Talent Mobility

Talent Mobility and the
Global Organization
Included in this collection:
Building a Company Without Borders . . . . . . . . . . . . . . . . . . . . . Page 2
by Bart Becht
Te Cosmopolitan Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page 7
by Pankaj Ghemawat
“I Came Back Because the Company Needed Me” . . . . . . . . . . . Page 16
An Interview with Yang Yuanqing by Adi Ignatius
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ARTICLE COLLECTION
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Building a Company
Without Borders

by Bart Becht

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The Idea: You may never
have heard of Reckitt
Benckiser, but in the past few
years the company has
outperformed its rivals P&G,
Unilever, and Colgate in
growth—even during the
downturn. Here’s how.

Reprint R1004K
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Building a Company
Without Borders

by Bart Becht

harvard business review • april 2010

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The Idea: You may never have heard of Reckitt Benckiser, but in the
past few years the company has outperformed its rivals P&G, Unilever,
and Colgate in growth—even during the downturn. Here’s how.

They say you can’t go home again. If you work
for Reckitt Benckiser, you

can

go home—but
you may not want to, and you certainly won’t
have to. Many companies, when they describe
themselves as global, mean they have opera-
tions around the world, they work virtually
and in all time zones, and their key people are
developed through stints in other markets.
Our version is more comprehensive. Most of
our top managers haven’t held jobs in their
countries of origin for years and view them-
selves as global citizens rather than as citizens
of any given nation. We have operations in
more than 60 countries. Our top 400 manag-
ers represent 53 different nationalities. We’ve
spent the past 10 years building this culture of
global mobility because we think it’s one of
the best ways to generate new ideas and create
global entrepreneurs.
And it has paid off. Products launched in the
past three years—all the result of global cross-
fertilization—account for 35% to 40% of our
net revenue. For example, Finish, an all-in-one
dishwasher tablet you drop into your machine,
is now the leader in its market category. Re-
cently we successfully introduced Quantu-
Matic—an automatic dispenser of dishwasher
detergent that doesn’t need to be refilled for
up to a month. With constant innovation like
this we’ve enjoyed steady, profitable growth,
even during the downturn. Since 2005 we’ve
outpaced all our big competitors. During the
recession we’ve invested more than ever in
marketing, and we grew at a rate of 8% (at con-
stant exchange rates) in 2009.

A Company Without a Country

Reckitt Benckiser resulted from a merger in
1999 of Reckitt & Colman—a British purveyor
of household cleaning products with a great
stable of brands—and the Dutch-listed Benck-
iser, a much smaller but better-performing
consumer goods company. But we don’t want
to be known as an Anglo-Dutch enterprise, or
by any other label based on our operations or
history. We’re not any country’s company—
we’re a truly multicountry company.
That is by design. Postmerger we mixed the
page 3
Building a Company Without Borders

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national cultures quickly in every corner of our
operations. Premerger many of the local busi-
nesses had been running themselves more or
less independent of the rest of the world and
without regard to overall corporate priorities.
We transferred people who embodied RB’s val-
ues into key positions in new markets. Manag-
ers from one side of the merger were pur-
posely moved to another territory, and then
moved again. Now in every country we have
people of many nationalities as well as local
citizens. Today an Italian is running the UK
business, and an American is running the Ger-
man business. A Dutchman is running the U.S.
business, an Indian the Chinese business, a Bel-
gian the Brazilian business, and a Frenchman
the Russian business. It’s not that you can’t ad-
vance at RB in your local company. You can.
But we also offer unique global mobility and
experience to people who want to grow their
careers on a world stage.
To facilitate this mobility, we established
compensation rules that apply equally to our
top 400 managers in all markets, making inter-
national transfers easy. We have just one em-
ployment contract, and our salary ranges were
developed with global benchmarking. Our an-
nual cash bonus structure and long-term incen-
tive plans are the same for everyone, as are our
pensions, medical plans, and other benefits.
We have no expatriates in the traditional sense,
no tax equalization or guarantee of a job back
in one’s home country. When employees take
jobs in other countries, they’re transferred as
“local hires.” We’ve built in standard protocols
to make it easier for people with families to
move. For example, we fund whatever school
the employee chooses for his or her children
because we understand how important that is
to a family’s adjustment. That way, we can in-
stantly accomplish a transfer—we don’t have
to negotiate a lot of convoluted contractual
nonsense. We have moved people to new coun-
tries in as little as two days.
We also do something pretty rare with grad-
uates. In some markets we help foreign stu-
dents to get work permits in the countries
where they’ve been studying. The very fact
that they have traveled to study means they
are internationally minded and thus likely to
be keen to work in other countries as well. At a
lot of companies it’s assumed that employees,
having “seen the world,” will sooner or later re-
turn to their home countries to continue their
careers. Our idea is that you focus primarily on
the best job possible for you, regardless of
country.
That kind of life isn’t for everyone, and not ev-
eryone has to follow that path. But those who
love it really love it. It’s exciting, and it gives
pace, challenge, learning, and a buzz to people’s
careers—along with the satisfaction of being
able to be entrepreneurial and innovative.
We try to put our high potentials in stretch-
ing situations around the globe. For example,
we had one excellent employee who wanted to
be moved to an international marketing job.
We had an opening in India, but that would
have been a poor choice for him—he’s Indian.
Our previous three marketing people in India
were German, French, and British. If this em-
ployee wanted to grow, he needed to acquire
different experiences and learning, so a better
development opportunity would be for him to
work in Brazil or Mexico. Our high potentials
have to find their footing very quickly, and
most of them grow tremendously when we
take them out of their familiar zone.
Even their failures in new markets are im-
portant learning experiences for our high po-
tentials. One of our top managers, who is
Dutch, still talks about the hard lesson he
learned when we transferred him to Turkey. In
The Netherlands, where he had worked be-
fore, billing and receivables were predictable
and orderly. In Turkey the currency suddenly
collapsed by 70%—while he was focusing on
market share rather than on delinquent receiv-
ables. As he puts it, there’s nothing like a cur-
rency failure to change your views on tight fi-
nancial management.

