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President Pedro Nueno: From Internationalisation to Globalisation

Volume 4, 2017

The BRI and globalisation are inextricably linked. CEIBS President Pedro Nueno takes us on a historical look back at how and why companies – and educational institutions like CEIBS – can no longer be confined by geographical boundaries.

One of the major discoveries of this decade is the need and urgency for companies to become global players. When many American companies went international in the 1960s, that simply meant entering European markets (Europe still worked country by country, not as the European Union). Those in Latin America, Africa and Asia were not considered relevant. But even then this process of internationalisation of American companies puzzled the country’s labour unions. There was not much enthusiasm from the government, either, as its focus was on having American companies create jobs in America. In the 1970s European companies went international and Latin America – by then considered an interesting market – caught the eye of many. In the 1980s it was Japanese companies’ turn to go international, and they set their sights on Europe, USA and Latin America.

Why did companies in these countries go international at the same time? Because they must, if they wish to remain in the game. If you are a leading player in the US automotive industry, for example, and a major competitor makes an investment in Europe, you had better follow. If not, your competitor will have the advantage in everything from branding to negotiating power with governments and unions. If your company is listed, the markets would likely penalise you for not branching out as your competitor has done. Also, the press may question your company’s strength and management strategy.

Over the years as the world continued to develop, with Latin America, Asia and Africa becoming important markets, we changed the word used to describe the process:  internationalisation became globalisation. This change in semantics reflected the new reality that companies could not merely stand by in Europe and the US and watch as competitors flourished in growing markets such as China, Brazil, North Africa, Sub-Saharan Africa, India, Eastern Europe and Mexico.

The end of 2020 will mark a decade since Chinese companies have gone abroad. In many cases their entry into new markets was made through an acquisition – sometimes several. In some cases, these acquisitions provided a lifeline for the firm being acquired as it lacked the financial – and other – resources required to sustain the investments necessary for continued growth (assets, R&D, inventories, sales). There are often cases of companies whose owners who, for reasons including advanced age, pressing family commitments, lack of management capabilities, etc, do not wish to continue their development and are therefore willing to sell. In many cases these companies can provide good platforms from which to enter other markets, and often a new long-term-oriented ownership may stimulate management into achieving transformational growth.

Chinese car manufacturer Geely, which acquired the international company Volvo, is an excellent example of all of this. Volvo was founded in Sweden in 1927 and later opened another plant in Europe. Its cars were considered top of the line in terms of safety and sustainability and were exported all around the world from Volvo’s two plants in Europe. In 1999 Ford acquired Volvo, paying USD6.45 billion for the company. Ford also acquired Jaguar and Land Rover. With the acquisition of these prestige brands, Ford could enrich its product line with high-end models. But the evolution of the economy did not help and the crisis that started in 2008 and deepened in the following years left Ford nearly bankrupt. It managed to sell Jaguar and Land Rover to the Indian company Tata and, while it was thinking of selling Volvo, was approached by a very interested head of Geely, Li Shufu. Li moved quickly with the complex acquisition and its financing and, given Ford’s financial challenges, managed to complete the acquisition in 2010 for USD1.5 billion.

In the years following the acquisition, most high-level Chinese managers, in many cases company owners, were convinced that Geely’s acquisition of Volvo would be a disaster. I wrote a case on the acquisition and, when teaching it, I often began by asking the class how many believed the acquisition would be a success. In classes made up of Chinese CEOs, the great majority would raise their hands. Whenever I asked how many believed it would be a great success, only two or three hands would go up. The same questions to a class of European CEOs showed that many of them also thought the acquisition would be a success, but not a great one.

Today we can say that Geely’s acquisition of Volvo was a great success. The company has added plants, grown substantially, made a profit, added thousands of employees and has maintained Volvo’s values and brand. Within the industry, among the factors credited for this success is Li’s decision to allow both companies to remain separate entities, retain Volvo’s key managers and boost R&D. Obviously having access to Volvo’s technology helped Geely, but as a separate entity.

Over the last 10 years, other Chinese companies including Huawei, Tencent, Avic, and many others in a variety of sectors, have become international players. This process has accelerated during the decade and most likely the speed will not abate before 2020. And day after day we hear success stories about this process of global deployment. The attitude of top Chinese managers has changed, and now there is strong interest in learning from other’s success stories and hiring people who have international backgrounds and education.

The Chinese government has launched a well branded project – the Belt & Road Initiative (BRI, New Silk Road) – based on railroad connection between East China and South Europe. But the project goes much further and has generated lots of agreements with countries in the European Union, in Eastern Europe, in Northern Europe, in Russia, in Western China, in the Middle East, that are facilitating the expansion of Chinese companies and the establishment of joint ventures between them and international partners. The Chinese Government has made it clear that the BRI continues to Africa and the Americas.

Meanwhile CEIBS has also had its own globalisation journey. Shortly before the beginning of the decade, the school opened a campus in Ghana, Africa, based on suggestions from relevant Chinese government and business leaders. Then in 2015 CEIBS acquired the Lorange Institute of Business, a leading business school based in Zurich, Switzerland, and gradually integrated it into the school’s operations. Today, the facility is known as CEIBS Zurich Campus and it has facilitated many programmes for top Chinese managers focused on the process of internationalisation.

During the decade, CEIBS has also developed programmes through alliances with other business schools (Harvard Business School, IESE, etc), played a role in facilitating the globalisation of Chinese companies and the school’s faculty and staff have learned a lot in the process. This learning has been seamlessly incorporated into all our programmes – including those, such as the MBA, that take place in China – that have been enriched with global experiences, excellent academic material (cases, books, papers), modules in other locations and partner schools, as well as global career opportunities.

At the same time, CEIBS is grateful to its alumni and to the numerous Chinese and international companies whose invaluable support has facilitated the school’s globalisation. They have generously shared their experiences with CEIBS, and in turn benefit from the knowledge generated through the school’s research, from attending CEIBS programmes and events, and from hiring its graduates.

CEIBS, China and the rest of the world have experienced the progression from internationalisation to globalisation, and I am convinced that we are all better as a result.