

and Indonesia, with a model that is very locallyfocused. However, in order to get greater benefitsfrom global scale and to further leverage scarceglobal resources, Unilever has recently madecertain functions more global and centralized;these include brand management and productdevelopment.

Optimizing the global/local tradeoff cannot bedone at the industry levelor the company level butmust happen at the func-tion or even the activitylevel. When a company

makes the decision to sell something in a particu-lar RDE, it needs simultaneously to consider sev-eral issues:

• What to sell

• To what extent the company can sell a global ver-sion of its product versus a version that requirescustomization

• Whether there is a need for local R&D

• Whether the product can be produced in existingfactories in developed markets or manufacturingshould be relocated to the RDE

• Where sourcing should come from

• How to compete with local and other RDE-basedplayers

• For companies selling to business customers thatare also migrating to RDEs, what degree of local-ization is necessary to meet the customers’requirements

With specific reference to RDEs, local typicallyrefers to a combination of individual economies(this is especially true of China, India, Russia, andBrazil) and regions (Asia-Pacific, Central andEastern Europe, and Latin America). Although theright design is both country specific and companyspecific, the decision about what to put where isguided by general design principles: leverage

An organization’s structure defines its primary linesof authority, decision making, and communication.Structure makes some things easier and some thingsharder; the key, therefore, is to decide which aremost important and to design structure to make theimportant things easier. Structure includes formalhorizontal and vertical boundaries, reporting lines,responsibilities, and coordination mechanisms. It’simportant to note thatstructure also includes theinformal networks thatlink people throughoutthe company and across itsboundaries.

Structure is always important, but it is especiallyimportant—and especially challenging—when peo-ple need to collaborate with one another acrossregions, businesses, and functions for which theymay not have formal lines of communication. Forcompanies operating in RDEs, four aspects of struc-tural design emerge as critical: optimizingglobal/local tradeoffs, managing the inherent ten-sions between business units and country manage-ment, making the matrix work, and enabling col-laboration.

Optimizing Global/Local Tradeoffs

Achieving economies of scale and scope is an essen-tial element of organization design. For example,in the pharmaceutical industry, research to derive anew molecule is very costly, and the resulting drugsare often sold globally. So maximizing global scalein R&D is critical. However, R&D consists of numer-ous activities, some of which are particularly wellsuited to countries where highly qualified scientistsand researchers are available at much lower costthan in developed countries. So the decision aboutwhat to locate where—even in pharmaceuticalR&D—is no longer simple. And it is increasinglycritical to achieve the optimal global/local tradeoffrather than settle for a simplistic answer.

For instance, in the fast-moving consumer-goodsbusiness, Unilever has historically enjoyed tremen-dous success, particularly in markets such as India

Optimizing the global/local tradeoff cannot be

done at the industryor company level.

economies of scale, pool scarce resources, mini-mize duplication, prioritize proximity to preferredsuppliers and customers, optimize supply chainconfigurations, and avoid undue complexity.Optimizing what should go where is also verydynamic, so the “right” answer will continue toevolve. The key is to assess the value of being globalversus that of being local and to ensure that allglobal/local decisions are made appropriately.

Managing the Inherent Tension Between BusinessUnits and Country Management

Optimizing global/local tradeoffs is an importantstarting point, but it is just that. To truly harnessthe knowledge, skills, and experience of the organ-ization, the structure should help ensure that thedecisions that are made and the resources that areengaged in execution truly reflect the best of bothglobal and local requirements. Corning offers aninstructive example.

In China, Corning has several business units sellingproducts that range from traditional to state-of-the-art technologies. Corning has taken these busi-nesses to China over many years, and they are at dif-ferent stages of development. Corning is organizedglobally, with strong business units. In China as inother parts of the world, Corning has strong busi-ness-unit managers; however, in China it also has anempowered country manager with full profit-and-loss (P&L) responsibility. The head of Corning’soperations in China has input into all local-marketissues and facilitates transfer of knowledge acrossbusiness units.

This structure is unusual for Corning, whoseregional managers typically are responsible only fordeveloping new businesses, which are transferredto business units once they are established. In gen-eral, P&L responsibility lies with the global businessunits. However, uniquely in China, Corning’s coun-try manager has accountability for the country P&L(which is based on, but is not a roll-up of, the busi-ness units’ P&Ls). The country manager also has astrong mandate from headquarters to manageinvestments and the right to veto strategic decisionsby the business units. To help manage the matrix ofbusiness units and country management, Corningmaintains an internal China Business Council thatpromotes cross-business-unit coordination.

Corning—and some other successful companies—believes that by actively managing the tensionbetween business units and country management,it is able to create significantly more value than it could with either a standalone global business-unit structure or a standalone country structure.(See Exhibit 7.) Actively managing this tension isparticularly important in markets where the stakesare highest and where corporate scale or experi-ence is low. Given the relative importance ofChina, many companies have elevated the headsof their China operations to report directly to the CEO.

