Race for the World: Strategies to Build a Great Global Firm

Rating:
Summary: What Will It Take to Win?
Review: According to its authors, this book "offers a new and useful way of thinking about strategy in a world economy that is rapidly integrating....[therefore] the pace of economic transformation will continue to accelerate over the next several decades. In the next thirty years we will see radical econmic structuring in every industry and every national economy." Strategies are urgently needed to build a great global firm. Race for the World provides such strategies.

I like the way the book is organized. First, the sauthors examine the nature and extent of "the race" in terms of the transition economy, running the race, gaining the high ground en route, and (meanwhile) maintaining control to accommodate the market-capitalization imperative. Then in Part II, the authors shift their attention to what is necessary to "winning the race." Not every reader will fully agree with all of their observations and suggestions; however, all readers will (in my opinion) welcome the authors' circumspection, precision, and attention to relevant detail. This is a very carefully reasoned work.

For me, one of the most valuable sections of the book is "Moving Forward: Classes of Ideas" in Chapter 11, the final chapter. According to the authors, there are three "classes of ideas": those which have high returns relative to investment because they leverage a company's existing familiarity advantage; those which have the potential to offer attractive returns, but require that unfamiliarity be overcome before risks and returns can be reasonably estimated; and finally, those which involve real uncertainty...especially in terms of risk.

The "race for the world" will be won by those who formulate and then manage these three classes of ideas, who shape the future by competing in the transition economy in new ways. The authors favor "intangible-heavy, capital light approaches" to building superior value propositions. Race for the World provides no guarantees. (The authors know better than that.) Rather, like a beacon on a foggy day or a dark night, Race for the World suggests a prudent direction to follow...and one then to be followed with both caution and passion.

Rating:
Summary: yet another mediocre business book on globalism
Review: Business books tend to gravitate toward one of two poles: the must-reads - those that involve fundamental rethinking of traditional business models - and the no-reads. Regardless of whether a must-read turns out to be right, this category of book establishes a vocabulary and logic of action that people will discuss and attempt to implement for years to come, as did "The Fifth Discipline" and "Reengineering the Corporation." In contrast, the no-read books, which are far too numerous to count, serve principally as resume builders or as crude promotional plugs for consulting firms. As cynical public relations gestures, the no-reads are entirely derivative, repackaging someone else's ideas while implying that you need to hire the authors to gain deeper insights. Indeed, what they have to offer can be summarised easily on the book flap, beyond which only captive student audiences or gullible clients would ever venture.

"Race for the World," another in the series of books by McKinsey & Co. consultants on how to operate in the global economy, straddles the great grey area in between these two poles. The book starts off with a strong analysis of the "transition" economy, in which geographic barriers are rapidly falling before the globalist wave: world's financial markets converging and digital technologies are lowering communication costs; national governments are "under market pressure" to remove the old legal and regulatory barriers to global competition; consumers are gaining unprecedented power, both to find the best prices through some convenient dot.com company and to vote via their investment dollars. This ongoing race (or "midgame") will determine which corporations can position themselves to become the "shapers" of the next century.

The midgame, the authors assert, offers extraordinary, though rapidly vanishing, opportunities around which to build new corporate strategies. With their new-found access to foreign markets, corporations can create "virtuous cycles of geographic expansion," simultaneously increasing their scale of operation, lowering their costs, and using new incoming profits to continue to invest elsewhere. Finally, by setting up their own networks of information, corporations can take advantage of cross-arbitrage opportunities, that is, buy goods and services from whatever country offers them cheapest.

So far so good. While none of this is particularly new or original, it is in the formulation of strategies that the book will stand or fall. According to the authors, global firms must invest in a variety of intangible capital, including intellectual property, talented managers, networks of able partners, and brand image. If a corporation can integrate these intangible assets into a system that operates as of a piece, the authors maintain, then it will have established "a compelling global value proposition": while single elements in the system may be replicable, imitating it as a whole is far more difficult for competitors. Furthermore, the authors argue, global firms should "control, [though] not own" the value chain, which represents a reversal from the practices once praised in large, vertically integrated firms. Sensible advice.