Conflict Is Good

With so many different native languages in
our company, it was necessary to make English
the official language for all meetings. I’m
Dutch, but I don’t speak Dutch with any of my
Dutch colleagues, because if others are
around, it excludes them. We are one team
with one language. English isn’t most people’s
native language, and often our English isn’t
pretty. But the way we see it, it doesn’t matter
as long as you give a view. If you don’t express
your opinion, you don’t have an opinion, and
that’s a fatal weakness for people who want to
do well at Reckitt Benckiser. You have to stand
for something, no matter how bluntly you
communicate it.

Bart Becht

is the CEO of Reckitt
Benckiser, headquartered in
Slough, England.

The RB
“Powerbrands”

Though the company’s corporate
brand recognition is very low, its
products are well-known. RB focuses
on 17 powerbrands:

Air Wick
Calgon

(water softener)

Cillit Bang
Clearasil
Dettol
Finish
French’s
Gaviscon
Harpic
Lysol
Mortein
Mucinex
Nurofen
Strepsils
Vanish
Veet
Woolite
page 4
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That means our meetings are a bit chaotic.
Everybody wants to be heard, so it’s more like
an Italian family dinner than a nicely orga-
nized board meeting. What takes over in our
meetings is an intensity and a feeling that we
have to fight for better ideas. Conflict is good.
We don’t care about consensus. Not having it
doesn’t slow us down and doesn’t mean that
people aren’t aligned. We make decisions fast
and then all stand behind them.
What isn’t tolerated is conflict that simply
slows down decision making or is for political
or personal gain. Almost every key decision is
made in the meeting at which it’s first dis-
cussed. We expect people to come armed with
facts, be prepared to argue their point of view,
and be willing to live with the decision we ulti-
mately make. Get 80% alignment and 100%
agreement to implement. And move quickly.
But I also don’t believe in crushing minor-
ity views. If we have 10 people in a room,
eight of them agreeing on one thing and two
passionately believing something else, we
don’t try to resolve it to everyone’s satisfac-
tion. We allow those two to experiment with
their ideas—even if everyone else thinks
they’re wrong. At the end of the day, what
counts is not what the 10 people in that room
think, it’s what the consumer thinks. So we let
them run maverick small-scale experiments to
get consumer feedback. Sometimes our big-
gest ideas come that way.
About six years ago we had a huge internal
debate about a product called Air Wick Fresh-
matic, which automatically releases freshener
into the air on a schedule. It originated when
one of our brand managers in Korea observed a
new kind of automatic scent dispenser in stores
there. In his opinion it was not a well-designed
product, but he thought the idea was intrigu-
ing, so he brought it to a group meeting at our
headquarters. Vigorous debate ensued.
A couple of our managers believed it should
be a consumer product in Europe, but a lot
more thought that made no sense—it might
work in Korea on a very small scale, but it
would never work in Western markets. For one
thing, it would have to be priced well above
the standard air freshener, and it wasn’t clear
that the market would support that. Also, this
would be our first foray into something elec-
tronic, with wires, batteries, interval
switches—a complex technology combination.
The product would require new manufactur-
ing facilities if it went to any scale. But two
people saw the potential and were willing to
fight for the chance to prove it.
If somebody wants to stand up under stress
and say, “No, I passionately believe in this. You
guys are all wrong! We’ve got to do this,” then
Total
Employees
Total
Employees
Net Revenue (£M)
Operating Profit (£M)
Net Revenue (£M)
£
Reckitt Benckiser at a Glance
Operating Profit (£M)
£
SOURCE RECKITT BENCKISER
MILLIONS
A DECADE OF GROWTH
OPERATING
PROFIT
NET REVENUE
page 5
Building a Company Without Borders

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I’m willing to take a chance. So in this case I said
fine, here’s the money—go figure it out, but do
it on a small scale. And that’s what they did.
In January 2004, initial testing of the idea
with consumers in the UK produced extraordi-
nary results. By the end of the year the product
was in more than 30 other countries, and we’d
overseen the building of a new factory in China
to make it—which meant we had to source ma-
terials we had no prior experience with.
Today Air Wick Freshmatic is sold in 85
countries, with a wide range of options for con-
sumers. It generates well in excess of £200 mil-
lion annually. That product had the most suc-
cessful launch in our history.
Of course, things don’t always work out that
well. We’ve launched some beautifully
thought-out products that we were passionate
about—but consumers weren’t. A few years
ago we introduced a wonderful product to
clean your microwave: You put a little sachet
into the oven and start it. While the oven is
heating, the sachet pops and spreads cleaner
around. When it’s finished, the sachet has be-
come a cloth to wipe your cleaner away. It was
a beautifully designed product. But it turns out
that people don’t actually want to clean their
microwaves all that often, so we pulled it from
the market. If we are going to fail, we want to
fail small and quickly.
Failure is actually a huge incentive for the
kind of people who fit well with our company,
because they’re so personally competitive that
they’ll work even faster for the next success. Ev-
eryone wants to do something to get on the
map.
I just moved one manager from Chile to Tur-
key. He earned that move because he had done
something very challenging in his market—
he’d launched one of our “powerbrands,” the
sanitizer Dettol, in Latin America. It wasn’t the
biggest success we’ve ever had, but the point is
that he did it. He was the guy who brought
Dettol to Chile and created a platform for its
growth. That’s his mark on the business.
That kind of thing earns you a promotion in
this company, and the promotion will probably
take you to another part of the world. Some
people look at us and think they’d have to be
nuts to work here. We’re looking for people
with a certain level of maturity, intensity, and
competitiveness. If you bring all of that to Reck-
itt Benckiser, it will be rewarded. (See the side-
bar “RB’s Performance-Based Remuneration.”)
As the CEO who has guided the company for
more than a decade, I’d like to take credit for
having a brilliant strategy or unique insights
into the global marketplace. But in reality the
“vision” slide we use today is the exact same
one we’ve used since the merger. We have a
very simple approach to the business: Focus
on 17 powerbrands in fast-growing categories,
innovate and invest behind them—and do so
in every market.
At the end of the day, what is most distinct
about Reckitt Benckiser is its people and cul-
ture. I can tell in three minutes if someone
would be a good fit for our company. We’d
rather have a position open for a long time, if
necessary, than put the wrong person in place.
It’s that important.