Making the Matrix Work

Companies typically achieve global scale by empow-ering global business units, whereas they typicallyachieve local autonomy by empowering countrymanagement with a combination of business andfunctional responsibility. Most companies operat-ing successfully in RDEs arrive at solutions that fallbetween two extremes: a global business-unitmodel, which can be readily integrated into theexisting global organization; and a country man-agement model, which allows greater customizationfor individual RDE markets. The optimal answer for


Value generated by actively managing the tension

Most knowledge and value-added activities are in business units

Most companies

Most knowledge and value-added

activities are local

Value created by optimizing local versus global tradeoffs

Activities dominated by business units

(products or functions)

Activities dominated by country management

E X H I B I T 7

COMPANIES MUST ACTIVELY MANAGE THE TENSIONBETWEEN BUSINESS UNITS AND COUNTRY MANAGEMENT


most companies, as for Corning, is some form ofmatrix. The key is making the matrix work. Thisinvolves several activities.

Defining a Dominant Axis of Authority. Some com-panies’ matrix organizations give primacy to theirglobal business units, which have P&L responsibil-ity and make most day-to-day business decisions.Others give P&L responsibility and day-to-day busi-ness decisions to country management. A com-pany’s choice of whether to empower the global orthe local aspect of the matrix depends largely onwhether, for that company’s business in that partic-ular RDE, value is created primarily by the knowl-edge and skills of the global or the local dimension.

The choice can shift over time: a company may startwith a country-focused organization and later, oncean effective and scaled business model is estab-lished, turn to a business unit organization. Oursurvey found that a slight majority of the partici-pating companies—35 percent—give primary P&Lresponsibility in RDEs to business units, while 32percent give the responsibility to country manage-ment, and 15 percent empower some kind of coun-try and business unit matrix. (See Exhibit 8.)

Relatively few companies are organized by regionaland functional structures to manage P&L in RDEs.

Clarifying Roles and Responsibilities at Each Level.It is essential for companies to clearly define spe-cific roles, responsibilities, and accountabilities forthe center, the business units, and country manage-ment in order to reduce conflicts and align deci-sions. Success here lies in spelling out these areas indetail and doing it consistently. The best companiesalso define primary accountability and final deci-sion-making power for each key function, includingbusiness development, manufacturing, sourcing,R&D, sales, marketing, and shared services. Peoplecharged with making cross-business or cross-regiondecisions need to be empowered to play the coor-dination role effectively. Of course, there arenumerous ways to define roles and responsibilitiesfor RDEs. (See Exhibit 9.)

Making Local Teams Autonomous. Centralized deci-sion making contributes to global scale and efficien-cies, but it generally lacks the flexibility to respondquickly to changes in local markets. The art here isto recognize which areas need local customizationand then to give local managers a clear mandate tomake day-to-day decisions in those areas, providingquick support from the center when additionalresources are needed. For example, in consumergoods companies, local management often has thepower to make decisions regarding local productdesign, packaging, and pricing in order to reducethe time to market, while the center provides guid-ance on overall brand and portfolio strategy.Another solution is to gradually delegate increasinglevels of control as local management gains experi-ence and credibility.

In our survey, we asked participants to identifywhich kinds of decisions they think global compa-nies should make at which levels of the organiza-tion. (See Exhibit 10.) In the areas of HR plan-ning, sales and distribution, business planningand market analysis, and marketing campaigns,most respondents said that decisions are bestmade at the country level. Similarly, there was gen-eral agreement that in the area of building manu-facturing facilities, decisions should be theprovince of either headquarters or business units,whereas decisions regarding product design anddevelopment should take place at the businessunit level. Responses were mixed as to where deci-

16 BCG REPORT

Percentage of survey respondents assigning primary responsibility to each function

3532

15

12

4 3

0

5

10

15

20

25

30

35

40

OtherBusinessunits orproductdivisions

Regionalmanage-

ment

Functionalmanagement

Bothcountry

managementand

business units

Countrymanage-

ment

E X H I B I T 8

MOST COMPANIES GIVE PRIMARY RESPONSIBILITY TOEITHER BUSINESS UNITS OR COUNTRY MANAGEMENT




The CEO and the corporate center Business units Country and regional organizationsKeyactivities

Level

New-marketdevelopment

Manufacturing

Sourcing

R&D

Sales

Shared services

• Define the vision and targets

• Decide on market entry priorities and methods of entry

• Coordinate across the business units

• Set allocation globally and drive global processes

• Secure long-term access to supply

• Search for global opportunities

• Set targets

• Oversee global platforms

• Understand opportunities

• Coordinate with the center and country management for methods of entry

• Decide on optimal locations, usually with in-country production

• Identify sourcing needs and coordinate resources

• Leverage central R&D• Build tailored local applications

• Coordinate cross-selling with country management

• Coordinate shared services with country management

• Identify local opportunities

• Manage negotiations with local government regulators, potential target companies, and partners

• Coordinate investments and the sharing of manufacturing facilities

• Support negotiation with key suppliers

• Manage local innovations

• Coordinate customer strategies

• Provide shared-service platforms

E X H I B I T 9

ROLES AND RESPONSIBILIT IES NEED TO BE CLEARLY DEFINED AT EACH LEVELA representative example


Global headquarters Country management Business units

Identifying strategic alliances,

partnerships, acquisitions, and

sourcing contracts

Evaluating and negotiating strategic

alliances, partnerships,

acquisitions, and sourcing contracts

Building manufacturing

facilities

Product design and

development

Marketing campaigns

Sales and distribution

HR planning Business planning and

market analysis

Percentage of survey respondentsassigning primarydecision-makingresponsibilityto each function

45

33

22

44

39

18

39

24

37

27

15

58

9

56

35

5

60

35

23

67

10

13

57

30

100

80

60

40

20

0

E X H I B I T 1 0

DECISION-MAKING AUTHORITY VARIES BY ACTIVITY



sion-making authority should reside for dealingwith strategic alliances, partnerships, acquisitions,and sourcing, with most respondents favoringeither global headquarters or the country level,and only about one-fifth of respondents choosingthe business unit level.

