A Future Perfect: The Challenge and Promise of Globalization

by John Micklethwait

  p. 134 For nearly two decades, the intense, combative Irish American was the Princess Diana of business journalism, appearing on covers wherever he went. His various revolutions—like six sigma—were detailed lovingly in countless books and newspaper articles. That reputation has since been battered both by a slump in GE’s share price and by a messy divorce. Our guess is it will recover somewhat as people reassess the changes that Welch pushed through. One of the longest lasting will be the fact that he globalized the firm. Soon, half of GE’s sales and most of its workforce will be outside America. Walk into any part of GE, and you will be told about a string of acquisitions or new factories overseas, often accumulating at a remarkable rate. The loan kiosks, for instance, are part of GE’s non-American consumer-finance operation. Its chief, David Nissen, started with three people in 1993. Within six years, he had twenty-three thousand people and a loan book of thirty-four billion dollars.

  In one way, Welch had no choice but to look for foreign markets. If GE had not expanded abroad, its profits would have been flat in the 1990s. Besides, as Welch put it, “there is no point in being big without being global.” His ambition was to get all the dots on the map to work together “the GE way.” Yet in doing so Welch exacerbated the ever-present danger that an already large group will become still less controllable. Even the peripatetic Welch did not get around to visiting the engine shop in Wales. For Immelt, the group’s size must seem daunting.

  That challenge is also increased by the need to preserve the culture that has on the whole made GE so successful.[14] Rosabeth Moss Kanter once observed that businesses are the only sort of social organization that allows men homosocial reproduction. GE hires a particular sort of people, eschewing Ivy League types for graduates from lesser schools or the armed forces, whom it picks more for their competitiveness and capacity for hard work than for their exam results. Despite a gradual increase in the number of women managers, most parts of GE remain emphatically male worlds, where soft handshakes are rare, where a senior manager discussing the merger of two competitors can quip, “tying two cripples together doesn’t mean that they can walk,” and where people who “don’t get it” are forced out early.

  On the other hand, it is very hard to think of any other large company where people are quicker to admit they know nothing about something or where other people’s ideas are accepted more quickly. In 1999, a London manager in GE Capital told Welch how the unit was using young people to teach older employers about the Internet. Within days, the order went out p. 135 that every senior manager at GE, from Welch down, should spend a couple of hours a week being bossed around by an Internet mentor, usually a generation younger.

  Plenty of other firms also claim idea-sharing as a cultural trait, but at GE the culture has structural roots. Pay and promotion, for instance, are tied to “boundaryless behavior,” particularly for the three thousand managers. Crotonville, GE’s famous training center that Welch used to attend monthly, is used to spread the message. And the notion of sharing ideas has been embedded in most of GE’s management revolutions. Thanks to six sigma, people whose businesses have nothing in common (and who often speak limited English) suddenly start telling war stories in the same ugly vernacular. Christopher Bartlett, a professor at Harvard Business School (and one of the best writers on globalization) argues that GE has got around the traditional objection that a conglomerate cannot allocate capital better than the market can. Capital, he points out, is not a scarce resource, but knowledge is. GE’s success is rooted in the way that it circulates more ideas and management talent faster than smaller specialists ever could.

  Whether this still holds true was being tested by the stock market in 2002: GE was trading at a discount to the value of its assets. And the cultural changes remain. The company was built by a very specific kind of American: no-nonsense engineers who delighted in getting the job done and in out-competing those foppish Ivy League types. Can the company find similar types of people as it expands abroad? Can it maintain its cultural cohesiveness even as it transforms itself into a multicultural organization? Or will globalization eventually dissolve the glue that holds GE together and turn it into just another collection of unrelated businesses that would be better broken up?

  Jack Be Nimble

  There are arguably four stages to being a big global company. The first was corporate colonialism, under which companies either used foreign outposts as “dumb terminals” to distribute domestic goods or, through either laziness or a desire to be local, let those outposts develop lives of their own. During the First World War, for instance, Fiat supplied the Italian Army, but its Austrian subsidiary supplied the rival Austro-Hungarian Empire. The second stage, which most big companies had already passed through by the 1980s, might be described as the cheap-hands stage, in which big companies integrated their manufacturing along global lines but often did not bother to p. 136 adapt them too much to local needs. The third stage might be described as the transnational one, when companies begin to use their foreign subsidiaries for ideas as well as production; they also tailor global products to local needs. The fourth stage has less to do with structure than state of mind: Businesses become genuinely multicultural multinationals in which the nationality of employees ceases to matter.

  GE is somewhere around stage three on this continuum. One of Welch’s first changes was to force all the operating units into global product groups, with regional managers typically left to coordinate things such as acquisitions and local public relations. This global attitude toward products is now being matched by a global attitude toward resources. GE has redoubled attempts to outsource production to cheap hands, as well as to cheap voices and cheap minds. If you live in Texas and get a strange-sounding person asking why your credit-card payment is late, it is probably because that voice is coming from India. (The operators, who assume Western names such as Janet, reportedly pick up some of the twang of the region that they call.) Much of the software that provides the brains for GE’s medical scanners comes from Bangalore. GE’s Tungstram plant in Hungary is now its center for excellence in various lighting technologies.

