There’s Room for More Globalization

Stephen DeAngelis

December 10, 2012

Pundits have claimed that globalization has swept over the world and that, as a result, the world is a flat playing field for businesses. Professor Pankaj Ghemawat of IESE Business School in Spain argues that globalization has not, in fact, penetrated all that deeply into most economies. For more on his views, read “The case against globaloney,” The Economist, 20 April 2011. McKinsey & Company analysts Richard Dobbs, Jaana Remes, and Fabian Schaer agree with Ghemawat, noting, “Most companies still take a national or regional view when allocating resources for global growth.” [“Unlocking the potential of emerging-market cities,” McKinsey Quarterly, September 2012] They believe that companies looking to grow “should shift their focus to fast-growing cities.” They are not the only analysts who believe that cities hold the potential to propel economic growth for decades. To learn more, read my post entitled Will Cities Save Us? McKinsey analysts have done a lot of research into cities — particularly looking at which growing cities are likely to have the greatest impact on the planet’s future. (For more, see the full McKinsey Global Institute report on which the cited article is based, Urban world: Cities and the rise of the consuming class.) Dobbs, Remes, and Schaer write:

“A massive wave of urbanization is propelling growth across the emerging world. This urbanization wave is shifting the world’s economic balance toward the east and south at unprecedented speed and scale. It will create an over-four-billion-strong global ‘consumer class’ by 2025, up from around one billion in 1990. And nearly two billion will be in emerging-market cities. These cities will inject nearly $25 trillion into the global economy through a combination of consumption and investment in physical capital. This is a very significant shot in the arm for a global economy that continues to suffer from pockets of acute fragility.”

Twenty-five trillion dollars is a lot of money. It’s a money stream that manufacturers and retailers would like to tap into. To read more on this subject, read my post entitled Tapping the Economic Power of Mega-Cities. It might surprise you to learn, therefore, that, according to Dobbs, Remes, and Schaer, “few business leaders focus on the importance of cities when establishing growth priorities.” They report that during “a recent survey, we found that fewer than one in five executives makes location decisions at the city (rather than country) level.” If you are not shocked, you should be. For companies looking to grow, location is everything. As Dobbs, Remes, and Schaer state, “As these new urban-growth zones flourish, there’s a cost to companies that lack a clear view of the emerging landscape—chiefly in the potential for resource misallocation.” They explain:

“Shifting investment away from established markets to more promising areas can be difficult, as our colleagues have shown in separate research. Budgets are often ‘sticky’ because companies lock into current rather than future opportunities. And many middle-tier emerging-market cities, however attractive, may be unfamiliar. Take Foshan, Porto Alegre, and Surat—cities that are unlikely to be high on the priority lists of global executives, though each has more than four million inhabitants, fast growth, and a vibrant base of consumers. Indeed, each of these cities will contribute more to global growth than Madrid, Milan, or Zurich. And they are far from isolated examples.”

They report “that 440 emerging-market cities, very few of them ‘megacities,’ will account for close to half of expected global GDP growth between 2010 and 2025.” Although a significant number, 440 is not so large of a number that it should discourage companies from fully researching the potential of these cities as places to conduct business. Not all urban areas will be a good fit for a particular company’s products or services; but some locations will be. Dobbs, Remes, and Schaer continue:

“Crafting and implementing strategies that emphasize such cities will require new attention from senior leaders, new organizational structures that take account of urban rather than just regional or national markets, and potentially difficult choices about which activities to scale back elsewhere to free up resources for new thrusts. Companies that adopt such a strategic approach may gain early-mover benefits. For some, developing better insights into demographic and income trends—such as an understanding of the urban areas where the population of older, wealthier consumers is growing most rapidly—will be sufficient. Others may need to dig deeper, learning the market dynamics of specific products in target cities.”