Adopting Multicenter Organization Models. Companies can also break the compromisebetween centralization and decentralization byshifting some businesses and functions from the corporate center to regional and even local“centers.” For example, some manufacturing com-panies operate most of their functions out of sev-eral regional hubs in Asia, Europe, and theAmericas. Each regional center makes decisionsregarding sourcing, manufacturing, productdesign, and marketing strategy, while an overallcompany center provides coordination amongregional centers and identifies opportunities forsynergies.

Another model locates a global function close tothe markets where the operations take place. Moreand more companies are recognizing the merit ofrelocating, for example, global sourcing and R&Dcenters to China or India.

Enabling Collaboration

Making a matrix work also requires strong collabo-ration. Matrix managers must link together individ-uals, capabilities, and activities both up and downthe organization and across business units.Companies that have global business units gener-ally find that when they operate in RDEs, they needto coordinate activities across business units tomanage individual businesses’ lack of scale and thegeneral scarcity of internal resources. Approachesto cross-business-unit collaboration vary from adhoc efforts at collaboration to country manage-ment of business unit activities. (See Exhibit 11.)

Ad Hoc Collaboration. In this model, the businessunits in the RDE share some services as needed andcoordinate some media and governmental relationsthrough the country manager. Synergies are typi-cally limited to ad hoc projects and specific man-dates. P&L accountability and day-to-day opera-tional and strategic decisions remain with thebusiness units. Success with this model tends to bevery relationship dependent.

Dedicated Country-Based Collaboration. Com-panies following this model have set up a perma-

18 BCG REPORT

Dedicated country-based collaboration

Cross-business-unit/ management council

Countrymanagement organizationAd hoc collaboration

Globalbusiness units

Ad hoc in-countrycollaboration

Permanentcountry team

Country managementcouncil

Country management




E X H I B I T 1 1

COMPANIES ADOPT VARIOUS MODELS FOR CROSS-BUSINESS-UNIT COLLABORATION IN RDEs

SOURCES: Company interviews; company Web sites; BCG analysis.

nent country-coordination team whose role is toidentify synergies (both revenue and cost) that canbe realized by coordinating activities across theglobal business units. For example, one large multi-business industrial company has a dedicated coun-try team, with 40 to 50 full-time business employ-ees, charged with understanding customerdemands and maintaining consistent relationshipsacross business units. The team’s overall focus is ongrowing revenue by expanding current customeraccounts and winning new ones.

Cross-Business-Unit/Management Council. In thismodel, companies establish a business council con-sisting of all the local business-unit managers andheaded by the local country manager. The businesscouncil makes decisions on cross-business-unit proj-ects in order to capture synergies and poolsresources to implement those projects.

Country Management Organization. Some compa-nies place all business units under the umbrella oftheir country management. LG Electronics in Indiais a good example: the country manager is responsi-ble for the performance of all of LG’s businesses inIndia and can make operational decisions for thosebusiness units. This model ensures full collaborationamong business units. In addition, it permits in-country cross-subsidies by allowing cash flows frommature businesses to subsidize the growth of newbusinesses. It also contributes to huge economies ofscale by producing different products in one facility,and it boosts brand equity by taking all products tomarket under one LG brand.

Most companies employ more than one form of col-laboration mechanism. Many companies place allbusiness units under the umbrella of country man-agement, with or without P&L responsibility. (SeeExhibit 12.) Ad hoc project teams are also com-mon; 60 percent of respondents use them. Slightlymore than half of the respondents use cross-busi-ness-unit management councils and informal com-munications. Just over one-third use permanent,dedicated coordination teams.

Half of the companies responding to our survey allo-cate full P&L responsibility to their local RDE coun-try organizations. The other half use their local RDEcountry organizations primarily to provide sharedservices and coordination across business units.

Despite this array of collaboration mechanisms,only 13 percent of our respondents believed thattheir organizations were “very effective” at obtain-ing cross-organization sponsorship for RDE proj-ects, whereas another 60 percent claimed that their organizations were “somewhat effective.”Some 28 percent either acknowledged that theircompanies were “not effective” or took no positionon the question. We suspect that the percentage ofrespondents recognizing considerable room forimprovement would have been even higher if oursurvey respondents had included more middle andjunior management.


Percentage of survey respon-dents whose companies employ each mechanism

90

6054

52

34

9

0

20

40

60

80

100

OtherCross-business-unit management

council

Informal communi-cations

Permanent, dedicated coordina-tion team

Country management organization

Ad hoc project teams

E X H I B I T 1 2

MOST COMPANIES USE COUNTRY MANAGEMENTORGANIZATIONS AS THEIR PRIMARY COORDINATIONMECHANISM


NOTE: Respondents were able to choose more than one coordination

mechanism.