  True to GE’s model, ideas also whip backward and forward. For instance, most of the new technology for GE Capital’s consumer-finance business still comes out of America, but most of the sales and marketing gimmicks (like the loan-toilets) develop in the rest of the world. The clever bits of GE’s new six-hundred-million-dollar plastics factory in Cartagena, Spain, were designed by a multinational team, composed principally of Japanese and Dutch scientists. A new flexible manufacturing technique invented in New Zealand was transferred to Canada and then to America.

  And yet even while it searches for these ideas, GE also has to impose its own values. Every foreign company that GE buys goes through a process of GE-ification. This involves immediately adhering to a series of hard rules, typically having to do with supplying financial information, embracing six sigma, and so on. (“Joining GE is like taking a drink from a fire hose” is a typical complaint.) On the other hand, the newly acquired companies usually keep their own names, their own marketing strategies, and, at least to begin with, their own chief executives. Any of the latter suspected of not “walking the talk,” though, are quickly ejected.

  The same process also takes place at new facilities. At the new plastics factory in Cartagena, a deeply unlovely part of Spain that rivals southern Wales as one of Europe’s most backward areas, GE has GE-ified everything from the local architecture firm it used (which it introduced to three-dimensional p. 137 computer-aided design) to the workforce (which has completed a collective thirty-six thousand hours of training). The process, according to the plant manager, has been “less about building a site than building a culture.”

  Welch claimed to us that his “boundaryless” company had long since outgrown any idea that American is best: “It is a badge of honor to learn something here—no matter where it comes from.” GE is also prepared to compromise its culture a little. In Japan, for instanc
e, it has tried to allow consensus-based decision making. Yet for Welch, GE’s fundamental values—meritocracy, dignity, simplicity, speed, a hatred of bureaucracy—are universal values, not American ones, and “if some pompous horse’s ass wants to behave in such a way that the work experience will not provide those things, then they are out.”

  Whether these values really are global is a moot point; Welch’s way of proclaiming them, however, was as American as General Patton—and so was the heart of the company he bequeathed to Immelt. All GE’s product divisions are still headquartered in America and run by Americans. With Paolo Fresco gone to Fiat, all of Welch’s senior lieutenants were American. By most measures of multiculturalism, GE is less global than some of its European competitors, Asea Brown Boveri in particular.

  On the other hand, precisely the same meritocratic values that Welch trumpets were slowly but relentlessly de-Americanizing GE. In most of its divisions, there is a growing layer of non-American managers in their thirties and forties. Immelt himself hails from Cincinnati, but ten of the twenty-one people who used to report to him when he ran GE Medical Systems in the late 1990s were foreigners (and all but five of the Americans had worked abroad). Of the twenty-three thousand people in consumer finance at the same time, fewer than two hundred were American, and every national consumer-finance business bar one was run by a local.

  This demographic switch leaves an awkward balancing act for Welch’s successor. On one side, Immelt needs to make full use of all those dots on the map to justify GE’s size and to keep the ideas flowing. Yet a core part of GE’s competitive edge is its Americanness. It would be hard to imagine a British company putting up a big banner in Welsh about total quality management or pushing the people in the Welsh aircraft-engine factory as hard as GE does. Indeed, far from being satisfied with what is going on in places such as Wales and Cartagena, GE still wants more: In Cincinnati, the people responsible for maintaining quality standards in the airplane engine division still bridle at the idea that other sites are further ahead in applying six sigma and worry about the head office seeing the numbers. An “un-American” GE would be a toothless beast.

  Hard Days’ Night

  p. 138 General Electric is an interesting example precisely because it is ahead of the pack. Most multinationals still have two thirds of their employees and their sales in their host countries. Despite claims that capitalism is converging on a single model, as a rule American, Japanese, and German firms are still structured, financed, and motivated in fundamentally different ways; and, unlike Nokia, they do most of their R and D at home. Even pharmaceutical and computer companies, long in the forefront of the charge toward globalization, continue to perform the bulk of their most sensitive research in their home countries.[15] Most big companies have set up global supply and distribution systems, but they have been less active with things such as human resources. When they talk about knowledge management, it is usually about assembling big computer systems rather than getting the best out of their employees.

  All this gives rise to a heretical thought: The idea of a company—particularly a big company—needs to be redefined even further than it already has been since the passing of the Sloan model. Plenty of traditional corporate walls are falling, as even the biggest firms are pushed into cooperating with each other (remember the web of ties binding together Coke, McDonald’s, and Disney), but big firms can find it very difficult to achieve anything from their alliances. The most interesting thing about many new management models is that they tend to favor small, specialist firms, particularly once those firms start to form networks of their own.

  At the same time, presenting Jack Welch as the last of a dying breed—a man who made an impossible structure work—also seems wrong. There will always be a place for a company like GE, as long as it can keep its ideas flowing and maintain that relentless edge and those relentless people. One of the firm’s more recent recruits is Antonio Espinosa, a young engineer who has joined the Cartagena plant. Having come from a more leisurely local rival, he moans that GE is always looking for perfection, but he likes the performance pay and the training (which in his case has already included visits to America and the Netherlands). Asked where he wants to be in five years, Espinosa points at the back of the plant manager and says, “In his office.” A quarter of a century ago, another young engineer, when asked a similar question in an evaluation, cockily put “Chief executive officer of General Electric.” His name was Jack Welch.