In several past posts, I’ve discussed targeted marketing and how it is likely to be “the next big thing” in marketing. Targeted marketing relies on exactly the kind of data and analysis to which Dobbs, Remes, and Schaer refer. They talk about regions and cities. Targeted marketing goes even deeper into neighborhoods and individuals. Complementing targeted marketing is a new field of study called “culturomics.” According to Darren Quick, “‘Culturomics’ is an emerging field of study into human culture that relies on the collection and analysis of large amounts of data.” [“Culturomics research uses quarter-century of media coverage to forecast human behavior,” Gizmag, 7 September 2011] Quick reports, “Now a new research project has used a supercomputer to examine a dataset made up of a quarter-century of worldwide news coverage to forecast and visualize human behavior.” He continues:

“The research used the large shared-memory supercomputer called Nautilus, which is part of the National Institute for Computational Sciences (NICS) network of advanced computing resources at Oak Ridge National Laboratory (ORNL) and boasts 1,024 cores and 4 terabytes of global shared memory. The dataset used was formed by combining three massive news archives that totaled more than 100 million articles worldwide. They included the complete New York Times (NYT) from 1945 to 2005, the unclassified edition of the Summary of World Broadcasts (SWB) from 1979 to 2010, and an archive of English-language Google News articles spanning 2006 to 2011. These archives provided a cross-section of the U.S. media spanning half a century and the global media over a quarter-century. Using this data, Kalev Leetaru of the University of Illinois in Urbana-Champaign and author of the study used advanced tonal, geographic, and network analysis methods to produce a network 2.4 petabytes in size containing more than 10 billion people, places, things, and activities linked by over 100 trillion relationships that provided a cross-section of Earth from the news media. Leetaru let the supercomputer find interesting patterns in the bulk of the data, which he then recreated using a more traditional targeted and smaller-scale approach. In this way, Leetaru was able to produce real-time forecasts of human behavior, such as national conflicts and the movement of specific individuals.”

Cognitive reasoning capabilities of artificial intelligence technology systems allow them to “find interesting patterns” and relationships and that’s what makes them so important for marketers and/or companies desiring to grow their business in places that are unfamiliar to them. Leetaru told Quick, “Almost every Fortune 500 company monitors the tone of news and social media coverage about their products. There’s been a huge amount of research coming out of the business literature on the power of news tone to predict economic behavior, yet there hasn’t been as much work in using it to predict social behavior.” Obviously, there is a relationship between economic and social behavior. Quick continues:

“Leetaru also used fulltext geocoding to provide an approximate geographic coordinate for locations referenced in a news article and network analysis to show how global media groups countries together in ‘civilizations.’ ‘Using global news coverage, you count how many times every city on Earth is mentioned with every other city in an article,’ explained Leetaru. ‘Group those results by country and you have a network of how the world news media relates and frames all the countries on Earth.’ Using the SWB and NYT archives provided an insight into how the media of different countries groups countries together. The SWB news led to seven civilizations, while the NYT archive led to only five, with a greater proportion of countries grouped with the U.S. ‘Each country’s media will depict the world differently,’ explained Leetaru. ‘It’s a standard principle of journalism – you write for your audience. Still, it vividly reinforces that what we get here in the U.S. is a very U.S. centric view of the world.'”

What’s true for the news is true for business. When it comes to economic growth, however, a domestically-centric view of the world can be deceiving and opportunities can be missed. Dobbs, Remes, and Schaer explain:

“As the locus of global economic activity shifts to developing nations, companies should be aware of the growth dynamic that’s playing out in cities. Leaders who give their strategies an urban dimension could find themselves positioned to allocate investments more effectively and to seize more readily the many opportunities at hand.”

Using the right data and analytic techniques, expanding business into growing urban areas can prove beneficial for both businesses and consumers. Techniques like culturomics can only deepen our understanding. Leetaru told Quick, “I see it as diving beneath the ocean – we’ve been so focused on the surface that we’re only just beginning to start exploring the entire new world that’s underneath.” Globalization will never benefit cities and neighborhoods if companies don’t understand those urban areas better than they do today. Unfamiliarity breeds caution and too much caution can hold back progress.