These criteria are not easily met by one individual.In practice, companies rely heavily on identifyingpeople in their organizations who have the poten-tial to develop these skills and can be groomed forleadership positions. However, although mostglobal companies have long-standing talent-man-agement programs in their established markets, fewhave rolled them out to their RDE operations—letalone customized them to the RDEs’ special situa-tions. Of the RDE-based programs we have seen,the better ones offer job rotations outside the RDEmarkets, training in global management skills andculture, and strong coordination between the localHR department and the global one.

Managing expatriate managers is also a key chal-lenge. Many companies find it difficult to movevaluable human resources to RDEs, where theirskills, internal networks, and experience are des-perately needed to build the local business andorganization. Life in RDEs such as China is cer-tainly not the same as back at home. Many expatri-ate managers and their families struggle to adjust totheir RDEs’ unfamiliar cultures, languages, schools,foods, and social and physical environments. Theabsence of close friends and family members alsotakes a toll. To succeed in getting expatriates torelocate to RDEs and to help them function effec-tively once there, multinational companies need tomanage these overseas postings closely and provideattractive career paths for expatriate staff memberswhen they return home or move on to subsequentpositions.

Another shortcoming of many talent-managementprograms at global companies is that they aredesigned only for very senior management. It isessential to develop junior- and middle-manage-ment staff as well to ensure a sufficient pipeline oflocal talent when senior management or expatriatemanagers move out of RDEs.

Identifying and Grooming High-Potential Local Talent

Effective practices in this area include planning forHR requirements at least every 12 to 18 months,taking into consideration the company’s likely

Continuous Talent Development

20 BCG REPORT

Virtually all global companies operating in RDEsface a significant challenge in the area of humanresources. While the need for experienced, globallycapable, and locally savvy managers is particularlyacute, such managers are scarce. Most RDEs haverelatively short histories of open global economicactivity and therefore have not yet amassed a sizablecadre of local managers with more than a decade ofsolid experience in Western-style business practices.The difficulties are not only in recruiting such peo-ple but also in developing, rewarding, and retain-ing them and in creating alignment with the com-pany’s values and goals. Leading companies havedeveloped a number of effective responses to thesechallenges.

Establishing a Pipeline of Globally Capable Local Managers

Our investigation found that although the local tal-ent pool in RDE countries is expanding, most RDE-based organizations of global companies are stillrun by expatriates. Some companies attribute thissituation to the fact that it’s hard to find the righttalent for top positions. Job descriptions for thesepositions are extremely demanding. In the mostsuccessful companies, the individuals who head upRDE-based organizations are able to communicateand work effectively with headquarters, includingbringing special situations to headquarters’ atten-tion, managing headquarters’ expectations forinvestments and financial returns, and navigatingand soliciting headquarters for resources andexpertise.

The ideal candidate is someone who already hasearned the deep-rooted trust of senior manage-ment and who can leverage personal relationshipsat the center. The RDE-based manager should alsopossess local knowledge and networks so that he orshe can get things done. In addition, the managershould have the skill and interest to adapt to bothlocal and global cultures, respecting both and inter-preting each to the other. Finally, the managermust be capable of managing a fast-growing busi-ness in an environment that has insufficient infra-structure and offers no useful precedents.

growth, attrition, and staff-development needs.Particularly successful companies require all topmanagers to identify high-potential employees intheir teams, actively coach and develop high-poten-tial managers, and limit the number of expatriatesin top management positions. Schindler, for exam-ple, seeks to limit its expatriate managers’ stays inAsia to three years. During that time, the expatri-ates have three clear objectives: to set up the organ-ization, train and develop the local staff, and findsuccessors for their positions. Expatriate managerswho fail to find and train successors forfeit theirthird year’s bonus.

Some RDEs require spe-cial efforts in this regard.For example, in countriesin Central and EasternEurope, most upper-levelmanagers have spent their entire work lives underCommunism, and many of them have a hard timeadapting to Western business practices. So compa-nies sometimes need to search for high-potentialtalent deeper in the organization, among youngeremployees who may be more flexible in their atti-tudes and working styles.

Training is very important in RDEs, where localstaff may have less formal education and less cur-rent knowledge of technology than their colleaguesin developed economies. Training raises the qualityof local staff members to global standards and in-creases their confidence levels. Moreover, employ-ees in RDEs perceive training as a significant oppor-tunity and are appreciative of it, since many localRDE-based employers do not commonly provide it.

Developing Leaders with Global Perspectives

The most successful global companies expose high-potential corporate managers to RDEs early in theircareers. A close look at the career paths of top exec-utives at global companies shows that many of themhave had tours of duty in overseas markets beforeassuming their current roles.

Similarly, it is important to help high-potentiallocal employees understand how the company’scenter functions and to allow them to developrelationships at headquarters if they are to replaceexpatriate managers one day. It often falls on cur-

rent country managers to identify local successors,help them build relationships and credibility atthe center, and provide additional training toensure that they have the necessary skills. Severalkinds of programs have proved effective in devel-oping both local leaders and global-minded lead-ers at the center: global exchange or rotation pro-grams between RDEs and company headquarters;global leadership-development programs; globaltraining facilities that are open to managers world-wide; and global forums that bring manag-ers together to build networks and develop per-

spectives.

