Brexit – impact on global business

The Brexit vote in the UK sent a shock wave through Europe, and the world.  What happened?

Depending on who you ask, the results reflected:

• An independent island mentality reasserting itself after decades of reluctant interdependence with Europe
• A desire for greater sovereignty over key decisions
• Bureaucrats in Brussels – and cosmopolitan elites centered in London – being out of touch with the feelings and needs of ordinary people
• Misinformation (or lack of information) from politicians and the media
• Intensifying racial and cultural prejudices created by uncontrolled immigration (with the consequent stresses and strains on social capital, cultural identity, and economic resources)
• Misguided multicultural policies that focused on differences and separateness rather than similarities and integration 
• Nostalgic baby boomers seeking to recover a way of life when Britain was seen to be a great and powerful in the world, not just a smaller player in Europe
• More globally-minded millennials not voting in sufficient numbers

Most likely Brexit reflected all of these, and more.  While it might take years for the impact of Brexit on business to take effect, the result mirrors a broader trend: attack globalization.

A few weeks ago a retired ambassador at the UN asked me what Brexit and similar phenomena (e.g. Trump populism) mean for global business.  Here is my current thinking: 

• Nationalism is back, if you didn’t already know
• Local knowledge is more important than ever
• Decentralization is the new ‘global’ 

While globalization has improved many lives, it has increased fear and anxiety among others.  Yascha Mounk of Harvard says, “You have a socially descending middle class that hasn’t had real gains in the standard of living in 30 years.”  Sharply divisive wealth inequality and economic stagnation coupled with open labor markets and refugee crises have provided Europe with a potent political mix. Europe hasn’t witnessed such a surge in nationalist movements since the 1930s. 

For example:

• Golden Dawn in Greece
• Allianz fur Deutschland in Germany
• Jobbik, Fidesz – KDNP in Hungary
• Svoboba in the Ukraine
• Freedom Party of Austria
• Law and Justice Party in Poland
• National Front in France
• Scottish and Welsh national political parties and the UK Independence Party

Nationalist movements are not limited to Europe: Argentina, Russia, Turkey, India and the USA are experiencing nationalist upheavals. 
The globalism experiment starting post Second World War might not be doomed, but the coming years are likely to see:

• Growing suspicion of globally-centrist political and economic elites who are seen as corrupt and lacking in patriotism.
• Increased pressure on governments to exercise national sovereignty and put country interests first (e.g. more protectionist trade and investment policies, the expropriation and nationalization of foreign-owned businesses assets, increased resistance to joint efforts between nations like those in the EU and NAFTA).
• Tighter controls over national borders with more intolerance of non-citizens, migrants and refugees.
• More pressure from regions wanting to break away from nation states as they too demand more self-control, e.g. Xinjiang (China), Kurdistan (Iraq, Iran, Turkey, Syria), Crimea (Ukraine, Russia).

Nothing is pre-determined, but our present understanding of ‘globalization’ as economic, cultural, and political integration needs rethinking.

Local knowledge is more important than ever

In a global economy still reeling from Depression, some nations and their internal ‘tribes’ feel more powerless, uprooted, and impoverished than others.  A response is to turn inward and glorify past times, strengthen ethnic identities, and re-invigorate traditional cultural and religious values that provide comfort.   Tribalism in its modern guise can be compelling.

Business globalists are a special tribe – a cosmopolitan tribe that spans geographies, cultures, languages, and religions.  It looks at our digitally-powered one-world business environment as the high point in human evolution.  This tribe meets annually at The World Economic Forum in Davos where it spins wonderfully utopian global scenarios (without too much messy input from people struggling to make a living). Globalists are a powerful tribe; members benefit from open markets, outsourcing, and the movement of labor across borders; its guiding principle is wealth-creation.  Among the more socially minded members of the tribe, wealth-creation is seen as facilitating common-wealth, but unfortunately not everyone is a beneficiary. 

It was no surprise to me that the cosmopolitan London region voted to remain in the EU – the population is young, affluent, diverse, and networked across borders.  Major London industries like finance are also globally-connected.  London, however, doesn’t represent the nation; no global city does.
Beyond London, the voting was less cosmopolitan – the older generation, rural voters, and the industrial working class have felt economic and cultural loss more acutely, particularly in areas experiencing large numbers of immigrants.  It would be wrong to label the ‘No’ vote in these groups as symptomatic of widespread cultural intolerance or hatred. Post-Brexit, hate crimes have increased, but so have outpourings of support for migrants.  Britain like other modern nations is culturally complex – even contradictory – and too much negativity can be read into the simplistic picture that a binary Yes-No vote presents.

Businesses that want success in this more fragmented world must be closer to the ground, and less aloft in the dizzying heights of Davos.  Successful global businesses will have an abundance of local knowledge gained from the bottom-up rather than from the hyperglobalists (some of whom may well be in the Executive C-Suite).   Gaining local knowledge of cultural attitudes, values, and behaviors is a must if customers are to be attracted and retained.  Commonly held stereotypes and assumptions can prove costly. 

Decentralization is the new ‘global’ 
It is no secret that the EU is considered by many to be highly bureaucratic, faceless, out-of-touch, and technocratic.  Whether that is a fair description of the EU or not, some global businesses deserve those descriptors, especially those where local needs and sensibilities are swept into a global grinding machine, and one-size-fits-all solutions emerge. That is not how Jeffrey Immelt, CEO of General Electric, sees the future of global business.  
In a recent speech to business graduates in New York, Immelt stated that GE is making a “bold pivot.”  In response to rising protectionism, GE ‘will localize’.  Does that mean GE will no longer be a ‘global’ company?  No.  To have sustainable growth he argued, GE “will require a local capability inside a global footprint . . . We used to have one site to make locomotives; now we have multiple global sites that give us market access.  A localization strategy can’t be shut down by protectionist policies.” 

Decentralization for GE is achieved by pushing capability to local teams who are empowered to create local solutions and take risks. What about global leaders in GE?  A good global leader has an appreciation for how people do their work in a local culture.  They try to make a team’s work meaningful to their country.

Working for years with global companies, I have witnessed first-hand the astounding loyalty generated when employees believe that the global company’s products and services benefit their nation.
Bottom line: Neither globalization nor nationalism are necessarily ugly.  Digital technologies have given us borderless spaces where talent from anywhere can collaborate on global and national challenges (business or otherwise).  Despite the Brexit shock, global business and nationalism do not have to be opposing forces.

To conclude, what can each one of us as leader-managers in global businesses do to ensure that every community and life we touch experiences the profound benefits of what we do?  Here are some ideas:

• Reverse the mantra “Be as global as you can, as local as you must” to “Be as local as you can, as global as you must.”
• Develop expertise in geopolitics among strategists and managers (including senior managers)
• Communicate how your business benefits national and local interests (e.g. bringing jobs to impoverished areas, revitalizing a waning industry, improving health care and education for all, connecting families through cheaper and faster communications)
• Empower local teams to create local solutions (while still transferring knowledge useful to other locations)
• Complement cultural training with insights from local people
• Stay in a country for the longer-term and build goodwill
• Create brands that resonate locally (global branding can be overrated)
• Implement a broader set of performance measure, e.g. Novo Nordisk uses a Triple Bottom Line Approach consisting of Social Impact, Financial Performance, and Environmental Responsibility  

 © TMA World.  All Rights Reserved.              July 12, 2016

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