  Part Four – The Politics of Interdependence

  8 – The Strange Survival of the Nation-State

  p. 141 ON A BRISK autumn day, the junction of Friedrichstrasse and Zimmerstrasse can seem like just another Berlin construction site. On one side, there is a billboard for Cheez Ums; on the other, a banner for an Internet company proclaims the merits of “least-cost routing.” People and cars move by regardless. Yet until recently, Checkpoint Charlie was a monument to “highest-cost routing”—the place where East Germans seemed willing to pay any price as they dug, bullied, jumped, tricked, or charged their way across the border. Some two hundred died in attempts at various points along the wall.

  From a table at Café Adler—once at the gateway to freedom, now just another Berlin bar—you cannot help but feel that the march toward a “borderless world” is proceeding briskly. Thanks to the Schengen agreement between the countries at the heart of the European Union, you could drive your Mercedes from here to Seville without a border guard so much as looking at you and pay for your petrol in Euros. Europe is not alone. In North America, politicians are talking about building borderless trade corridors “from Murmansk to Monterrey.” Even in Asia, the bamboo curtain around China is gradually parting. And as we have already seen, money and power now leap across frontiers at touches of buttons.

  But is the view from the Café Adler correct? Take your cup of coffee about five hundred miles northeast to the somewhat shabby office of Ants Limets, the town manager of Narva. A polite but harassed bureaucrat of the sort that Chekhov might have depicted, Limets’s life is now dominated by the magnificent, windswept bridge just around the corner that links Narva to Ivangorod. A decade ago, the two predominantly Russian-speaking towns p. 142 were part of the same country, sharing the same schools and hospital. Now Narva is a frontier town of Estonia, a fiercely independent Baltic republic.

  Narva is not only in a different time zone from Ivangorod but also in a different economic one, with a much higher cost of living. The few things the towns still share—such as water and electricity—are the subjects of interminable disputes. Every day, hundreds of elderly Russian-speaking Narvans cross the bridge to go shopping in Ivangorod’s shabby market. They look tired and defeated: Most were dumped in the region by Stalin. The windy trek, moan the old ladies, is necessitated by the small pensions the Estonians pay them. One purchases only a jar of honey, which costs just seven Estonian crowns in Ivangorod, a fifth of the price in Narva. Narva is a Russian town, they all insist, though they do not want it to be Russian at the moment. When will this all be alleviated? “As soon as Boris Yeltsin lies under these waves,” spits out one crone, pointing to the torrent below.

  The Estonian border—or, as some Estonians like to call it, the future eastern border of the European Union—sometimes has a quaint, Tintin-like feel. In some of the rural border guard towers, the cash-strapped Russians parade only crude mannequins dressed up in soldiers’ uniforms. In Moscow, politicians claim that the border crossings are thoroughfares for drugs and guns. Not so, says Georgy Kusnitsov, the head of Ivangorod’s border guards: All they have found is the odd ounce of marijuana. Nevertheless, the sleeper from Saint Petersburg to Tallinn often wastes four hours at the border as guards and dogs pick through the train, opening suitcases. Near the border in 1998, Russian troops carried out a war game in which they simulated taking over a small country; it was called “Operation Return.” Russian miners periodically threaten to block the border at Narva if Estonia does not buy their oil shale.

&
nbsp; In Narva, people like Ants Limets still think of the land beyond Ivangorod as their own. In Moscow, Alexei Mitrofanov, a leading nationalist, complains that the border was created by trickery, and its barring of Russia’s access to the Baltic Sea is like “taking away the gates to your own home.” Mitrofanov is careful to talk about referendums, integration on a bilateral basis, and the importance of persuasion. But the Estonians and Russia’s other neighbors are justifiably jumpy. Most of Russia’s leaders have made hostile noises about their Baltic borders. Kusnitsov, who used to run across the bridge to play with friends as a boy, thinks that Narva is a Russian town. “All a country’s problems end up at the border,” he laments, “We are the sharp edge.”

  The Wounded King of the Jungle

  p. 143 Borders are arbitrary abstractions, economic impediments, and surprisingly ineradicable. A feeling of unfairness hangs around borders almost as often as uniformed guards such as Kusnitsov do. All the same, borders are the best place to begin any discussion about the nation-state because they represent something relatively solid in a debate that is often irritatingly fluid. Arguments about the extent to which globalization is weakening national identities tend to end up in a splurge of unprovable generalizations; Café Adler and Kusnitsov’s office, by contrast, are tangible. Nations can exist without states (the Palestinians) or between states (the Kurds or the Catalans). A state can contain many nations (Austro-Hungary), a part of a nation (Ireland), or no nation (the Vatican). A single nation can also be divided into two states (the two Koreas). But however many nations are involved, without a border you can have no state at all.[1]