Job rotation is a goodway to bring RDE-basedemployees to other partsof the organization, thusexpanding their expo-

sure and networks. It can also be a mechanism forhelping headquarters staff experience RDEs. Fivebasic kinds of rotation can contribute to the devel-opment of RDEs: rotation of staff between RDEsand other locations, rotation of staff betweenheadquarters and RDEs, rotation of staff betweenglobal business units and RDEs, cross-business-unit rotation within RDEs, and job rotation withinbusiness units in RDEs. (See Exhibit 13, page 22.)

Making Succession Planning Explicit

To prepare local managers for leadership roles inlocal markets, a company must communicate itssuccession plan clearly to its local staff. HyundaiMotor India offers a good example of clear succes-sion planning. Before Hyundai established its oper-ation in India, the company decided that a key com-ponent of its local strategy was to have local peopleeventually run the operation. Although SouthKorean managers and staff assumed most positionsin the initial stages of setting up the operation,from the beginning management specified the timewhen Indian managers would take over completely.In daily operations, there is a good mix of SouthKorean and Indian management staff. Every keyposition is filled by a South Korean top managerwho works closely with an Indian understudy, train-ing him or her to take over the position and pro-viding explicit career management. The company ismidway through this process of transitioning man-agement to a local team.


Successful companiesactively coach and

develop high-potentialmanagers.

Creating Continuity in RDE Leadership

One interesting aspect of developing and managingpeople in RDEs is the opportunities RDEs offer forcareer advancement. From one perspective, RDEsprovide great stepping stones for up-and-comingstars. RDEs are tough environments, where man-agers need to be very resourceful in actively manag-ing tradeoffs. However, this opportunity can lead toproblems of continuity since these up-and-comingstars, destined for global leadership, tend to spendonly a short time in an RDE. Many expatriate execu-tives fear that if they spend too long working in anRDE, their developed-country credentials mightbecome devalued. This concern leads to the viciouscycle of country managers repeatedly leaving their

respective RDEs just as they have begun to learn howto operate well there.

Because these frequent rotations are enormouslyinefficient, some multinationals have pursued local-ization. This approach works to some extent becauselocal managers can generally be expected to stay inplace longer than expatriates. But eventually they,too, expect to move up the organization globally. If alocal country manager is expected to stay in a coun-try manager role indefinitely, the notion of workingfor a multinational may lose its allure. Of course, tothe extent that the RDE-based business grows tobecome a significant part of the company’s globalbusiness, the local manager can remain in that mar-ket and grow into senior-level roles.

22 BCG REPORT

United States

BU1 BU2 BU3

United Kingdom

BU1 BU2 BU3

Germany

BU1 BU2 BU3

Japan

BU1 BU2 BU3

China

BU1 BU2 BU3

India

BU1 BU2 BU3

Cross-business-unitrotation within RDEs

Job rotation withinBUs in RDEs

Rotation of staff betweenheadquarters and RDEs

Rotation of staff betweenglobal BUs and RDEsRotation of staff between

RDEs and other locations Global BU1 Global BU2 Global BU3

Headquarters

E X H I B I T 1 3

GLOBAL COMPANIES EMPLOY FIVE JOB -ROTATION MODELS


NOTE: BU = business unit.

23

Common Processes

Common processes enable communication, collabo-ration, companywide learning, and the sharing ofbest practices around the globe. Good organizationalprocesses help executives manage the inherent ten-sion between global and local interests, and createtransparency and trust. Such processes are particu-larly critical in financial, strategic, and HR planning;in operations, including research, sourcing, manu-facturing, and marketing; and in support services,resource coordination, governance, and knowledgemanagement. Successful global companies are em-ploying a number of effective practices in this area.

Leveraging Existing Global Processes

Leveraging existing global processes can be highlybeneficial to RDE organizations. For headquarters,leveraging global processes boosts confidence andtrust in RDE organizations. The latter, in turn, arespared the burden of customizing their own systems.It is important to select processes that can functionacross all regions. Ideally, their underlying businesslogic should be comparable, and the economicenvironments in which they are applied should beat least compatible. It is also helpful to simplifyeach process for clarity and ease of adoption beforerolling it out to RDEs. Pilot testing the compatibil-ity of each global process in the local environmentand then reviewing its actual performance fre-quently can help ensure effective implementation.

Capturing the Benefits of Localization

Manufacturing in RDEs can mean huge cost savings,as well as operational advantages, because companiescan employ highly skilled and flexible low-cost laborin place of very expensive and far less flexible capitalequipment. However, to fully capture these advan-tages, companies must adapt their decision-makingand operational processes. For example, in purchas-ing equipment for a factory, a company can adoptprocesses that accommodate local equipment ven-dors and choose plant designs that use less equip-ment and more labor. Localization of processes mayalso involve customizing a global process to suit thepreferences of local customers. In one instance, aninternational bank found that Indian customers

expect a single contact point for their relationshipwith the bank. So the bank shifted from global prod-uct specialists to relationship bankers. The shiftinvolved modifying many processes, including prod-uct management, recruiting, training, customer man-agement, and internal communications.

Sharing Best Practices Across the Organization

Although many global companies have strong com-munication flows between country managers andheadquarters, they rarely share experiences acrossbusinesses within or among RDE markets. The pio-neering companies that have implemented proc-esses for sharing learning and best practices amongRDEs have found this experience extremely helpful.

