The global companies that born in the wrong place

A team of researchers of INSEAD based on a study for Nokia in the 90's «discovered» a new kind of multinationals that they named «metanationals». Professor Yves Doz, a well-known professor of Global Technology and Innovation at INSEAD and Jose Pinto dos Santos, a portuguese ex-CEO of european multinationals and professor of International Management at INSEAD, co-authored with Peter Williamson, also professor at INSEAD, «From Global to Metanational», a book just published by Harvard Business School Press. Gurusonline.tv interviewed Doz and Santos, now at Singapore, in the new campus of INSEAD.

Interview by Jorge Nascimento Rodrigues (c) 2002 Gurusonline.tv

Why you choose the word «metanational»?

We chose the prefix "meta" in the sense of "beyond". Metanationals do not have countries or nation-states as a fundamental dimension. To the metanational, globalization is not about taking home-country know-how to other national markets around the globe. It is about efficiently fishing for knowledge in a global pool, harnessing that knowledge for innovation, and then harvesting its value for its stakeholders.

What's the difference with the so-called «born global» firms studied by the finish scholars, like Erkko Autio, based also in cases like Nokia?

It is a different classification. Concept such as "born global" (or "global start-ups") are used in reference to firms that become international in a very short period of time – say, achieving one third or more of their sales in foreign markets after just one year of operations. However, a "born global" may be a traditional multinational or a metanational.

What's the main target of your book - the global born start ups or the incumbent multinationals?

Both. But the main target are the traditional multinational companies. We present a roadmap for the multinationals to change. Not trying to force-fit an existing multinational organization and its people into a metanational mold. That would be a wrong way, that could undermine its operational excellence and could imperil the company's very survival. We suggest a way out.

What's wrong with the step-by-step gradual traditional internationalisation process? That strategy was correct for the environment of the 70's and 80's?

There is nothing wrong with it, as long as you can find all you need to achieve global competitive advantage in your home country (that is, if you have a "diamond" in your backyard). Indeed, businesses such as consumer electronics or semiconductors did become global in the 70’s and 80’s with traditional multinationals leading the way. But the empirical evidence shows that as globalisation intensifies and technology continues to reduce the cost of distance, the probability of succeeding with a traditional internationalisation strategy is getting lower by the day

Is the metanational phenomenon typically widespread in high tech industries or we can find examples everywhere, in traditional sectors and mature products?

We found examples in many different industries, including cosmetics, music, and food – as well as in biotech, software, and semiconductors. What matters is the knowledge-intensity of the product, service, or solution. "High-tech" industries are usually very high in knowledge-intensity and therefore it will be more likely to observe metanationals there.

Why all this research about metanationals and born global firms is «made in Europe»? Is it a mere coincidence or is there a reason for that fact?

There is surely a tendency for academics to study the reality closer to them. Management researchers in the USA, for example, will tend to look at American firms. The size of the domestic market in the USA is such that most companies don’t even reach national scale, let alone international – so why be "born global" there? (However, note that there were references to global start-ups made in the USA in the early 90’s). And it is not only size: the American economy is of such scope and competitiveness that it was the home base of so many traditional multinationals that gained world scale in many industries – so why be metanational? As we observed when looking at companies from Asia, Europe, and the USA, the companies that were somewhat metanational were those that had been "born in the wrong place", as we say.

Can you give good examples of European metanationals?

STMicroelectronics, for example, a company with French-Italian state origin, is a very good example of a metanational. But there are other examples, such as Nokia, Polygram, Business Objects, or Logitech - and Airbus, of course.

Is cosmopolitanism an important psychological ingredient for metanational managers and entrepreneurs?

Surely. One of the attributes that we observed in all the metanational companies that we studied was that its top managers were cosmopolitan: they had been around the world and knew it well. They had a network of acquaintances in several countries. They were at ease in different cultures. In most cases, that attribute had been developed during a managerial career in a traditional multinational company (for example, all but four of the top sixteen executives at STMicroelectronics had been managers at companies such as Motorola, Texas Instruments, National Semiconductors, or Toshiba). In other cases, metanational entrepreneurs had studied abroad for a while (for example, the Swiss and Italian founders of Logitech met when studying at Stanford, Palo Alto).

The "massification" of the Internet and GSM and the bull financial market and venture capital of the 90's (before the Nasdaq crash) helped the emergence of metanationals?

The Internet and GSM are part of the technological evolution that is continuously reducing the cost of distance, in this case for information. In this sense, they participate in the creation of the conditions for the emergence of metanationals. In what refers to the bull market of the 90’s, the generalised optimism surely helped the financing of some metanational start-ups. These metanational start-ups are riskier than traditional ones, given the nature of the challenge and the managerial and organisational capabilities required.