Unfortunately, at this point the authors cross the line that separates lack of originality from banality. Firms must, the authors solemnly inform us, approach potential deals with the appropriate risk assessment techniques, many of which were developed for investment bankers. These techniques include: 1) "disaggregating" the many risks involved in large business decisions, that is, breaking them down to examine who bears what risks and for what, etc.; 2) focusing on those risks for which the firm enjoys "familiarity advantages"; 3) portfolio theory, i.e. diversification spreads risks; 4) options theory, or the ability to acquire a firm at a specified date in the future for a known price. These techniques, the authors conclude, will allow firms to "overcom[e] confusion (lack of necessary knowledge), complexity (unknown interdependencies), and uncertainty (unknowable future events)." While top executives are perhaps too busy to reflect on these strategies systematically, it is difficult to imagine that they haven't thought about these things already.

However, there are deeper flaws at the core of the book. For starters, the seductive rhetoric of globalism is accepted as a given and fails to realistically anticipate any other contingencies, which is a disservice to business readers. The authors' insistence on proper risk analysis techniques cannot capture these complexities. Instead, the authors treat us to a simple extrapolation of current economic conditions. It remains unclear whether the current boom represents a structural trend (a "new economy") or another speculative financial bubble. Confusing the two can lead to terrible mistakes. Unfortunately, though its purpose is to devise better strategies for managers overwhelmed by global change, "Race for the Future" offers no useful guidance in this regard.

Even worse, evidence that contradicts their vision is ignored. The authors naively assume that globalisation is an unalloyed good, that consumers will prefer cheaper, more uniform goods to traditional indigenous varieties.

Many of these shortcomings can be explained by the poorly hidden agenda of the book. How, one wonders, could four intelligent co-authors ever agree on a detailed analytic framework? The answer is simple: the book is part of the McKinsey & Co. publicity machine. It promotes a company methodology, the conclusions of which come straight from McKinsey "research," a kind of parallel universe of jargon, anecdotes, and fierce internal competition for attention between young "associates" fresh out of university. I suspect that, under the steady hand of good ghost writers, "Race for the World" was cobbled together from disparate articles from the McKinsey Quarterly with over-confidence and little critical regard. As a result, the book's "authors," imbued with the company's mystique, fail to recognise the mediocrity of their ideas and advice.

Nonetheless, "Race for the World" is no no-read. As long as the reader is aware of its limitations, it offers a solid introduction to gung-ho globalism. While the book contains more than could be written on a book flap, its ideas could have been resumed in, say, one article in the McKinsey Quarterly.

Rating:
Summary: yet another mediocre business book on globalism
Review: Business books tend to gravitate toward one of two poles: the must-reads - those that involve fundamental rethinking of traditional business models - and the no-reads. Regardless of whether a must-read turns out to be right, this category of book establishes a vocabulary and logic of action that people will discuss and attempt to implement for years to come, as did "The Fifth Discipline" and "Reengineering the Corporation." In contrast, the no-read books, which are far too numerous to count, serve principally as resume builders or as crude promotional plugs for consulting firms. As cynical public relations gestures, the no-reads are entirely derivative, repackaging someone else's ideas while implying that you need to hire the authors to gain deeper insights. Indeed, what they have to offer can be summarised easily on the book flap, beyond which only captive student audiences or gullible clients would ever venture.

"Race for the World," another in the series of books by McKinsey & Co. consultants on how to operate in the global economy, straddles the great grey area in between these two poles. The book starts off with a strong analysis of the "transition" economy, in which geographic barriers are rapidly falling before the globalist wave: world's financial markets converging and digital technologies are lowering communication costs; national governments are "under market pressure" to remove the old legal and regulatory barriers to global competition; consumers are gaining unprecedented power, both to find the best prices through some convenient dot.com company and to vote via their investment dollars. This ongoing race (or "midgame") will determine which corporations can position themselves to become the "shapers" of the next century.

The midgame, the authors assert, offers extraordinary, though rapidly vanishing, opportunities around which to build new corporate strategies. With their new-found access to foreign markets, corporations can create "virtuous cycles of geographic expansion," simultaneously increasing their scale of operation, lowering their costs, and using new incoming profits to continue to invest elsewhere. Finally, by setting up their own networks of information, corporations can take advantage of cross-arbitrage opportunities, that is, buy goods and services from whatever country offers them cheapest.