One mechanism for this kind of sharing is experi-enced teams that specialize in entering and develop-ing new markets in RDEs. Companies that take thisapproach create a virtuous cycle, becoming increas-ingly adept at entering RDEs. For example, oneglobal retailer has what it calls a permanent cadre thatfocuses on new-market entry. The team moves frommarket to market, setting up local operations andthen handing over day-to-day management to a per-manent local-management team. Other good exam-ples of a robust knowledge-sharing mechanism areSchindler’s Asian operations, which employ businessimprovement teams to identify the best-implementedprocesses in different functions across the company’sAsian operations. These best practices are showcasedin regional meetings with business process ownersfrom across the region. And global knowledge-man-agement systems enable quick global sharing of expe-rience and expertise.

Before implementing mechanisms for sharing bestpractices, companies need to identify which globalprocesses are most important to them and where thebenefits from sharing those processes will be great-est. Pharmaceutical companies, for instance, have aprimary interest in preserving their reputation forproduct safety, so they might emphasize qualityassurance processes such as testing procedures anddrug safety approvals. Industrial goods companiesmight focus on processes that ensure quality, opera-tional effectiveness, and worker safety.


ment across business units, functions, and locationsto act on these opportunities. Consequently, manycompanies miss opportunities. Companies thathave made good progress in deploying commonplatforms understand why such platforms are par-ticularly important in RDEs. They have learnedfrom experience, whether positive or negative; andfor the shared platforms, they have senior sponsors

who are both accountableand able to gain the nec-essary cooperation.

Using Shared ServicesEffectively

In developing shared services for more routinetransactions, it is essential to understand in detailthe challenges common to all locations. Sharedplatforms are most commonly used for functionssuch as HR, accounting, and procurement—func-tions that require regular updates, use standardizedformats, follow common templates, and rely on thefrequent transfer of information between depart-ments, as well as many hours of manual labor and ahigh level of accuracy. The benefits of commonplatforms are many: automated updates and reportgeneration, ease of information retrieval, reduc-tions in repetitive labor, higher accuracy, consis-tency of formats, speed of communication, andeconomies of scale. Many global companies havecreated value by setting up shared-services centersin RDEs, capturing the benefits of low costs, skillfulworkers, and the investment-friendly policies ofRDE governments.

Establishing Value-Adding Platforms

In addition to sharing transaction-based and cost-oriented services, companies are reaping signifi-cant benefits by establishing platforms that createhigher value by pooling knowledge, skills, relation-ships, and more expensive assets, including brandsand physical assets. These platforms share a set ofcharacteristics: often they are more strategic, drivegrowth across businesses, leverage potential syner-gies and economies of scale, and play key roles inmitigating risks.

Shared Platforms

24 BCG REPORT

Shared platforms take many forms. They can con-sist of all kinds of capabilities: people, proc-esses, knowledge, and assets, including buildings,plants, brands, and relationships. Shared plat-forms enable companies to leverage resources bypooling them across businesses, reduce costs byachieving enterprise scale, improve effectivenessby sharing best practices, reduce risks by avoidingrepetition of mistakes,and present one face tothe market. Shared plat-forms also ensure ease ofworking across bound-aries. Common platformsallow a company to alignand standardize operations across regions andcountries. Common platforms are particularly effi-cient and beneficial in the subscale environmentsof most RDE operations.

Key questions for global companies to consider inthis area are: Which platforms should be shared?At what level—country or region? In which loca-tions? Across which organizational entities(including, for example, suppliers and partners)?

Choosing and Deploying Shared Platforms

Although the choice of which platforms to share isdifferent for each company, the process of choos-ing platforms is fairly similar for everyone. Itinvolves arraying the company’s capabilities andassets against a set of criteria and then assessingthem one by one. The criteria include the value tobe created by sharing the platform in terms ofleveraging scarce resources, cutting costs, boostingexecution effectiveness, reducing risks, and pre-senting one face to the market. This analysis shouldyield a prioritized set of platforms, ranked by costsand benefits. Such platforms typically range frombasic transaction-oriented shared services, such asaccounting and bill payments, to more complexprocesses, such as creating a cross-business-unitplatform to cross-sell products from multiple busi-ness units.

The analytical work is generally straightforward.Where companies stumble is in achieving agree-

Shared platforms letcompanies reduce costsand risks and improve

effectiveness.

GE’s legal platform in the Asia-Pacific region is agood example. GE has created a shared legal plat-form consisting of 65 lawyers to meet the com-pany’s legal needs in the region. These lawyers areconnected by several mechanisms, including amonthly conference call to discuss best practicesand personnel development, three meetings of thewhole group each year, meetings of countrywidecouncils two to four times per year, mentoring pro-grams across businesses, and an Asia-Pacific legalintranet.

Corning’s Intellectual Property Council in China isanother good example. The council consists of sen-ior participants from key functions and businessesin China, as well as senior participants from globaltechnology and global legal functions. Together,this group has the mandate to set the overall IPagenda, ensure that key IP issues are anticipatedand addressed, marshal the necessary resources,lobby governments and other external stakehold-ers, and monitor compliance.