Being born in the wrong place - far away from the Silicon Valleys and the main industrial districts of the world - is critical for metanational strategies?

It was certainly critical for the metanational pioneers that we have identified in our research. In essence, necessity was the mother of invention. When Shiseido wants to become a global player in cosmetics or Nokia aspires at being a leader in mobile phones, it is clear that Japan or Finland are not the right places to be. However, there is nothing in our current theoretical model that prevents a metanational strategy from any origin. And what seems evident now is that very few "right places" remain out there: even Silicon Valley is no longer enough for Intel.

The so-called clusters of Michael Porter are not important for these metanational strategies? Or they «lock» the firms in domestic markets and international value chains leaded by the incumbent multinationals?

Clusters were and will continue to be relevant. But, as you say, the views of clusters as self-contained and integral will most likely lock companies in the typical projection mode of traditional multinationals. Some limitations of an integral cluster have been overcome by locating different activities in different clusters – and moving products or components around the world. But the conventional wisdom remains that the knowledge-intense activities (namely, innovation activities such as R&D or new product development) should be done in the home cluster. What the metanational does is to innovate by bridging various clusters, by bringing together knowledge that is dispersed around the world.

What has changed in the competitive advantage theory?

It is now clear that scale is not the source of competitive advantage in almost all industries. There is a much better understanding of the dynamics of competition – as well as the realization that more important than some "position" in the market is the quality of the resources owned by the firm. The key source of sustainable competitive advantage is valuable, firm-specific tacit knowledge.

North-American companies are usually conservative in their internationalisation strategies. The same happens with the New Economy stars like Yahoo! and Amazon?

Yes, absolutely. Both cases are good examples of traditional multinational companies – only much faster in their internationalisation than their elder cousins such as Ford or McDonalds (and they seem to have been unable to learn from the experience of such companies as they moved abroad). But both Yahoo! and Amazon are essentially American creations for the American market, a representation of the high level of development of information technologies in the USA. The case of Amazon is remarkable: after only one month of operations, it had exported to 45 different countries (I believe that this is a world record that will be very hard to beat). But it took the company several years to even begin to realize the potential of such foreign markets, and it did so in the most conventional of ways: sequentially, country by country, starting with a subsidiary in the UK. What’s "new"?

Some of them are creating some «Centers of Excellence» in Europe, trying to «mobilize» the european knowledge...

I do not like very much that label of «center of excellence». It could give the idea that only there, in one or some places, we can find excellence. As we mention in our book, knowledge is dispersed globaly, is increasingly scattered around the world, is fragmented. So, the real challenge is to build a network of excellence, connecting globally dispersed knowledge. Connectivity is the key word. We must access multiple sources of new knowledge, probably from outside the multinational's current network of subsidiaries.

The so-called global federalism of ABB and the multi localism of Unilever are valid approaches?

Yes, in what concerns what we call the "operations plane", the locus for strategies to exploit and leverage the value of innovations worldwide. In another way, these are strategies to optimise the capture of value by a multinational company, but not the creation of value. The logic of "operations" is efficiency, flexibility, and financial discipline. Those approaches are valid if they perform well in these three dimensions. Let me note that "global federalism" and "multi-localism" are not alternatives to a metanational approach. Metanational is the alternative to projecting from a home country.

But you reverse the famous «glocalization» theory of Percy Barnevick...

We say that the real challenge is think local and act global - not think global and act local. We have to learn from the periphery and then «meld» the local innovations. We must act like a vacuum cleaner and then meld the various knowledges.

What's the difference with the «transnational» concept of Bartlett and Ghoshal?

We are in the same tradition. We think, however, that they put the right questions, but give the wrong answer. We put more substance in the global learning problem and we separate clearly the new metanational capabilities, the new skill sets, from the operational field, where the transnational concept work.

Cases like Altitude Software in software, Chipidea in semiconductors, Euronavy in painting and Swear-Choes in the footwear industry are probably examples of Portuguese metanationals. Are you interested to «expand» the research to SME in small countries like Portugal?

Yes, of course. Portugal is a perfect example of a country that has developed certain capabilities that may be the source of great development if (and only if) they are integrated with other capabilities or lead markets that exist elsewhere in the world. If we want to have "diamonds" in Portugal we will not go far. I do not really know the examples that you mentioned. But I know well the case of many companies in the portuguese mould-making industry, such as Iberomoldes, that grew to become well recognised in the world – even if many of the technologies and demanding markets they needed to achieve global excellence were far, far away. That did not stop them from accessing those "pieces" of knowledge that were situated in distant locations and inside foreign customers, and then melding them with their own skills and competencies.