Harold L. Sirkin, a senior partner at The Boston Consulting Group and global leader of the firm's Operations practice, saw a tsunami coming. That tsunami of global companies that are ready to take on traditional corporate powerhouses is the result of what Sirkin calls "globality." "There's been a group of people working on this inside BCG. It's probably our largest single research expenditure focusing on this phenomenon and what it all means," says Sirkin, adding that a new practice called Global Advantage launched for just that purpose. He's authored a new book, together with colleagues James W. Hemerling and Arindam K. Bhattacharya, that's aptly named GLOBALITY: Competing with Everyone from Everywhere for Everything. Many U.S. companies, he says, are in denial about this new competitive free-for-all. He recently discussed the book and its impetus with Consulting: Consulting: Tell me how the book came about.
Sirkin: It was about five years ago that we started to notice a pattern. And we were starting to see this [archetype] unexpected competitor show up in a number of places. And we began to realize this was not just a unique occurrence but was the beginning of a pattern.
Globalization was … really about multinational companies from the U.S., Europe and Japan going into the developing world, setting up production or, in most cases, actually just outsourcing things to smaller companies in the developing world countries to take advantage of relatively low wage rates. And by doing that [those large companies took] 20 to 30 percent out of the cost structure.
[So these smaller companies started selling these goods locally as well. And] they started to build scale. They were taught by those Western and Japanese companies how to produce product for the Western market of the right quality, with the right design, with all the right things to be able to sell in those markets. So in many ways—not deliberately but almost coincidentally—the … smaller developing countries' companies began to produce their own product and decided, "Hey, we [can] do this on our own; we don't have to be dependent on these other companies."
And so they started to be competitors in many ways of the companies that they were [serving]. At first it was small, it wasn't a big deal, but over time they've grown to be fairly large companies.
Consulting: So when did you decide to write a book?
Sirkin: It was about five years ago that a small number of us got together and started saying, "We're seeing the same thing." And over time … we started to see some of our clients competing with these upstart challenger companies and we started putting the story together.
About three years ago, we decided this is going to become a major trend. More than just a wave, but more something like a tsunami. If you look at the history of the world, there's always been challengers challenging incumbents. Even the U.S. in the late1800s [and] early 1900s was a challenger. The U.S. was really challenging the large European companies who were manufacturing powerhouses. We had low cost and in many ways in the U.S., we had ingenuity. And in many industries, [we] took over the dominant position. In the '60s and '70s, the Japanese did something very similar. They were basically viewed as almost a joke. [They're now a] dominant player in many of their industries, Toyota now being the number one car maker in the world. We saw the same thing in Mexico, we saw the same thing with Korea.
The difference here is this is a much larger wave than we've ever seen before. If you look at the population of the rapidly developing economies—China, India, Russia, Brazil and about ten to twelve other countries, it's about 3 and a half billion people or about half the world's population. And so we expect a wave of companies to come from these countries that will be enormous and will create great challenges. [And] it's a huge opportunity for everybody around the world.
Consulting: What is the difference between globalization and globality?
Sirkin: Think about globalization as a one-way street. It was primarily those multinationals going in, sourcing product and shipping it back. Globality is a two-way street because it's now about the competition between the mulitnationals that existed and these new upstarts … who are now becoming fierce competitors. So what globality is is now a two-way street. And all the rules of the game are being rewritten. The rules when the mulitnationals were controlling the scene were basically telling the challengers, "Here's what you produce, here's how you produce it, here's what it costs," and now all of a sudden, they can do what they want. It's like an eight-lane highway, but there are no lanes, there's no traffic rules and it's not clear what side of the street you should drive on.
Consulting: It sounds a little like anarchy—is that how you're seeing it?
Sirkin: It's not anarchy. What it is is that the rules that everyone learned to play by are changing. When I want to develop new product, for the most part, I build an R&D center and spend a lot of money investing in technology. The challengers learned that while you can develop new products that way, actually ingenuity is really important. So we look at companies who are being ingenious in development rather than spending lots of money on R&D.
Consulting: How does the current state of the U.S. economy affect this two-way street you see?
Sirkin: Some people say that it will actually make it more difficult to happen. I actually think the opposite because what's going to go on, as the U.S. economy takes a hit, there's going to be more pressure to lower costs.
Consulting: How are you preparing your clients?
Sirkin: I think the biggest message in all of this is the size of what this is going to be, and the need to take action now. I've spoken to a number of our clients and sometimes they go into denial. Other times they say things like, "Well, this is all very interesting but we have four or five years to figure this out." And that's probably the worst possible answer you can give because this is happening right now.
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