So far so good. While none of this is particularly new or original, it is in the formulation of strategies that the book will stand or fall. According to the authors, global firms must invest in a variety of intangible capital, including intellectual property, talented managers, networks of able partners, and brand image. If a corporation can integrate these intangible assets into a system that operates as of a piece, the authors maintain, then it will have established "a compelling global value proposition": while single elements in the system may be replicable, imitating it as a whole is far more difficult for competitors. Furthermore, the authors argue, global firms should "control, [though] not own" the value chain, which represents a reversal from the practices once praised in large, vertically integrated firms. Sensible advice.

Unfortunately, at this point the authors cross the line that separates lack of originality from banality. Firms must, the authors solemnly inform us, approach potential deals with the appropriate risk assessment techniques, many of which were developed for investment bankers. These techniques include: 1) "disaggregating" the many risks involved in large business decisions, that is, breaking them down to examine who bears what risks and for what, etc.; 2) focusing on those risks for which the firm enjoys "familiarity advantages"; 3) portfolio theory, i.e. diversification spreads risks; 4) options theory, or the ability to acquire a firm at a specified date in the future for a known price. These techniques, the authors conclude, will allow firms to "overcom[e] confusion (lack of necessary knowledge), complexity (unknown interdependencies), and uncertainty (unknowable future events)." While top executives are perhaps too busy to reflect on these strategies systematically, it is difficult to imagine that they haven't thought about these things already.

However, there are deeper flaws at the core of the book. For starters, the seductive rhetoric of globalism is accepted as a given and fails to realistically anticipate any other contingencies, which is a disservice to business readers. The authors' insistence on proper risk analysis techniques cannot capture these complexities. Instead, the authors treat us to a simple extrapolation of current economic conditions. It remains unclear whether the current boom represents a structural trend (a "new economy") or another speculative financial bubble. Confusing the two can lead to terrible mistakes. Unfortunately, though its purpose is to devise better strategies for managers overwhelmed by global change, "Race for the Future" offers no useful guidance in this regard.

Even worse, evidence that contradicts their vision is ignored. The authors naively assume that globalisation is an unalloyed good, that consumers will prefer cheaper, more uniform goods to traditional indigenous varieties.

Many of these shortcomings can be explained by the poorly hidden agenda of the book. How, one wonders, could four intelligent co-authors ever agree on a detailed analytic framework? The answer is simple: the book is part of the McKinsey & Co. publicity machine. It promotes a company methodology, the conclusions of which come straight from McKinsey "research," a kind of parallel universe of jargon, anecdotes, and fierce internal competition for attention between young "associates" fresh out of university. I suspect that, under the steady hand of good ghost writers, "Race for the World" was cobbled together from disparate articles from the McKinsey Quarterly with over-confidence and little critical regard. As a result, the book's "authors," imbued with the company's mystique, fail to recognise the mediocrity of their ideas and advice.

Nonetheless, "Race for the World" is no no-read. As long as the reader is aware of its limitations, it offers a solid introduction to gung-ho globalism. While the book contains more than could be written on a book flap, its ideas could have been resumed in, say, one article in the McKinsey Quarterly.

Rating:
Summary: Business strategy for inexorable globalization
Review: Even with the benefit of hindsight, it may not fundamentally matter how much of this book written in 1999 by four McKinsey consultants may seem overtaken by the facts of the post-Internet bubble of the late 1990s. This includes the collapse of Enron, a major McKinsey client which is nonetheless cited in this book as an agile player and adaptator to the inexorbale challenge of globalization which is at the heart of this book. It would be premature for business strategists or policy makers to wholly dismiss this book on account of such obvious errors of judgment.

The basic framework within which this book views the future is shared by similar analyses done by other organizations. Because world trade has tended to grow faster than world economic output, the share of world output produced and consumed in global markets will inevitably grow rapidly - accordingly to this book, from about one-fifth of global output in the late 1990s to four-fifths by 2030. Within this time frame, total global ouptut will also grow, from $28 trillion in 1997 to $91 trillion in 2027. Whence the opportunities for a susbtantial reshaping of the competitive space for global corporations.