Reprint R1004K

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RB’s Performance-Based Remuneration

by Karen Dillon

Reckitt Benckiser believes it has designed a com-
pensation plan to foster its innovative and entre-
preneurial culture. The company has touted per-
formance-oriented pay in its annual report as key
to RB’s strong growth. According to a 2006
Harvard Business School case study, the plan,
which applies to the company’s top managers (in-
cluding the CEO), consists of three parts: base sal-
ary, short-term incentives, and long-term incen-
tives. Base salaries are set near the median for
competitors’ pay. The real benefit comes in the
form of bonuses. A manager who meets all tar-
gets will typically receive 40% of his or her base
salary as a bonus that year. A manager who blows
the targets out of the water (usually that means
doubling the target numbers) can earn a bonus
of up to 144%. Long-term compensation, in the
form of options and performance-related re-
stricted stock, depends on meeting three-year
corporate growth targets for earnings per share.
New long-term goals are put into place each year.
page 6
HBR.ORG
MAY 2011
REPRINT R1105F
The Cosmopolitan
Corporation
Global success requires that companies appreciate
diversity and distance rather than seek to
eliminate them. by Pankaj Ghemawat
Global success requires that companies
appreciate diversity and distance rather than
seek to eliminate them. by Pankaj Ghemawat
The
Cosmopolitan
Corporation
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Pankaj Ghemawat is the
Anselmo Rubiralta Profes-
sor of Global Strategy at
IESE Business School in
Barcelona, and the author
of World 3.0 (Harvard Busi-
ness Review Press, 2011).
UNBALANCED GROWTH, pockmarked by fnancial dis-
tress. The threat of protectionism brought on by per-
sistently high unemployment, particularly in devel-
oped countries. Tensions, in wealthy nations as well
as poor ones, around ethnic, religious, and linguistic
divides, and talk of a new age of secession or tribalism.
These are some of the developments that contradict
the story we had just gotten used to—the one about
how markets were becoming perfectly integrated
across borders, technology was obliterating distance,
and national governments were now irrelevant. The
aftermath of the fnancial crisis of 2008 reminds us of
the many ways in which diferences still matter.
It also calls for a reassessment of what it means
to be a global manager or corporation. Much of the
management writing on globalism adopts the En-
lightenment-era ideal, proposed by the 18th-century
philosopher Immanuel Kant, of abandoning all “alle-
giances to nation, race, and ethnos” in favor of world
citizenship. Take the strategy guru Kenichi Ohmae.
In 2000 he published his famous book, The Invisible
Continent, depicting a world in which businesses
largely ignore geographic boundaries when serving
markets and building supply chains. This kind of
thinking isn’t confned to management experts with
an avant-garde view to promote: Forty-eight percent
May 2011 Harvard Business Review 9
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of the respondents to an online survey that HBR con-
ducted for me in 2007 agreed with the proposition
“The truly global company has no home base.” And
among people with more than 10 years of interna-
tional experience, 63% agreed.
Unfortunately, enticing though they may be, such
beliefs don’t bear up upon closer examination. Of
course, they never did.
The Reality of Roots
The vast majority of frms are deeply rooted in their
home countries. In 2004 less than 1% of all U.S. com-
panies had foreign operations, and of those, the larg-
est fraction operated in just one foreign country. The
median operated in two foreign countries, and 95%
in fewer than two dozen. Among the U.S. companies
that were in one foreign country, that country was
Canada 60% of the time and the United Kingdom
10% of the time.
Even the icons of globalization are less global than
the rhetoric suggests. Remember ABB? Back in 1990,
when BusinessWeek ran the cover story “The State-
less Corporation,” that company, with its global no-
mad of a CEO, Percy Barnevik, was the lead example.
The boundaries between ABB’s Swedish predecessor
ASEA and Swiss predecessor Brown, Boveri had os-
tensibly been broken down by putting the merged
company’s headquarters in Switzerland to balance
the Swedish nationality of the controlling investors,
the Wallenberg family, as well as of some key man-
agers, particularly Barnevik. But the years after the
merger were marked by what one insider character-
ized as internal warfare between the Swedes and the
Swiss. Although things seem to have calmed down
since then, it’s more accurate to think of ABB as a
company with a global presence but with particularly
strong roots in Northern Europe and runners or prop
roots in other geographies in which it has signifcant
operations. Not as a company without any particular
roots. That much is evident from looking at ABB’s
directors and top management (although a U.S. CEO
was brought in from GE not long ago) and at its geo-
graphic distribution of assets and shareholdings.
Or, for an example in Asia, consider Rupert Mur-
doch and News Corporation’s satellite TV network,
Star TV. Murdoch and News Corporation had some
elements of statelessness. They were major players
from Australia to the United Kingdom to the United
States, and Australian-born Murdoch had already be-
come a U.S. citizen so that he could buy a set of Amer-
ican TV stations. But his experience across English-
speaking countries didn’t stop him from making
some tremendous blunders in Asia.
Murdoch’s original strategy for Star was to lever-
age News Corporation’s English-language program-
ming library across Asia, because many Asians of the
target demographic spoke English. The company
paid no attention to evidence from continental Eu-
rope that audiences strongly prefer local-language
content, even if they understand foreign languages.
Star TV’s travails with language and culture paled in
comparison with its political missteps. Shortly after
acquiring Star, Murdoch pronounced satellite TV “an
unambiguous threat to totalitarian regimes every-
where.” The Chinese government reacted by banning
satellite TV dishes. Much of Murdoch’s China strategy
has since involved digging out of this hole. The bot-
tom line: Though News Corporation had transcended
its Australian origins, it was still deeply rooted in a
particular set of Anglo democracies that bore little
resemblance to Star TV’s target markets along some
important dimensions.
If you’re skeptical about the relevance of a corpo-
ration’s nationality or the locations of its owners, ask
yourself: Why are large export deals involving pri-
vate frms often announced at meetings between the
heads of national governments? Why do employees
of foreign-owned companies often fear their career
opportunities will be limited relative to their counter-
parts from the frm’s home country? Which govern-
ments do frms call to represent them in World Trade
Organization disputes (and to lead their bailouts in a
crisis)? Why do foreign-ownership restrictions persist
in industries like media (as well as various others, like
airlines)?
It’s not just frms and their business operations
that remain deeply rooted. More important, it’s the
people who are their customers, employees, inves-
tors, and suppliers. Ninety percent of the world’s
people, it is estimated, will never leave the country
where they were born. Two percent of all telephone
calling minutes are international. People get 95% of
their news from domestic sources, and those sources
focus most of their coverage on domestic news. Only
21% of U.S. news coverage is international, and of
that, half deals with U.S. foreign afairs. In European
countries about 38% of news is international, but al-
most half relates to stories involving other countries
in Europe. Only 5% to 10% of private charitable giv-
ing crosses national borders, and rich countries’ gov-
ernmental aid to the foreign poor, per person, has
been calculated to be one thirty-thousandth the size
of the world’s
people will never
leave the country
where they were
born.
90
%
95
%
of the news people
get is from domes-
tic sources.
2
%
of all telephone
calling minutes
are international.
10 Harvard Business Review May 2011
THE COSMOPOLITAN CORPORATION
Idea in Brief
Strategy
In the medium
term companies
should emphasize
adaptation more
than aggregation
or arbitrage.
Organization
Companies must
think about how to
reduce or exploit
external differences
by managing inter-
nal, organizational
distances.
People
Corporations will
have to develop
a cosmopolitan
mind-set in people
who have normal
or typical attitudes
and biases.
It’s not just firms that are deeply
rooted in their home countries; it’s
their employees and customers.
of aid to the domestic poor. As another 18th-century
philosopher, David Hume, pointed out, “Sympathy…
[is] much fainter than our concern for ourselves, and
sympathy with persons remote from us much fainter
