Log in / Register
Home arrow Business & Finance arrow Global Business Strategy
< Prev   CONTENTS   Next >

1. Introduction: Needs for New Global Strategies

1.1 Is the World Flat?

Electronics City, an agglomeration of IT companies, lies approximately 40 min away by road from Bangalore, India. Stepping into the Infosys headquarters located here reveals a world completely different from the rest of India, with its roadside vendors, auto rickshaws, and overwhelming disorderliness. From its expansive campus with its well-manicured lawns, rows of modern buildings, cafeterias, putting greens, and gyms, Infosys provides IT services to the world's largest corporations. Among the striking buildings in the campus, a pyramid-shaped studio located at the center of the campus draws much attention. The studio contains advanced broadcasting equipment and supports a local TV station. This studio enables worldwide connectivity by way of a high-speed satellite link, and the studio's interiors compel one to question their whereabouts. In such a setup, one may feel the world to be flat. Thomas Friedman, a US journalist and author of “The World Is Flat” (Friedman 2005), states that economic activities have enabled the disappearance of national borders in today's world, through ongoing liberalization of international trade and investment brought about by information revolution and organizations such as the WTO. The book mentions Infosys from the outset, stating that the author arrived at the concept of a “flat world” through an interview with the company's former CEO, Nandan Nilekani.

Infosys is said to be one of the top three IT service companies in India, along with Tata Consultancy Services (TCS) and Wipro. Infosys handles offshore IT development of the world's top financial and manufacturing companies and has recently expanded its operations into higher value-added services, such as packaged software development and consulting, through which it is beginning to threaten the business of the world's largest IT service companies such as IBM and Accenture. I have visited the Infosys' Bangalore campus in March 2010, when revenues were still low because of the effects of the financial crisis triggered by the Lehman shock in September 2008. While the impact of the crisis was great, because more than 80 % of Infosys' revenues come from western companies, a high percentage of which comes from the financial sector, there was no indication of trouble at Infosys as was among Japanese companies during that period. Though one must discount the self-assured temperament unique to Indians, a review of the 2011 income statement shows that Infosys recorded historically high revenues and profits and that the average pace of revenue and profit growth in the 5-year period beginning in 2007 has remained constant at 20 %.

The Infosys campus in Bangalore is connected via the Internet to all parts of the world 24 h a day, and one can experience a “flattened world” there, with no discernible way of knowing whether one is in India or some other part of the world. However, upon exiting the campus gates, one is immediately pulled back into reality that one is in India. The Infosys campus is visible only as a point on the Google Map, and while this type of “flattened world” may be found scattered throughout Bangalore, these are mere points, and the rest of India is a completely different world which is far from the world described in Thomas Freedman's book.

Immediately before visiting Infosys in Bangalore, the author had the opportunity to visit several corporations at the Neemrana Industrial Park located near Delhi. The park is a 2-h drive away from Delhi, and is home to production operations of various Japanese automotive companies such as Nissin Brake and Mitsui Prime Chemicals. The park has a management committee that comprises companies located there to compile issues arising within the park. The Japan External Trade Organization (JETRO) represents these companies in dealings with Indian government entities. The details on this arrangement can be found in case studies contained in this volume. The author concluded that the companies in the park face several issues that are unimaginable in Japan, such as that of water shortages. The Neemrana Industrial Park is located in the desert state of Rajasthan, where rainwater is scarce. Therefore, the government has imposed water harvesting regulations that prohibit the consumption of groundwater in excess of annual rainfall. The companies here comply with these regulations by increasing their land area in relation to the size of their buildings and reusing wastewater within the park. In addition, the Indian tax system is very complicated, requiring companies to hire local consultants or else run the risk of dealing with local tax authorities. Furthermore, responses to active labor unions are required, and daily electrical outages force companies to install power generation equipment on site. These are some of the many issues faced by companies at Neemrana and across India.

Similar to Infosys, some companies are connected to the world via the Internet with information moving freely without regard to international borders, thereby enabling business transactions on a global level in a flattened world environment. Conversely, companies operating in India face local issues that are unthinkable in Japan, such as of those at the Neemrana Industrial Park. Depending on the industry, type of business, country, or region, the world may indeed be flat and exist as if there were no national borders. However, a world with national borders creates high barriers. In reality, these two worlds co-exist, making it necessary for companies to analyze the type and significance of the barriers that exist in the countries and regions they enter, and consider strategies appropriate to the circumstances.

In addition, when devising midand long-term strategies, it is important to envision the gradual change of future “barriers” over time. The world is witnessing a gradual decrease in barriers over time; in other words, the world is undoubtedly becoming flatter. For example, India has relaxed its foreign investment regulations, allowing for stimulating foreign firm activity within the country. The Neemrana Industrial Park was created through Japanese-Indian government agreements to promote the local expansion of Japanese parts suppliers of large-scale automobiles and motorbike manufacturers such as Honda and Suzuki, which have production facilities located near Delhi. Through JETRO's representation of the companies in the park with the Indian government, problems that would have been otherwise difficult for smaller companies to solve individually, have a higher probability of resolution. By having a public organization act as an intermediary, investment barriers in India are lowered, thereby producing a relatively flatter world. In August 2011, the Japan–India Comprehensive Economic Partnership Agreement became effective. On the basis of this agreement, it is expected that the operating environment for Japanese companies in India will witness continuous improvement.

The WTO was established in 1995 after replacing the General Agreement on Tariffs and Trade (GATT). Up until that time, trade liberalization efforts such as tariff agreements were conducted through GATT. The areas under negotiation have since broadened, with continued negotiations on creating a level playing field across a range of areas such as government procurement and intellectual property that can become barriers to overseas investment. In addition, free trade agreements and economic partnership agreements, which create deeper economic partnerships on a regional level between countries, are becoming active. Compared with the North American Free Trade Agreement (NAFTA) and the European Union (EU), efforts on regional partnerships had a slow start in Japan; however, with the 2002 economic partnership agreement with Singapore, Japan has gone on to sign agreements with many Asian countries and the Association of Southeast Asian Nations (ASEAN) countries. The aforementioned economic partnership agreement with India developed from these various negotiations, and the trend toward realizing a flatter world is likely to continue.

In “The World Is Flat,” Friedman notes that the globalization typified by Infosys is the third historical wave brought about by the IT revolution (Friedman 2005), following the first wave of Columbus discovering new continents and the second wave of improved distribution efficiencies brought about by steam ships and the industrial revolution. The innovations of improved computer performance and information and communication technology via the Internet drastically changed our society and global economy and undoubtedly impacted the flattening of the world. While the barriers of national borders are being lowered by technology through reduced shipping and information transmission costs, the WTO and regional economic partnerships show that the world is also flattening by way of economic systems.

Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
Business & Finance
Computer Science
Language & Literature
Political science