In: Economics
Japanese companies accounted for 141 of the companies and 35.2% of the revenues of Fortune’s then brand-new Global 500 list about 15 years ago. By 2000 their share of revenues had fallen to 20.8%, and by last 2009 it had shrunk to 11.2%, with only 68 Japanese companies making the list.Japan was unable to continue the meteoric rise it saw in the 1970s and 1980s, because the new generation of emerging-country multinationals bears a disturbing resemblance to corporate Japan in the 1990s.In building the efficient manufacturing platforms, Japanese firms created strong corporate policies, practices, thinking, and behaviors, which improved and reinforced their business models. These Ways helped Japanese companies grow exports, they hurt the firms’ new operations in foreign markets.Many companies from today’s emerging markets are at risk of developing Ways that will hinder their international expansion. In China, for example, four of the 10 largest firms are banks that have built business models in which lending decisions are based more on guanxi, or social and personal relationships, than on formal credit analysis. Over the decades, Japanese companies have faced little competition from foreign rivals inside Japan. Foreign direct investment (FDI) in Japan was between –0.2% and 0.3% of GDP from 1970 through 1995. In 1976 the number of foreign firms in Japan was 1,101; in 1995 it was 1,421—an increase of just 320 companies.This domestic market isolation had its drawbacks as Japanese companies moved overseas.Until recently, Russia was also isolated, and although FDI in that country has reached nearly 5% of GDP—a level similar to the UK’s—much of the investment is in the extractive industries. From 1975 to 1995, FDI in Brazil was less than 1% of GDP on average. By 2009 that ratio had ticked up to only 2.2%. In 1990 there were 1,116 foreign firms operating in Brazil and, by 2000, only 1,196. Thus, for a significant period of time, most of the country’s firms competed primarily against one another, in industries such as nuclear energy, health services, media, fishing, mail and telegraph services, aviation, and aerospace. While Brazil is home to a few international players (notably Embraer), it remains to be seen if Petrobras, Banco Bradesco, and Vale can take on the likes of Exxon, HSBC, and BHP Billiton outside its borders.China’s situation is more complicated. FDI in China increased from less than 1% to 5% of GDP in the 1990s, but from 2000 through 2009 the Chinese economy grew even faster. The FDI/GDP ratio actually shrank during that time, to around 2% of China’s by now nearly $4.8 trillion economy. India has been perhaps the most protected of the large emerging economies: From 1970 to 1990, FDI there was less than 0.1% of GDP on average, and Indian firms such as Tata Steel, Reliance Industries, Indian Oil, Bharat Petroleum, and Hindustan Petroleum had little direct exposure to competition with foreigners. While FDI has grown dramatically since 1990, it is still less than 3% of India’s $1.25 trillion GDP.Japan has no significant subethnic groups or local dialects and very little immigration. Foreign-born residents made up less than 1% of the population in 1960 and, even 50 years later, constitute only about 1.7%. In comparison, foreign-born residents in Germany rose from 1% to approximately 13% over the same period. In the U.S., the percentage jumped from about 5% to 13%. China is perhaps the closest to Japan in terms of worker homogeneity. Although China recognizes 55 ethnic groups, Han Chinese constitute more than 91% of the total population.For the other BRIC countries, homogeneity is less of a problem. While 99.8% of Brazilians speak Portuguese,In India, though the Indo-Aryan ethnolinguistic group constitutes 72% of the total population,Russian ethnic group accounts for 80% of the population.The paradox of globalization is that initial success can set up an organization to fail once it reaches the final hurdle. Great performers who manage a team of people who think and act like them are rarely successful when the environment changes and their colleagues all look and act different. Long-term commitments to develop and motivate talented people from all cultures and put them into meaningful roles are essential to the success of even the most modest global strategies. The world’s economy may be globalizing; that doesn’t mean it is becoming any less diverse.