than that with persons near and contiguous.”
This is the reality of what I call World 3.0, a world
that is neither a set of distinct nation-states (World
1.0) nor the stateless ideal (World 2.0) that seems im-
plicit in the strategies of so many companies. Home
matters in such a world, but so do countries abroad.
And instead of everything being equally near or far,
as German philosopher Martin Heidegger proposed
in 1950, the law of distance continues to apply to
many activities. As distances—geographic, cultural,
administrative/political, and economic—increase,
cross-border interactions tend to decrease. It’s cer-
tainly possible to have a global strategy and a global
organization in such a world. But they must be based
not on the elimination of diferences and distances
among people, cultures, and places, but on an under-
standing of them. The mind-set, strategy, organiza-
tion, and employees of these firms will not be ori-
ented toward the global citizenship model implicit in
corporate rhetoric. Instead, they’ll start with a strong
grasp of one’s roots and what’s distinctive about
them, recognize relative similarities and diferences,
and fag the diferences particularly worth watching
out for. Because denying the existence of diferences
doesn’t make them any easier to deal with.
Building a Cosmopolitan
Understanding
Most executives’ opportunity assessments rank
markets by size, growth rate, and other indicators of
long-term potential, such as demographics. In this
approach, distance from a frm’s home base or cur-
rent markets is always a challenge to be overcome.
One way to break out of this trap is to use what
I call a rooted map to ground your analysis. A rooted
map resembles world maps that size countries ac-
cording to measures such as population and GDP, but
it focuses on measures that refect a particular coun-
try’s perspective. An Indian IT services company, for
example, might use rooted maps like those in the
exhibit “How Important Is Distance?” The frst map
takes a general Indian perspective by sizing countries
according to their share of India’s international trade.
The second takes an industry view, with each country
drawn according to the size of its IT services market.
The third map combines the two perspectives, sizing
countries on the basis of their purchases of Indian IT
services.
To gain insights, you need to make comparisons
across maps and think about what kinds of distance
infuence the patterns they reveal. In this case, the
frst map shows how India’s general trade pattern is
sensitive to geographic distance, natural-resource
availability, and historical connections. Nearby coun-
tries in Asia and along the resource-rich Persian Gulf
are among its major trading partners, and we also see
the legacy of India’s historic ties to the former British
Empire. The second map shows, unsurprisingly, that
the largest IT services markets are the most advanced
economies, whose per capita incomes make them
distant economically from India.
The frst two maps suggest that without a more
careful analysis, an Indian IT frm might follow India’s
general trade ties to the nearest major market—conti-
nental Europe. Indeed, one of the frst large software
projects ofshored to India was for a Swiss clearing-
house. But the third map reveals that in IT services,
linguistic distance matters more than geographic
Much of the management writing on globalism
adopts the Enlightenment-era ideal of world citizen-
ship. Unfortunately, this is not realistic. The vast
majority of firms are deeply rooted in their home
countries. Even more important, so are the firms’
customers, employees, investors, and suppliers.
Given this reality, global firms and managers must
adopt a cosmopolitan approach of understanding
and working with differences rather than against
them. This has three implications:
May 2011 Harvard Business Review 11
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distance. Upwards of 85% of India’s IT exports go to
English-speaking countries. Though that makes con-
tinental Europe an obvious area for potential growth,
operations there are usually less proftable than those
in the major English-speaking geographies.
This example should make clear the importance
of considering multiple types of distance and con-
ducting analyses at the industry level. Your sensitiv-
ity to 1,000 miles of geographic distance is obviously
much greater if you manufacture heavy goods than if
you ofer an online service. On the other hand it’s less
important to share a common language if you export
cars than if you provide online training.
Rooted mapping is not just a global exercise. You
need to analyze diferences across regions and within
countries as well. Indeed, the bulk of economic activ-
ity still takes place within national borders, and large
gains can be achieved by carefully managing difer-
ences between provinces, ethnic groups, or language
communities. For example, though nationalism and
separatism are prominent in Spain’s Basque Country,
that region’s trade with the rest of Spain is still 50%
greater than its trade with the rest of the world. If ten-
sions between the Basque Country and the central
government in Madrid were reduced, Basque trade
with the rest of Spain would presumably rise.
Companies and individuals vary in their ability to
manage the same external distances. Businesses and
executives from small home countries, for instance,
are often more accustomed to dealing with cross-
border diferences than those from large home coun-
tries. Since Finnish norms aren’t common in most of
the markets Nokia sells to, its managers have had to
learn how customers in other countries think. Ameri-
cans, by contrast, are more likely to project their val-
ues or feel that other people need to do the changing.
Executives also need to think about how rooted
maps are evolving. Which kinds of distances are
expanding and which are contracting? What factors
are driving those changes? In the current environ-
ment of protectionist rumblings and more-assertive
governments, administrative and political distances
seem to be increasing. And the shift in the locus of
growth to large emerging markets—especially to
the smaller interior cities within them—also adds
distance along several dimensions for a typical U.S.
or European multinational, which must learn how
to bridge cultural and political diferences and vast
economic and geographic divides. On the other
hand, trade agreements and new communications
and transportation technologies can contract dis-
How Important Is Distance?
The rooted maps below size countries according to their share of trade with
India, their share of global IT spending, and their consumption of Indian IT
services. They highlight how different kinds of distances matter for an Indian
IT firm in search of growth.
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THE COSMOPOLITAN CORPORATION
12 Harvard Business Review May 2011
India’s Bilateral
Trade Pattern
India’s general trade pattern is sensitive to
geographic distance, natural resource avail-
ability, and ties to the former British empire.
UK 18%
USA 61%
USA 9%
UK 3%
GERMANY 4%
UAE 7%
SAUDI ARABIA 5%
CHINA 12%
SINGAPORE 4%
IRAN 3%
USA 40%
UK 11%
JAPAN 12%
FRANCE 4%
GERMANY 6%
World IT Services
Spending
Advanced countries are the largest IT
services markets.
Exports and Domestic
Consumption of Indian
IT Services
For Indian IT firms, linguistic distance is
an especially large consideration: English-
speaking countries account for most of their
business.
tance (though the impact of new technologies is of-
ten overblown). In each case, the insights you glean
from a careful analysis will inform your strategic and
organizational choices.
Crafting the Cosmopolitan Strategy
In my 2007 book, Redefining Global Strategy, I de-
scribed three fundamental ways that companies can
create value across borders: the “AAA strategies” of
adaptation, agregation, and arbitrage. Adaptation
strategies try to adjust to diferences between coun-
tries and respond to local needs. Aggregation strat-
egies attempt to overcome differences to achieve
economies of scale and scope across national borders.
Arbitrage strategies seek to exploit diferences—by,
say, buying low in one country and selling high in an-
other. I advised managers to tailor a combination of
these strategies to their company’s industry, position,
capabilities, and intent.
Though the AAA strategies remain the relevant
consideration set for cosmopolitan corporations, in
the medium term it may make sense for many compa-
nies to emphasize adaptation more than aggregation
or arbitrage, given the public’s current sentiment to-
ward globalization. Such medium-term adjustments,
however, must be checked against longer- term plans
and expectations about how a frm’s industry might
evolve, because it can take years for companies to ex-
ecute meaningful shifts among the AAA strategies.
The rationale for strengthening adaptation is
threefold. First, if companies become more respectful
of diferences, people may be less inclined to demand
protectionism. Second, when companies acquire for-
