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Are CEOs Really India’s Leading Export?

by Pankaj Ghemawat 18. March 2014 22:33

Satya Nadella’s appointment as Microsoft’s CEO was greeted with headlines such as “Why Microsoft and Everyone Else Loves Indian CEOs,” echoing Time’s 2011 lead heralding “India’s Leading Export: CEOs.”  But have Indians really risen to the top of many of the world’s largest corporations?  A systematic analysis of mid-2013 data on the world’s largest firms by revenue, the Fortune Global 500, shows that at that time only three non-Indian firms were led by Indian CEOs: Arcelor Mittal (Lakshmi Mittal), Deutsche Bank (Anshu Jain), and PepsiCo (Indra Nooyi).  That was exactly the same as the number of non-Brazilian firms run by Brazilian CEOs, and short of the 5 non-South African firms led by South African CEOs.

 

Does the paucity of Indians at the top of non-Indian Fortune Global 500 corporations mean that the late C. K. Prahalad’s assertion that “Growing up in India is an extraordinary preparation for management” was wrong?  Not necessarily.  Indians have indeed gone out and achieved great managerial success abroad.  The proportion of Silicon Valley tech startups led by Indians has risen from 7% in the 1980s and 1990s to at least 13% and by some estimates more than 25% (even though Indians make up less than 1% of the US population).  One estimate pegged the annual income of the Indian diaspora at about one-third of India’s GDP, with much of that coming from Silicon Valley.

 

The real myth is not the success of Indians abroad but rather that the world’s largest firms are so global that their national origins no longer influence who they select for CEO.  Only 13% of the Fortune Global 500 companies are led by CEOs who hail from outside the country where the firm’s headquarters is located.  Also, the foreign countries where Indian CEOs do lead Fortune Global 500 firms are illustrative of how openness to foreign CEOs varies widely from country to country.  European firms, on average, are the most likely to have foreign CEOs.  U.S. firms lie in between European and Japanese firms.

 

 

CEO Imports and Exports Chart

Firms’ propensity to hire foreign CEOs is also highly correlated with their home countries’ general openness to trade, capital, information and people flows as measured on the Depth Index of Globalization that I compile with my IESE Business School colleague Steven A. Altman.

 

India’s fame as a CEO exporter must be juxtaposed against the paucity of non-Indians running major Indian corporates.  After the untimely demise of Karl Slym, who briefly headed Tata Motors, none of India’s eight Fortune Global 500 firms is led by a non-Indian CEO.  In fact, only three of the 112 Fortune Global 500 companies based in any of the BRIC countries are led by a non-native CEO!  As firms from these countries seek to differentiate and build brands in advanced economies rather than competing mainly based on low home-country cost bases, the troubling signal this sends to foreign talent about their career prospects will become increasingly important.

 

Returning to Microsoft’s selection of an Indian CEO, it is interesting to note that one source estimates that more than one-third of Microsoft’s workforce is of Indian descent.  Microsoft also earns about half of its revenue outside of the United States.  The appointment of a non-native CEO of any origin is still an unusual occurrence, but Microsoft’s selection of an Indian was, all else equal, not entirely surprising.  And it sends a very positive message to high-potentials throughout Microsoft: this is a company where the best candidate, regardless of national origin, can rise to the top.

Tags:

General | Globalization

Become an Ex-Pat and Still Get Ahead: Research on Choosing the Right Company

by Pankaj Ghemawat 22. January 2014 03:47

For young managers aspiring to climb the ranks, working at a big corporation within their home country can seem stifling. In the case of a Japanese or Korean business, workers may fear a slow career progression, as seniority tends to take priority over performance and potential. When it comes to a French company, not being part of the closely-knit and self-protective elite of “très grandes écoles” graduates could feel like a disadvantage.

But these are miscellaneous observations. Is there anything systematic that can be said about the types of companies where, statistically speaking, the chances of advancing upwards as a foreign national are higher than sticking it out at home?

Our research on the top management teams (TMTs) of the 100 largest non-financial transnational companies suggests five factors that influence the chances of career advancement for nonnatives.  While these factors are interrelated, until we have a better understanding of the interactions between them, you should consider all five to identify the potential for an accelerated career trajectory.

When pre-selecting companies, you should consider five features to maximize any potential for an accelerated career trajectory.

First look at the composition of the company’s board of directors.  At the 100 largest non-financial transnational companies, we found a strong correlation between the number of board members who are from a different country than the company’s home country (we call this “non-nativity”) and the non-nativity of the company’s top management team (TMT).

The second feature you should consider is the nationality of the company’s CEO and/or Chairman. This has a major impact on TMT non-nativity.  When the CEO is non-native, 63 percent of TMT members are non-native on average, compared to 19 percent when the CEO is native.

The Composition of Top Management Teams Chart

The equivalent figures at the chairman level are 59 percent and 18 percent.

