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Rediff.com  » Business » World not yet flat; blame it on non-economic issues

World not yet flat; blame it on non-economic issues

December 19, 2006 14:49 IST

Fortune 500 CEOs' vision of a flat world created by large and super efficient corporations without boundaries has hit a roadblock being posed by growing geopolitical and socio-cultural risks across the world, including India, a new study says.

Incidentally, it was a visit to India and discussions with domestic IT major Infosys CEO Nandan Nilekani that influenced the Pulitzer award winning columnist of the New York Times, Thomas Friedman, to come out with a best-seller named The World is Flat.

This was followed by a number of multinational companies adopting the flat-world vision, along with Infosys, which now calls its business perspective 'Think Flat.'

However, this vision has failed to heed the growing geopolitical and socio-cultural risks that have begun to roll back the Fortune 500 companies' global expansion efforts, Forrester's vice president Navi Radjou says in a latest report from the technology research firm.

With exponential global trade growth in the recent decades, the world appears increasingly smaller and flatter, while promising massive new market opportunities for the companies, Forrester said.

The worldwide exports have tripled from $3.45 billion in 1990 to $9.12 billion in 2004, fuelled by integration of countries like India and China into global economy.

However, the direction and pace of globalisation is not cadenced by the market forces alone and geopolitical and socio-cultural concerns might spoil the party, the report said.

Among other factors, need to comply with multiple regulations is increasing the cost of doing business globally, while issues like restrictive labour laws in India and France, stringent realty regulations in Japan and convoluted patent governance in China and Brazil are also keeping the foreign investors at bay, Radjou said.

To make the things even worse for MNCs, socio-cultural and environmental factors are exerting an increasingly negative influence. The weak social and physical infrastructure, along with poor education and health systems, are curbing MNCs' expansion efforts in the BRIC countries.

For example, only 25 per cent of Indian engineers have skills deemed desirable for MNCs, while China lacks the 600,000 English-speaking managers desperately needed by companies like Wal-Mart, Sony, HSBC to expand their local presence. Besides, cultural alienation is leading to societies rejecting foreign goods and ideas -- such as US based brands like Coca-Cola and McDonald's taking a beating in a number of European and Asian markets since the United States invasion of Iraq in 2003, the report said.

Then, there are also negative catalysts like terrorist attacks, hurricanes and other natural or human-induced disasters like Avian Flu that disrupt the global trade.

Citing an example of growing geo-political risks for global economic integration, the report says that mistrust continues between India and China despite their rapid bilateral trade growth.

Even in the technology triad of the US, India and China, negative geopolitical and socio-cultural factors like growing social unrest in China, stifling Indian regulations and rising American nationalism could strain or even kill this partnership over the next two decades, Forrester said.

The report said the decelerators for US-India-China tech trade are all non-business related. While lax patent laws dissuades US firms from inventing in India or transforming in China, restrictive Indian labour laws and opaque Chinese corporate governance keep western investors at bay.

At the top of it, the race for securing new energy sources would pit the US against India and China in oil and gas rich markets. While conservative US politicians could succeed in painting China as next Soviet Union, triggering a new cold war, the social instability in China could force communist regime to channel nationalistic feelings to Japan, a US ally.

In the recent cases of victimisation of MNCs in India, several states banned the sale of Coke and Pepsi products on safety grounds, while French retail giant Carrefour has failed in its attempt to operate direct-to-consumer retail outlets.

In order to minimise the global risk exposure, while capturing opportunities worldwide, the CEOs need to transform their monolithic firms into globally adaptive organisations (GAOs), which could be achieved by flexibility, efficiency, altruism and openness into their talent pool, businesses and partnerships, the report said.

While, socially responsible GAOs might enjoy superior financial performance and corporate sustainability as compared to their peers, it would be fear rather than greed that will instigate the flattening and integration of the world, Radjou said.

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