eign assets with little apparent rhyme or reason, as
many did before the crash, they come across to the
public as voracious and greedy. Showing regard for
the sovereignty, uniqueness, and internal diversity of
foreign markets can go a long way toward improving
companies’ reputations and, more broadly, the envi-
ronment in which business as a whole has to operate.
The rooted cosmopolitan corporation will be an ac-
tive foreign investor across many locations but will
pay careful attention to the cultural, political, and
economic impact of its investment decisions. (For an
infuential conception of rooted cosmopolitanism at
the individual level, see Kwame Anthony Appiah’s
book The Ethics of Identity.)
Finally, and perhaps most important, adapta-
tion strategies are better suited to the opportunities
opened by the shift in the locus of global growth.
With growth slow in Western markets, Western
companies must compete in big emerging markets
like China and India. But they can’t force their way
in. They also cannot prosper by continuing the old
practice of targeting elite customers in big cities,
who tend to be more like customers back home.
Western firms will need to take local competitors
seriously and consider extending their presence to
second- and third-tier cities, where more adaptation
will be required.
But it is unfeasible to invest in every market in the
world in an adaptive way. You need to zero in on the
places where you’re best positioned to add real value.
That requires really understanding selected mar-
kets and demonstrating deep commitments there to
customers, suppliers, governments, and the public
at large—a far cry from the imperialist approach of
pushing globally standardized products and pressing
others to conform to your way of doing business.
Designing the Cosmopolitan
Organization
When making choices about supply chains, organiza-
tional structure, foreign investment, and cross-border
innovation, a cosmopolitan frm thinks about how to
alter internal, organizational distances in response to
changes in external diferences. Take supply chain
decisions. The trend toward significant offshoring
will most likely continue. But many companies are
becoming concerned that widely dispersed, low-cost
supply chains make them vulnerable to protectionist
governments, rising transportation costs, and quality
Companies are realizing that widely
dispersed, low-cost supply chains make
them vulnerable to protectionism, rising
transportation costs, and quality issues.
May 2011 Harvard Business Review 13
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problems. Some are taking steps to make their sup-
ply chains shorter, simpler, and stronger, in effect
reducing internal distance within their production
networks to better manage their exposure.
When it comes to innovation, many frms are sim-
ilarly readjusting internal distances to reduce their
sensitivity to external distances. In some cases this
leads to an increase in internal distances. Innovation
for emerging markets, for example, often requires
diferent business models, not just whiz-bang tech-
nology. Corporate R&D labs located close to home in
advanced markets may excel at creating technology,
but frms seeking to develop products and business
systems for markets abroad will increasingly need the
informed creativity that only boots on the ground in
those markets can provide. This suggests that West-
ern multinationals may keep research mainly in the
West but push development out to the large emerging
markets. The street isn’t one-way, of course; there’s a
lot of discussion now about transferring innovations
from the emerging markets back to developed coun-
tries and adapting them for wealthier customers.
As the mix of a company’s activities across coun-
tries changes, it’s often wise to reexamine reporting
relationships. Do they create unnecessary internal
distance by routing too much through headquar-
ters? Which decisions should be made at the coun-
try level? The regional level? The global level? More
adaptation in a strategy might mean giving more au-
thority to country managers. Should some functions
be shifted from headquarters into regions where
more of the related work actually gets done?
Perhaps the critical organizational ingredient in
a world that demands adaptation is the composi-
tion of the management team. Most corporations
are far from cosmopolitan. Even though GE deploys
roughly half its assets in and generates half its rev-
enues from markets outside the United States—and
is justly famed for the breadth and depth of its top
management—I reckon that about 80% of its top 200
managers are Americans. And among the vast major-
ity of frms from emerging economies, management
teams are much less international. This is true even
for the very largest frms.
But simply adding foreigners to the management
ranks won’t make a frm cosmopolitan. First, their
numbers must reach a critical threshold; a few to-
ken foreigners will probably have little impact. And
second, when you put people of various nationalities
together in a single corporation, you have to manage
that diversity very carefully. Research suggests that
unmanaged diversity is more likely to have negative
than positive efects on group performance. People
are more inclined to trust their fellow nationals,
which often exacerbates tensions between headquar-
ters and managers in far-flung foreign operations.
And other research indicates that people’s inclination
to show sympathy is even more sensitive to cultural
similarities.
People whose backgrounds are rooted in multiple
cultures—so-called biculturals or triculturals—can
play useful bridging roles in organizations. Studies
also show that nationalism and suspicion of outsid-
ers both decrease as a person’s education level rises;
one study found this to be true across the board in
10 countries with quite different educational sys-
tems. But large corporations can’t rely on flling their
management teams with individuals possessing
bicultural or tricultural backgrounds and advanced
scholarly degrees. They will have to develop rooted
cosmopolitanism in people who have an average up-
bringing and education.
Cultivating the Cosmopolitan Leader
My own perspective is greatly infuenced by my par-
ticipation over the past two years in the Globalization
of Management Education Task Force of the Asso-
ciation to Advance Collegiate Schools of Business. I
wrote the portion of that group’s report that focused
on what business schools should teach their students
about globalization and how—advice that could also
help companies develop more-cosmopolitan manag-
ers. (See “Responses to Forces of Change: A Focus on
Curricular Content,” The Report of the AACSB Inter-
national Globalization of Management Education Task
Force, February 2011.) Four of the levers I identifed
seem particularly well suited to a corporate context.
Conceptual frameworks. It’s overwhelming
to try to develop an understanding of diverse places
by studying them one by one—not to mention, to
develop general knowledge of a variety of places all
at once. But a survey of academic thought leaders
points to the usefulness of conceptual frameworks
The most critical ingredient
in a world that demands
adaptation is a diverse
management team.
THE COSMOPOLITAN CORPORATION
14 Harvard Business Review May 2011
that emphasize the multiple dimensions of differ-
ences among countries. My own CAGE framework,
which categorizes distance along the dimensions
of culture, administration/politics, geography, and
economics, is a fairly widely used one. Such frame-
works bring order to masses of facts and fne-tune
one’s perceptions of foreign countries. Incorporat-
ing them into executive training can be very helpful.
When businesspeople can make only short trips into
a particular country, the ability to draw on frame-
works can amplify what they learn on their visits—
and help reduce the chances that they’ll make costly
missteps.
Longer and deeper immersion. Research
shows that living abroad expands your mental hori-
zons and increases your creativity. However, merely
traveling abroad doesn’t produce this benefit. Ex-
ecutives report that it takes at least three months
to become immersed in a place and appreciate how
the culture, politics, and history of a region afect
business there. A number of leading MBA programs
therefore incorporate long visits to sister or second-
ary campuses abroad rather than short visits that are
often privately acknowledged to be little more than
business tourism. So, though an anti-expatriation
bias exists in many companies, it’s important for
executives to recognize that short-term stays have a
limited impact. My advice to companies is to recon-
sider expatriation, especially for their high-potential
managers. Of course, the high potentials may resist
leaving their home countries for family reasons—or
because it still seems to take longer to get promoted
at many multinationals if your career path has taken
you far from home base. Senior executives will need
