Globalizing through privatization.

Author:Waldenstrom, Martin
 
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The worldwide trend toward privatization offers a unique window of opportunity for U.S. companies to expand their international reach.

Globalization is the major challenge and opportunity for companies in the next decade. But what is a truly globalized company? It's not one that simply has international operations. Nor is it one that has entire divisions or business units overseas. And it's not one that has heavy export ratios.

In order for a company to be truly global, it must replicate its entire business system in various locations around the world and optimize its total business structure by adopting a global model of operation, where each function is sited in the most appropriate location.

Statistics show that, on average, globalized companies have a world market share about 60% greater than that of international companies, and more than three times greater than companies that solely export. Equally important, there is a strong correlation between increased market share abroad and increased market share at home. A survey of CEOs indicates that, on average, globally operating companies have a domestic market share 80% greater than that of international companies, and two-and-a-half times greater than export-only companies.

Realizing the global potential of a business is as much a process as an objective, for it is clear that globalization is more a journey than a destination. The rationale for that journey is to build value through profitable growth. Companies that intend to globalize must make fundamental changes in their organizations and operations in order to overcome barriers that would otherwise limit such growth.

The global growth path is typically long and challenging. Profits will go down before they go up, due to the considerable start-up costs to initially build an export network and replicate the business system worldwide. Large investment outlays are required for building plants or sales organizations and acquiring and integrating local companies.

In addition to following this traditional road to globalization, the worldwide trend toward privatization offers a unique window of opportunity for U.S. companies to expand their international reach. As one would imagine, U.S. companies have the best potential to tap into the privatization pipeline in nations where the institutional framework for private enterprise is already in place. Conversely, it is a much bigger challenge in countries that have yet to legalize private...

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