Forging Effective Alliances and Partnerships

Many RDE-based organizations reach out to exter-nal parties for resources and local expertise. Somehave come to view their suppliers, distributors, andother partners as valued members of their organi-

zations, offering them free training and consultingservices, providing financial incentives such asprofit-sharing mechanisms, and limiting the num-ber of distributors in order to gain more controland influence.

It is critical that global companies be seen as com-mitted to RDEs for the long haul. As one respon-dent put it, “If a company is not willing to invest infacilities and plants in the country, it projects amessage that the organization is not here for long.So why would suppliers or traders give it goodterms? Why would they treat it as a long-term-rela-tionship partner? The company might just leave ifthe market is not doing well.” Other respondentsechoed this sentiment. Investing in developinglocal partners is one way to demonstrate long-termcommitment.

Most respondents to our survey believe that thereare significant untapped opportunities to betterleverage partnerships and alliances. Only about athird of the respondents told us that their compa-nies had online platforms or environments to pro-mote cross-business-unit or cross-regional interac-tion, while a similar percentage claimed to haveprograms for sharing or lending resources acrossbusiness units or regions. Clearly, there is consider-able room for improvement in this area.


strict standards in RDEs, send a powerful messageabout what the company stands for.

Implementing Values Deployment Programs

As RDE-based organizations grow, often at breathtak-ing speed, they need to continuously communicatethe corporate culture and values to new employeesand reinforce those values with the existing staff.Toward that end, many companies incorporate theirvalues into their performance and compensation sys-tems. There are four basic ways to go about this:

• Integrate values implicitly. Performance measuresinclude criteria that reflect the application of cor-porate values and culture.

• Integrate values explicitly. Performance assessmentsrate individuals on how well they reflect the cor-porate values in their work.

• Institute a values qualification program. An assess-ment tests each employee’s understanding of cor-porate values. He or she must pass the test toqualify for bonuses.

• Require strict adherence. There is a clear definitionof behaviors that are acceptable and those thatare not. Employees who violate the corporate val-ues are summarily fired.

In every values-deployment program, it is advisable tomake the application of the values as tangible as pos-sible. For example, stories can convey messages farfaster and more memorably than abstract discussionsor memos, providing real-life examples of living thevalues. It can also be useful to undertake a values sur-vey to ascertain how employees perceive the corpo-rate values in their day-to-day work. The survey cantake the form of a regular pulse check of the organi-zation’s health. Such surveys should be broad inscope; their purpose is to learn how the whole popu-lation is feeling about the organization’s values. If thesurvey reveals an area of concern, such as excessiveovertime, an unfriendly working environment, orlack of respect for individuals, managers can sched-ule focus group discussions or request open-endedfeedback to get more detailed information.

Core Values

26 BCG REPORT

A company’s core values are those nonnegotiableprinciples that form the underlying ethical fabric ofthe company, across regions and lines of business.These principles shape beliefs and expected behav-iors. They should permeate everything the com-pany does, both internally and externally, and helpemployees decide what to do and how to do it.

The role played by core values is particularly criticalin RDEs because when you are far from the corporatecenter, you need a way to establish common expecta-tions. You need to be able to trust everyone in thecompany to act in accordance with the company’s val-ues, without having to spell out those expectations.

The challenge for RDE managers is how to inspiretheir local organizations to understand and adoptthe global corporate values. In some areas, this iseasy because there is no conflict between the cor-porate values and the local culture; for example,almost everyone’s values include respect for indi-viduals and for achievement. The difficulties lie inareas where there are significant differencesbetween corporate values and local cultural princi-ples. For example, in China, bonds within familiesand among friends are often stronger than thesense of responsibility to an employer. Hence, con-fidential information can leak out relatively easily ifemployees do not uphold strong corporate values.

Best practices in this area include leading by exampleand implementing values deployment programs.

Leading by Example

The expatriate managers who head up RDE-basedoperations have a major role to play in transferring totheir local colleagues not only formal informationabout the company’s business but also explicit andtacit information about its culture and values. Localstaff members in RDEs pay very close attention totheir expatriate bosses’ lifestyles, attitudes, decision-making logic, interpersonal behavior, and even styleof dress and table manners. The leader’s way of con-veying rewards and reprimands, in particular, moldsthe attitudes and behaviors of the local organization.Leaders who are firm in upholding high ethical stan-dards, rather than conforming to the sometimes less

Making It Happen

27

The dynamic nature of RDEs, and the evolving posi-tions in which companies find themselves, ensurethat organizing to capture global advantage is anever-ending journey. As on all journeys, it is veryhelpful to follow a path that offers some identifiablemarkers along the way. Although the companies thathave been traveling along this path for some timehave all taken their own turns, they do seem to haveshared some commonstretches along the way.

Facing Reality

There is a large and grow-ing gap between compa-nies that understand the importance of RDEs andare mobilizing their organizations accordingly, andthose that are still taking too passive a stance. It iscritically important for company leaders to facereality about the opportunities and threats—pres-ent and future—of globalization. For some, recog-nition of the full array of threats and opportunitiesmay come as an epiphany. Others already have adeep understanding but are struggling with mobi-lizing the organization. Regardless of your startingposition, facing reality—your company’s uniquereality—is clearly a vitally important first step.

Choosing the Right Organizational Stage and Pace

RDE organizations typically follow a three-stage pat-tern, building from opportunistic presence tostrategic investment to fully leveraged deployment.