to create the right incentives for emerging leaders to
invest in a cosmopolitan education.
Projects and networks. Participation in inter-
cultural activities and networks (which corporations
can easily facilitate through international projects)
tends to soften ethnocentrism. Here, businesses have
certain advantages over business schools. They can
provide stronger incentives promoting particular be-
haviors that cultivate cosmopolitanism, have the op-
portunity to work with key executives over a longer
time horizon, and can bind together diverse groups
by promoting shared values, culture, and processes.
They also have more scope to leverage online col-
laboration, translation, and social-networking tools,
which very few companies (or business schools) fully
exploit. But they must be mindful of cross-cultural
diferences in the use of such technologies; you can’t
just make a platform available and expect it to be
readily embraced worldwide.
Assessment tools. Scholars have created a vari-
ety of assessment tools to reinforce programs aimed
at improving international skills. In the AACSB re-
port, I propose that every MBA graduate—and pre-
sumably, every global manager—have a minimum
body of globalization-related knowledge, including:
• A handle on levels of and changes in cross-border
integration of markets of various types.
• An understanding of how diferences between
countries can infuence cross-border interactions—
and how to look at them at the industry level.
• Awareness of the benefits of additional cross-
border integration, and some perspective on the
problems it’s alleged to produce.
Other assessment tools focus on mind-sets rather
than knowledge. One that will allow readers to com-
pare their mental openness to the world with that of
a highly international group of MBA students at a top
school is the Global Attitude Protocol that I devel-
oped, which can be found at www.ghemawat.com.
In addition to pulling on these four levers, compa-
nies need to beware of behavioral and cognitive traps.
For example, when managers do look at diferences,
they often focus on the most obvious ones while ig-
noring smaller ones. Yet smaller diferences may be
more important. For a Portuguese frm thinking of
selling abroad, at least some of the diferences and
the challenges of the Chinese market will be obvious.
But those of the Spanish market may attract less at-
tention, even though Spain is the frst foreign target
for many Portuguese frms, and many stumble there.
WE SHOULD have been skeptical about the false ideal
of statelessness from the start. “The Stateless Corpo-
ration” came out only three months after Business-
Week had run another cover story, with the subtitle
“Does the U.S. Need a High-Tech Industrial Policy to
Battle Japan Inc.?” It’s no diferent today. For every
article or book you read about the world being fat,
you’ll read another that highlights the rise of state
capitalism and the economic rivalries between China,
India, and the United States. It’s worth reemphasizing
that the world is neither a collection of autonomous
nations (World 1.0) nor perfectly fat (World 2.0), but
semiglobalized, with some places being much closer
to home than others. In such a world, rooted cosmo-
politanism is a more realistic and, ultimately, more
useful objective than statelessness.
HBR Reprint R1105F
Conceptual
frameworks
bring order to the mass
of facts about foreign
countries and help fine-tune
executives’ perceptions.
Longer and
deeper immersion
is necessary to develop a
true appreciation of how the
culture, politics, and history
of a region affect business
there. That tends to require
months, not weeks or days.
Projects and
networks
that cross international bor-
ders soften the ethnocen-
trism of the executives that
participate in them.
Assessment tools
can help companies get
a read on managers’
global skills and knowl-
edge, and target areas for
improvement.
Companies
can help their
employees develop
cosmopolitan
attitudes by
pulling on four
key levers:
Fostering the
Right Mind-set
May 2011 Harvard Business Review 15
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HBR.ORG
JULY–AUGUST 2014
REPRINT R1407J
THE HBR INTERVIEW
“I Came Back Because
the Company
Needed Me”
An Interview with Yang Yuanqing by Adi Ignatius
Lenovo CEO Yang Yuanqing
THE HBR INTERVIEW
SOME CEOS COME ACROSS AS PHILOSOPHERS, AND SOME JUST SEEM TO
love selling stuff. Yang Yuanqing, the 49-year-old head of the Chinese com-
puter giant Lenovo, is among the latter. And he’s one of the best in the game.
Yang, who studied computer science in his na-
tive China, assumed the reins in 2001, when the
company’s founder, Liu Chuanzhi, moved on to
become chairman. Yang served as CEO for three
years before succeeding Liu as chairman, and he
and Liu engineered the stunning 2005 acquisition
of IBM’s personal computer business. The deal sud-
denly made Lenovo (formerly known as Legend) the
world’s third-largest computer maker. In 2009, after
Lenovo had begun to falter during the global reces-
sion, the board asked Yang to return as CEO, a post
he’s held ever since.
Yang has turned things around, pursuing a strat-
egy the company calls “protect and attack”—de-
fending its core market in PCs while moving into
new growth areas such as mobile and the cloud.
Earlier this year the company made two more eye-
popping acquisitions, spending $2.3 billion for IBM’s
low-end server business and $2.9 billion for Google’s
Motorola Mobility unit.
As a leader, Yang is probably best known for his
efforts to break down Lenovo’s hierarchies and
empower employees at every level—and for his
well-publicized generosity. In 2012 he opted to share
“I Came Back
Because the
Company
Needed Me”
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COPYRIGHT © 2014 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. July–August 2014 Harvard Business Review 18
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well more than half of his $5.2 million bonus—and
in 2013 more than three-quarters of his $4.23 million
bonus—with Lenovo employees. Yang spoke with
HBR’s editor in chief, Adi Ignatius, in Morrisville,
North Carolina, where Lenovo maintains one of its
two headquarters (the other is in Beijing).
HBR: Lenovo recently became number one in world-
wide PC sales. That’s obviously a great accomplish-
ment, but is it also a reason for concern, given that
the global PC market is shrinking?
Yang: When we bought IBM’s PC business, almost 10
years ago, we never thought such a thing was pos-
sible. It’s a dream come true. But we know the world
is changing. This is no longer the PC era; it’s the “PC-
plus” era. So we want to win in other areas: mobile,
tablets, back-end servers.
Who do you think are your biggest competitors in
the PC-plus world? Apple and Samsung, of course.
For now, we’re a solid number three. But we won’t
stop there. Over time we’ll challenge them.
How do you take on giant, innovative companies
like Apple and Samsung? We are an innovative
company as well, and we have a successful formula.
We pursue a clear strategy and execution; we have
an efcient business model; we innovate on our
products and technology; and we have a diverse
team and culture. Innovation is in our genes. We’ve
developed products such as the ThinkPad, which
has become iconic in the commercial-customer seg-
ment. And we’ve expanded innovation to the con-
sumer space, with our Yoga PC and tablet.
OK, but people tend to talk about Apple as the
ideal example of an innovative company. What
does Lenovo do better than Apple? We know how
to balance innovation and efciency. For some
companies, innovation means an expensive prod-
uct. That’s not Lenovo’s philosophy. We want in-
novation to be afordable for most of our custom-
ers. We have premium products, sure, but we aim
most of our products at mainstream or entry-level
customers.
Apple has very few products and a relatively lim-
ited product range. Lenovo has lots of products
for different sectors of the market. Do you plan to
change your approach? No, we don’t. We want to
cover more customers with rich product oferings
along the full price range.
Lenovo Goes Global
BIG ACQUISITIONS HAVE HELPED DRIVE BUSINESS SINCE THE COMPANY’S FOUNDING (AS LEGEND) IN BEIJING IN 1984.
2003
announces its new
name—Lenovo—
in preparation
for overseas
expansion
STOCK
PRICE
REVENUE
2007
$14,590M
$195M
2006
debuts worldwide
the first Lenovo-
branded products
outside China
$13,276M
$112M
2005
acquires IBM’s
personal computer
division and
introduces the
industry’s thinnest,
lightest, and most
secure tablet PC,
the ThinkPad X41
Yang steps down
as CEO to become
chairman
$2,892M
$133M
2004
$2,971M
$119M
$2,594M
$125M OPERATING
PROFIT
†NUMBERS HAVE BEEN RESTATED AFTER TAKING INTO ACCOUNT THE RESULTS OF THE MOBILE HANDSET BUSINESS (WHICH LENOVO SOLD ON MARCH 31, 2008, AND BOUGHT
BACK ON JANUARY 31, 2010); NET GAIN ON DISPOSAL OF THAT BUSINESS ($58,223M) WAS EXCLUDED FROM THE NET PROFIT OF 2008 FOR COMPARISON PURPOSES.
SOURCES LENOVO; YAHOO FINANCE
‡ FINANCIALS FOR THE MOBILE HANDSET BUSINESS ARE EXCLUDED DURING THIS PERIOD.
2008
$16,788M
$456M