Board of Directors Composition Chart

This observation may demonstrate the inclination of non-native CEOs to promote non-natives into their TMT.  Of course, if the company tends to promote its CEO from within, there is a greater likelihood of having a non-native CEO if the TMT is more strongly non-native.

Third, look at the company’s transnationality, which is the share of the company’s assets, sales and employees situated outside its home country. Companies that are more transnational tend to have more non-native TMT members. Their TMTs also tend to be more cosmopolitan, with members coming from a larger number of different countries.

The fourth feature is the company’s sector. For example, the consumer/retail sector tends to have higher non-nativity than the construction sector.

Finally, note the company’s home country. Firms from the same sector with the same transnationality — and thus with similar needs in terms of management diversity — yet from different countries can have TMTs with very different non-nativity. The TMTs of European companies on average have the highest non-nativity and are the most cosmopolitan. Japanese companies tend to score lowest. North-American companies are in the middle.

Composition of Top Management Teams by Location Chart

But even within Europe, there are major differences. For example, the TMTs of French companies on average score much worse in terms of non-nativity than UK companies or companies in the smaller European countries.

Of course, having a thriving career will always depend on your personal capabilities (e.g. cultural adaptability) and behavior (e.g. mobility).  Luck — being at the right place at the right time — will also continue to play a role. What we have demonstrated, though, is that, when you’re at a fork in your career path, you can reduce the weight of factors beyond your control by picking companies based on these five observable features.

There is also an important message here for companies. If talented individuals start choosing employers based on our findings, you will have to put in place real policies and practices that offset the impression that you’re not attractive to foreign managers (even if that impression is false).

Tags:

General | Globalization

WTO’s baby steps at Bali a big deal

by Pankaj Ghemawat 13. January 2014 03:09

Run the clock back on the last four rounds of global trade negotiations – arguably the four most ambitious ones attempted. The Kennedy Round in 1967 was followed by the conclusion of the Tokyo Round 12 years later, and the conclusion of the Uruguay Round another 15 years on.  Now, after 19 more years, we have not quite the conclusion to the Doha Round, but the Bali Package: a shrunken version of the ambitious original agenda. So, should we cheer about the agreement reached last month? Yes! For four reasons.

There is still a road to Doha. The world agreed to keep working toward global trade liberalization instead of refocusing entirely on regional and bilateral accords.  The most consistent critique of the Bali Package so far – that it simply kicked the can down the road on all the difficult issues – misses the point that without it, there wouldn’t be any kind of road to Doha. And as one WTO negotiator pointed out, it would be well into the 2020s before we might expect to see the conclusion of another global trade deal.

The baby can walk! Doha was the first trade round orchestrated by the World Trade Organization. All prior ones were conducted under the General Agreement on Tariffs and Trade – a stopgap arrangement reflecting the collapse of postwar plans to set up an International Trade Organization alongside the IMF and the World Bank. Without some kind of agreement at Bali, the WTO’s own future would have been in peril. It now has some credibility to continue to push the broader Doha agenda.

The steps already taken are important. In particular, the part of the Bali Package focused on trade facilitation promises real economic benefits if it is implemented well, potentially even larger than the $1 trillion typically attached to it. Cross-border trade is still subject to a lot of transaction costs. A 10 to 15 percent reduction in trade costs would be very large compared to the margins on which many exporters operate.

So is their potential psychological impact. Despite the gloom they engendered, the latest IMF forecasts still see the world growing faster between 2012 and 2018 than in the 1980s, the 1990s or the first decade of this century (largely thanks to emerging economies).  The big threat seems, therefore, to be not poor fundamentals but policy fumbles – e.g., the new round of budgetary squalls in the United States, or continued dithering in the Eurozone. Amidst all this, the Bali Package is a confidence-builder, especially since global trade’s post-crisis recovery stalled in 2012.

Beyond the cheering, Bali also exemplifies a set of lessons – and a worry – for future efforts at global policy coordination, particularly in relation to trade.

As documented in our Depth Index of Globalization 2013 released in November, trade is the international interaction that has so far experienced the biggest shift from advanced to emerging economies. Emerging economies already trade as much, relative to their GDPs, as advanced economies, while advanced economies remain four to five times as globalized with respect to capital and people flows. The effects: all the absolute growth in international trade since 2008 has involved emerging economies at one or both ends of the transaction. Emerging economies will require real representation in trade deals in particular. A corollary: get used to what the WTO calls “Special and Differential Treatment” for developing countries.

As these partners continue to gain prominence, there are concerns about the ability to find global consensus – small squabbles can lead to discussions falling apart entirely. This begs the question: might a “G20-plus” approach be sufficiently inclusive and less unwieldy than deal-making among 159 countries, as UNCTAD Secretary General Supachai Panitchpakdi once suggested? That might help turn baby steps into sustained forward movement.

Tags:

General | Globalization

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