Opportunistic Presence. In the first stage, individualbusinesses often find their way into an RDE, led bymidlevel expatriate managers sent to make initialforays, whether for selling, sourcing, or manufactur-ing. Each business unit operates fairly autonomously,and little investment is made in formal talent devel-opment, common processes, or shared platforms. Atsome point, performance problems, competitormoves, or a better understanding of the opportuni-ties prompt senior leaders to raise their aspirationsand move to the next stage.

Strategic Investment. In this stage, the companyappoints many more senior executives to head up

its organization in the RDE. It gives these managersmore demanding goals but also significantly moreresources, including RDE country organizations,common processes, and shared platforms. In themost successful companies, senior managementinvests considerable time developing talent andestablishing core values.

Fully Leveraged Deploy-ment. At this stage, com-panies actively leveragetheir RDE-based organi-zations across multipledimensions, includingselling, sourcing, manu-

facturing, R&D, and services. They also have com-mitted significant resources to the RDE, including,in some cases, relocating the heads of global busi-ness units and functions there. At this stage, indi-vidual business units often reach critical mass in theRDE and become more autonomous.

It is critical to understand what stage your organi-zation is at today, where it should be, and how fastyou need to get there. For many companies, gettingthere will mean accelerating their activities in RDEsto move their organizations to a strategic invest-ment or fully leveraged deployment stage.

Developing an Organizational Road Map

The next step is to take stock of the organization,ideally along each of the six elements described inthis report: leadership, structure, processes, plat-forms, talent, and values. BCG has developed anOrganizing for Global Advantage Audit that can bea helpful tool for conducting such an assessment.We also have an array of diagnostic tools that can beused to conduct deeper assessments in specificareas. Regardless of the tools you use, it is impor-tant to understand the overall readiness of theorganization, identify the most important gaps, anddefine the actions required to close those gaps.Usually, closing the gaps requires a broad set ofactions in some or all of the six areas. This caninclude making changes in leadership, rethinkingstructural design, choosing specific processes to


It’s critically importantfor company leaders

to face reality about globalization.

globalize, developing new common platforms, andtaking steps to improve global talent developmentand to further embed core values.

Leading the Way

Executives should anticipate that their organizationswill be continually changing—not along all dimen-sions, and not every day, but in enough ways thatthey must be prepared to be continually assessing,planning, and revising. Precisely because there isgoing to be so much change, it is also important forleaders to strike the right balance and to set the rightscope and pace of change. Move too narrowly andslowly, and your competitors will leave you behind;move too broadly and fast, and you will leave yourpeople in chaos. Our work with global companiessuggests that it is prudent to plan to review youroverall organization at least every 12 to 18 months totake stock and establish overarching programs, whilemaking myriad changes along the way.

This means taking charge personally. It means mak-ing a commitment to owning the six elements ofeffective global organizations. It also means develop-ing a personal, experiential knowledge of your high-

priority RDEs and ensuring that all necessary actionsare being taken to build an effective organization.

It means putting your best people on the frontlinesin RDEs, so they can form the perspectives neces-sary to make key decisions. It means ensuring thatthe leaders of each business and each function alsotake personal ownership and become the sponsorsin their respective areas. Ultimately, because cap-turing global advantage takes many motivated,capable, and disciplined people, it means ensuringthat the company’s global priorities—and its senseof urgency—are owned throughout the organi-zation.

A Call to Action

Leveraging RDEs is the next great frontier forglobal businesses. For those who understand thisfrontier and mobilize their organizations accord-ingly, it represents an unprecedented opportunity.Our sincere hope is that this report will be a usefulguide along the journey. It is informed by the expe-riences of many who are already successfully cap-turing global advantage in RDEs. We urge you tomove quickly, and we wish you great success.

28 BCG REPORT

For a complete list of BCG publications and information about how to

obtain copies, please visit our Web site at www.bcg.com.

To receive future publications in electronic form about this topic or others,

please visit our subscription Web site at www.bcg.com/subscribe.

“The New Economics of Global Advantage: Not Just Lower Costs

but Higher Returns on Capital”

Opportunities for Action in Operations, July 2005

“Globalizing R&D: Knocking Down the Barriers”

Opportunities for Action in Operations, May 2005

“Globalizing R&D: Building a Pathway to Profits”

Opportunities for Action in Operations, May 2005

“Avoiding Supply Chain Shipwrecks: Navigating Outsourcing’s Rocky Shoals”

Opportunities for Action in Operations, March 2005

The Central and Eastern European Opportunity: Creating Global Advantage

in Serving Western Europe

A Focus by The Boston Consulting Group, January 2005

Navigating the Five Currents of Globalization: How Leading Companies

Are Capturing Global Advantage

A Focus by The Boston Consulting Group, January 2005

Capturing Global Advantage: How Leading Industrial Companies

Are Transforming Their Industries by Sourcing and Selling in China,

India, and Other Low-Cost Countries

A report by The Boston Consulting Group, April 2004

“What Is Globalization Doing to Your Business?”

Opportunities for Action in Industrial Goods, February 2004

The Boston Consulting Group publishes other reports and articles on the topic of globalization that may be

of interest to senior executives. Recent examples include:

www.bcg.com

BCG

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