†
19  Harvard Business Review July–August 2014
“I CAME BACK BECAUSE THE COMPANY NEEDED ME”
North America and Latin America. In China, too,
even though Motorola is hardly present now. We
plan to bring the brand back to China. And we
need this kind of IP to be a global player, particu-
larly in mature markets. Plus, Motorola has strong
relationships with carriers and retail networks.
You also recently bought IBM’s server business.
What’s your strategy in choosing acquisition
targets? We use what we call a triangle process.
When deciding on developing a business, we
consider whether the market is big enough or at-
tractive enough; whether the business fts with
our core; and whether we have the resources to
make up for any strengths we might lack to make
it work.
Lenovo is often cited for sustaining a healthy
corporate culture. What’s the secret to that? We
focus on three elements. The frst is an owner-
ship culture: We try to empower people to think
for themselves, to make decisions for themselves.
Everyone is an engine. The second is a commit-
ment culture: If you commit to something, you
must deliver. And the third is a pioneer culture:
We encourage our people to be more innovative.
What do you think your best-selling product will be
in five years? Today PCs account for 84% of our total
business. I think they will continue to be our core,
with the tablet now part of this market. But I believe
that two other markets—smartphones and the en-
terprise business—will grow faster than PCs. So in
fve years, I hope to see a more balanced business.
Let’s talk about your decision to buy Motorola from
Google. Why do you think Google couldn’t make it
successful? Hardware is not its strength. Google is
an ecosystem business—with advertisements, apps,
and so on. It bought Motorola mainly for the IP, so it
wasn’t focusing on the hardware.
How did the deal come about? Right after Google
bought Motorola, in 2012, I had dinner at my house
with [Google’s executive chairman] Eric Schmidt.
I said to him, “Do you really think you can handle
the hardware business? And if someday you can’t,
just call me and I’ll buy Motorola from you.” A
year and a half later, he called me, and we quickly
reached an agreement.
What is Motorola’s value to Lenovo? The IP? The
branding? Both. The brand is very important in
2014
reaches
agreement
to buy
Motorola
Mobility
and IBM’s
x86 server
business
2013
acquires CCE, a
leading Brazilian
electronics
company; becomes
number one in
global PC sales
$33,873M
$800M
2012
acquires
Stoneware, a
software firm
focused on cloud
computing, and
enters into a
joint venture with
EMC to produce
external, portable,
and networked
storage solutions
$29,574M
$584M
2011
forms a joint
venture with NEC,
creating the largest
PC company
in Japan, and
acquires Medion,
later becoming
the number one
PC company in
Germany
$21,594M
$382M
2010
introduces
LePhone, the
company’s first
smartphone
$16,605M
$219M
2009
Yang becomes
Lenovo’s CEO for
the second time
$14,901M
($192M)

