2013-03-14

Co.Exist

Does America Suck At Globalization?

You might think that we’re shipping out so many Cokes and Big Macs that we’re remaking the world in our image, but it turns out we might not be very good at reaching the developing world with our products.

The story’s been told countless times: Globalization by America’s corporations has created the world in its image, no matter if you’re in London or Luanda. Travel anywhere abroad and you’ll find the familiar comforts of home: like fast food, Coca-Cola and rap music.

But it turns out that American companies are not really that great at globalization, particularly in the emerging economies where most of the world’s economic growth is currently happening. That’s the argument in a forthcoming paper by Tufts economist Bhaskar Chakravorti, which was summarized by Quartz’s Tim Fernholz earlier this week.

Some key points from Chakravorti’s argument include the following stats:

Despite the ubiquity of American brands abroad, U.S. companies only make about 7% of their revenue from markets in the devleoping world. That’s not very much when those markets now account for 36% of the globe’s GDP and two-thirds of global economic growth.

Compare the paltry 7% of revenue that U.S. companies absorb from emerging markets to the 17% of revenue the top 100 companies in the overall developed world earned in emerging markets. (And then compare it to just European companies, who make a whopping 25% of their income in emerging markets.)

Why are U.S. companies lagging way behind other developed countries when it comes to penetrating emerging markets or, in a word, globalizing? Chakravorti gives three main reasons:

  • The tendency of U.S. companies to focus on the domestic market. It’s a big country after all. Some companies’ attitude could be summed up as "Why make money abroad when you can make it here?"
  • An emphasis on standardization of products, which means U.S. companies ignore the reality that they need to produce different products at different price-points not just for different countries, but within a single country. (Rural farmers in Kenya obviously have different needs and levels of income than the educated elite in the capital, but U.S. companies might not be ready to deal with that complexity.)
  • The fact that the U.S. doesn’t have a real history of colonizing (just invading and/or otherwise bossing around) other regions. For countries like France, those relationships immediately evolved turned into economic ones after the colonies gained independence.

The study is interesting—not only because it shows that the American companies aren’t nearly as dominant abroad as people tend to think they are or as they could be, but it’s proof that the U.S. will clearly fall behind unless companies adopt more creative approaches to serve a more diverse set of consumers in the world’s fastest growing markets.

When it comes to globalization, it seems that America may be better at exporting its ideas, its culture, and its dreams than its products.

Get the full story on Quartz.

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5 Comments

  • Shonika Proctor

    Having lived in an emerging economy for the past 2 years, it is more noticeable how disconnected U.S. companies and organizations are about the ethos of doing business overseas in the long-term.

    I am curious to learn of the 7% of the market share U.S. businesses are doing, how much of that share is done collectively by Coca Cola and McDonalds.

    North American firms have a looooong way to go in terms of not only how they do business in the region but also how they start those conversations with foreign governments and key influencers in the markets. A brand name alone is not influential enough as many locals in the regions are loyal to their national brands.

    Some larger players have tried other strategies to go in and purchase smaller but more established brands. But governments abroad are generally not interested in 'outsiders' working in the country in that way, the same reason they are usually opposed to private equity firms acquiring their growing local companies & startups - they want to grow companies and jobs in their country on their terms and build their own large multinational brands. I think this is the greatest disconnect that U.S. firms have.

    So governments establish rules and regulations i.e. they use certain tax structures and hiring practices. For example if your company is a certain size, 75% or more of your employees have to be hired from within that country. Realizing the difficulty it may be in finding bilingual talent with a certain skill set, major brands are having to re-think their market entry strategies as well.

    With expansion overseas comes unforeseen risk.....so it all comes down to strategy and timing. While the early bird catches the worm. The second mouse gets the cheese.

  • Ivan

    America has been the dominant business environment for so long I think they tend to come to these markets with a mindset that is not about listening to their potential clients but rather trying to "educate" them on why the US way is best.

  • Dani

    Isn't part of the point of globalization that it makes exploiting comparative advantages easier?

  • gregorylent

    globalization is NOT about products .. it is about being aligned with nature