Despite a concerted push to expand their overseas presence in recent decades, only about 10 per cent have mastered the capabilities needed to win overseas, according to a survey of executives conducted jointly by The Boston Consulting Group (BCG) and IMD business school.
The findings are discussed in a report - The Globalization Capability Gap: Execution, Not Strategy, Separates Leaders from Laggards.
Midsize companies are at the greatest risk in going global. They are less nimble than smaller companies and do not have the scale or systems of larger ones.
“Companies clearly recognise the need to globalise, but few of them are truly ready to execute and bring to life their global strategies,” says Dinesh Khanna, a partner in BCG's Singapore office and global leader of the Global Advantage practice. “Companies that want to win overseas should be focusing on the nuts and bolts of going global.”
BCG and IMD conducted the Global Readiness Survey in order to understand both the aspirations and the preparedness of companies to go global. About 75 per cent of respondents reported that their companies plan to increase their international share of business. But only 10 per cent believe they are mastering the full set of 22 capabilities required to go global.
Several practices essential to globalisation, such as establishing a global supply chain and spreading best practices, rank in the bottom third of capabilities. Overall, respondents rated their companies below average on 15 of the 22 capabilities.
Global expertise in mergers and acquisitions was the lowest-rated capability by a wide margin. Its 'readiness score' was 34 per cent, where a score of 100 per cent indicates that a company has perfected the capability.
“M&A can be challenging to master as it requires mastery of several skills, such as target selection, negotiation, and integration. But M&A can also be transformative. Companies can quickly acquire market share and a global footprint, diversify their talent base, and create a more varied portfolio of businesses,” said Margaret Cording, Professor of Strategy and Regional Director of Southeast Asia and Oceania at IMD business school in a statement.
Headquarters Bias
The Global Readiness Survey also found that there was a disconnect between the views of executives who work at headquarters and those who work in the field. Headquarters staff have a far more optimistic view of their companies’ globalisation readiness than line executives. The biggest differences have to do with whether the organisation has an open mind-set, aligned performance incentives to support the global agenda, and best practices effectively spread across the organization.
Most strikingly, midsize companies, with annual revenues from $1 billion to $10 billion, underperform as compared to their larger and smaller peers across most capabilities. They have neither the scale of large organisations nor the agility and effectiveness of smaller ones, the survey reveals.
The report took into account data from 362 executives, who work for a wide variety of companies throughout the world.