The Digital Multinational: Navigating the New Normal in Global Business

The Digital Multinational

Management on the Cutting Edge series

Robert W. Holland Jr., series editor

Published in cooperation with MIT Sloan Management Review

The AI Advantage: How to Put the Artificial Intelligence Revolution to Work

Thomas H. Davenport

The Technology Fallacy: How People Are the Real Key to Digital Transformation

Gerald C. Kane, Anh Nguyen Phillips, Jonathan Copulsky, and Garth Andrus

Designed for Digital: How to Architect Your Business for Sustained Success

Jeanne W. Ross, Cynthia Beath, and Martin Mocker

See Sooner, Act Faster: How Vigilant Leaders Thrive in an Era of Digital Turbulence

George S. Day and Paul J. H. Schoemaker

Leading in the Digital World: From Productivity and Process to Creativity and Collaboration

Amit S. Mukherjee

The Ends Game: How Smart Companies Stop Selling Products and Start Delivering Value

Marco Bertini and Oded Koenigsberg

Open Strategy: Mastering Disruption from Outside the C-Suite

Christian Stadler, Julia Hautz, Kurt Matzler, and Stephan Friedrich von den Eichen

The Transformation Myth: Leading Your Organization through Uncertain Times

Gerald C. Kane, Rich Nanda, Anh Nguyen Phillips, and Jonathan R. Copulsky

Winning the Right Game: How to Disrupt, Defend, and Deliver in a Changing World

Ron Adner

The Digital Multinational: Navigating the New Normal in Global Business

Satish Nambisan and Yadong Luo

The Digital Multinational

Navigating the New Normal in Global Business

Satish Nambisan and Yadong Luo

Foreword by Conny Braams

The MIT Press

Cambridge, Massachusetts

London, England

© 2022 Massachusetts Institute of Technology

All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher.

The MIT Press would like to thank the anonymous peer reviewers who provided comments on drafts of this book. The generous work of academic experts is essential for establishing the authority and quality of our publications. We acknowledge with gratitude the contributions of these otherwise uncredited readers.

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Library of Congress Cataloging-in-Publication Data

Names: Nambisan, Satish, author. | Luo, Yadong, author.

Title: The digital multinational : navigating the new normal in global business / Satish Nambisan and Yadong Luo; foreword by Conny Braams.

Description: Cambridge : The MIT Press, 2022. | Series: Management on the cutting edge | Includes bibliographical references and index.

Identifiers: LCCN 2021000760 | ISBN 9780262046329 (hardcover)

Subjects: LCSH: International business enterprises—Technological innovations. | Regionalism. | Globalization.

Classification: LCC HD2755.5 .N38 2022 | DDC 658/.054678—dc23

LC record available at https://lccn.loc.gov/2021000760

10 9 8 7 6 5 4 3 2 1

d_r0

To Ashok, Bharat and Priya—Satish Nambisan

To Rosalie, Edward and Jady—Yadong Luo

Contents

Series Foreword

Foreword by Conny Braams

1 Globalization in Transition in the Digital Age

2 Digital Global Business Connectivity

3 Connecting with Global Markets and Customers Digitally

4 Connecting with Global Partners, Platforms, and Ecosystems Digitally

5 Connecting with Foreign Subsidiaries and Managing Global Activities Digitally

6 Connecting with Global Innovation and Knowledge Digitally

7 Internationalizing Business Models Digitally

8 Global Entrepreneurship in the Digital Age

9 Managing Risks in Digital Global Business

10 Digital Intelligence and Digital Resilience: Putting Digital Global Business Connectivity into Practice

Acknowledgments

Notes

Index

Series Foreword

The world does not lack for management ideas. Thousands of researchers, practitioners, and other experts produce tens of thousands of articles, books, papers, posts, and podcasts each year. But only a scant few promise to truly move the needle on practice, and fewer still dare to reach into the future of what management will become. It is this rare breed of idea—meaningful to practice, grounded in evidence, and built for the future—that we seek to present in this series.