What matters is that the fundamental message of this book (which is not by itself novel) is unchanged by the contemporary drivers of competitiveness for national economies and corporations: a dramatic lowering of so-called interaction costs and of barriers in product and factor markets continues to erode the advanatges of geographic incumbents in the business world, fostering the creation of cross-geographic specialists and consolidation of traditional integrators.
Drawing substantially from Mckinsey's own research and data gathered from its Fortune 500 clientele, as well as insights from unconventional non-business sources such as Jared Diamond's Guns, Germs, And Steel, the book advises global corporate leaders on how to reshape their firms and create global talent teams. The book is, not surprisingly - given the audience of the book - silent on what policy implications there are for countries which are also trying to adapt to these realities, other than the obvious imperative to open their national economies to world-class suppliers of tangible and intangible capital. There remains an important policy agenda to explore if one takes the fundamental propositions of this book seriously.

Rating:
Summary: Very clear vision
Review: I appreciated very much the clear analisys of the world economic trends. It suggests you a way, a light to manage business in a world of dynamic transition and complexity.
It is a very useful tool to understand what is happening in the global market and especially if you work in a global company like me.

Rating:
Summary: Global Business Economics 101 for Freshmen
Review: This book is a good survey of some of the factors involved in globalization. It also provides some useful perspectives for thinking about your firm's choices. The book's key weakness is in taking a strategy perspective from about 50,000 feet in the air. Most executives will not be quite sure what to do with the principles that the authors outline, as a result.

This book is essentially built around one concept: That cross-boundary competition for goods and services will go from 20 percent of world GDP now to 80 percent in 30 years. Naturally, this assumption is pretty critical. Chances are that not all industries will follow this model exactly. Some business areas will stay much more local than others, something this book doesn't talk much about. If globalization slows down or speeds up very much, business plans will quickly get out-of-kilter. Although the authors emphasize not under or overestimating globalization, they do not provide much insight into how one should think about how fast to go.

Of the other irresistible forces in the global economy (like increasingly rapid technology changes, currency fluctuations, changing customer needs, homogenized culture, shifts in government regulation) little more than passing references are made except to assume that the cost of capital for big firms will go down and stay there (based on the trend of the last few years).

I found that putting globalization at the center for your strategy is a doubtful thing to do. Other factors could easily be more important. How to decide how important globalization is for your company was not well addressed.

I also suspect that the authors are somewhat inexperienced in best practice research, which makes me nervous about their conclusions. For example, they were surprised to find that 25 successful global firms relied on different strategies to succeed. Anyone who has done best practice benchmarking knows that best practices are scattered around among firms, not cloned in total into each leading organization. It may also be the case that globalization was only one factor in the selection of these practices. Without normalizing for the influence of the other factors, how do we know what the globalization best practices really are? This book is so qualitative that I doubt if any serious quantitative analysis was done in this area. If it was, I didn't see much sign of it in the text.

I think that readers would have benefited from more detailed case histories. I happen to know a lot about how the companies (used as examples in the book) operate. If I had not had that knowledge, I think I could easily have drawn the wrong conclusions from the sketchy information that the authors provide. For example, the development of how Enron enters new business areas is worth a book all by itself. AES is another interesting example, around a somewhat different model, but was surprisingly left out by the authors.

If you are an undergraduate business student, you will probably find this book provocative and interesting. If nothing else, you will have a better sense for what kind of executives will be in short supply in the future. As I mentioned earlier, if you are a business executive, you may be fascinated in places, but probably won't find much actionable in it. My 3 star grade is an average of 5 stars for the business student and 1 star for usefulness to the executive.

Rating:
Summary: A sharp, narrow focus on a few elements of strategy
Review: This is another McKinsey book on strategy , which looks at strategies for market dominance in the context of globalisation. It covers an important subject well, but it is not in the same class as the earlier book from the Mckinsey stable Baghai et al. The Alchemy of Growth. It is concerned with financial, market segment, and arbitrage (taking advantage of geographic differences in productivity and factor cost) strategies to achieve dominance on a global basis within a preferred field. There is no doubt that these are important, but it is equally clear that they do not provide a full basis for a successful strategy. There is very little sense of concern with customer satisfaction or customer intimacy and surprisingly little concern with attracting and building skills other than to say it is important. Further, little attention is given to strategic partnering - alliances between equals - which is currently the focus of a great deal of strategic attention.

My overall impression is that this is another example of a very good extended article that has been expanded into a 300 page book. It also suffers from a lack of summarisation of the main points. The overall impression is of a sharp but rather narrow focus on a few key elements in a successful global strategy, representing itself as the whole.