‡

‡
July–August 2014 Harvard Business Review 20
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How do you actually promote innovative behav-
ior? Is it a matter of creating the right incentives?
There are a lot of ways to do it. For example, I hold
monthly brainstorming sessions with our R&D team.
At each session we focus on one topic—it might be
a product, a service, or a technology. Another ap-
proach is through the budget. For our R&D people,
we allow 20% of the budget to be fexible, so they
can decide which areas they want to focus on and
what they want to develop.
Are you a student of management ideas, or more
of an instinctive leader? I tend to learn as I go, from
our company’s own experience.
Have you been through an instructive failure at
Lenovo? Yes. During my frst stint as CEO, I de-
cided to diversify away from the PC business. We
went in a lot of directions: internet service, IT ser-
vice, contract manufacturing, phones. We tried to
do too many things simultaneously and lost sight
of our core competence. It was my mistake, and it
failed. But we learned how to think about fnding
the right strategy.
Why did you come back as CEO in 2009? I came
back because the company needed me. During the
2008–2009 fnancial crisis, Lenovo’s performance
dropped signifcantly. We lost $200 million in one
quarter! It was very dangerous. So we had no choice.
The board asked me to do the job.
What can U.S. companies learn from how Chinese
companies do business, and vice versa? I think
both can learn from us, because we’re not a U.S. or
a Chinese company but a global company. Our top
10 executives come from six diferent countries.
I understand that Lenovo doesn’t employ many
expats. It’s true. We don’t assign people to other
countries; we rely on local talent. That helps build
a culture of trust and helps us understand diferent
markets and industries. Throughout the company
we employ only about 50 expatriates among our
54,000 employees.
How important is your share price? Do you think
it’s a good measure of Lenovo’s performance? We
don’t usually comment on our share price. It’s
how the market sees us. But our shares dropped
to some extent after the two recent acquisitions.
Investors worry about whether we can turn around
Motorola’s business and whether we can make the
IBM server business more proftable. We need to
prove that we can make those deals work.
Some analysts look at your “protect and attack”
strategy and say you’re doing well with “protect”
but not as well with “attack.” That’s not right.
When we bought IBM’s PC business, Lenovo was
a $3 billion company. This year our revenue will be
close to $40 billion. If we were just trying to “pro-
tect,” we couldn’t reach such a level. Originally we
bought only IBM’s commercial PC business. But
after I returned as CEO, we decided to attack the
consumer business, too. In just fve years we be-
came number one worldwide. And a few years
ago I bought back the phone business that my
predecessor had sold. Today we’re the number
two smartphone player in China and number four
worldwide. These are clear examples of “attack.”
People often say that no Chinese company has
become a truly global brand. Do you think you’re
there yet—a global brand like Apple or Coca-Cola?
I can’t say we’ve made it. But we’re a pioneer—
among the frst brands that originated in China and
are now global.
You moved your family to North Carolina sev-
eral years ago. What has surprised you most
about the United States? I’m impressed with the
education system. In China kids study mainly
for the test, to get high scores. In the United
States schools give kids the fexibility to learn what
they like. I’ve also discovered the value of work/life
balance. In China we don’t go for balance. We just
work all the time.
HBR Reprint R1407J
During my frst stint as
CEO, we went in a lot of
directions. We tried to
do too many things
simultaneously and lost
sight of our core competence.
21  Harvard Business Review July–August 2014
HBR.ORG “I CAME BACK BECAUSE THE COMPANY NEEDED ME”