Robert W. Holland Jr.

Managing Director

MIT Sloan Management Review

Foreword

When Satish and Yadong invited me to write a foreword for this insightful book, my team and I had just presented Unilever’s accelerated digital transformation strategy to the board. Timing is everything, or toeval bestaat niet, as we say in Dutch (there is no such thing as a coincidence)! A year had passed since I had been appointed to the role of chief digital and marketing officer (CDMO), a position newly created to transform Unilever into a future-fit, purpose-led digital organization at the leading edge of marketing, serving our multistakeholder model while keeping consumers front and center.

Many have asked me whether I think it is good or bad timing that I started my role just weeks before the onset of the COVID-19 pandemic, which suddenly made everything more volatile, uncertain, ambiguous, and complex. There is a strange dichotomy in the fact that though 2020 was filled with many growing and continued hardships, which had a personalized impact on everyone, at the same time, from a professional perspective, the pace of change, the acceleration of existing trends, and the creation of new ones filled me with energy, focus, and a clear sense of direction.

After instinctively putting the safety of our people first, we then carefully considered the key trends that are likely to shape consumer priorities and behaviors in the future normal and, in turn, our strategies and practices to add value in the market. Two such trends are worth pointing out: the e-commerce boom and the rise of the cautious and conscious consumer. These trends did not originate due to the pandemic; rather, the pandemic accelerated what has already been happening for some time now.

With greater numbers of consumers preferring to shop online globally, e-commerce rapidly accelerated by over 60 percent year on year for Unilever. I fully expect this consumer behavior to keep growing in trend, giving rise to new market opportunities—from pure digital plays to omnichannel strategies, both requiring greater levels of innovation in product and brand offerings, not to mention higher consumer expectations for brand experiences online. We are already witnessing a surge in data-driven marketing to meet new and more personalized demands. It is also clear that the rise of e-commerce demands more operational flexibility at all levels of an organization—for example, supply chains that can accommodate smaller minimum order quantities, more frequent runs, and more bundling, or innovations needing higher value density, leading to further concentration in, say, home care products. Thus, e-commerce calls for end-to-end digital strategies that incorporate not just marketing and sales but also R&D, supply chain, analytics, and factory operations. This only strengthens the imperative to build a truly digital organization.

The second trend of a more conscious and considerate consumer increases the emphasis on the dual nature of value. In times of uncertainty, people often choose brands they trust, for both their value and their values. Value in terms of offering the right value equation and remaining affordable, and values in the sense of having a point of view that drives action on matters people truly care about. Brands are now expected to be active partners in serving both consumer and societal needs, and businesses are trusted to do so. The 2021 Edelman Trust Barometer revealed that business is the only institution deemed competent and ethical, while trust in other institutions, like governments and media, is down. It is therefore the responsibility of business to rise to the occasion and live up to the trust instilled in us by the people who buy our products.

Digital is an important part of our ability to deliver on both value and values. Digital connectivity and data analytics allow us to develop a deeper set of insights about the issues and concerns that our consumers hold as important, both globally and locally. Digital also enables us to adapt our brand and operational strategies to ensure we contribute meaningfully with solutions.

As Satish and Yadong clearly lay out in this book, concerns about income inequality, job loss, and national security in recent years have led many countries across the world to adopt protectionist measures and policies related to trade and investment. Navigating such an international business context, in which globalization and deglobalization forces coexist, can be challenging for most multinational companies. The notion of tight and loose coupling is helpful for understanding how a multinational company can organize itself digitally to accommodate both globalization and localization forces. It implies that a company’s global digital connectivity with its customers, business partners, ecosystems, and operations can be calibrated to fit the unique needs of a region or market and help realize the right balance of efficiency, flexibility, and agility. One thing is for certain: the way we act upon these polarizing trends requires a big shift in multinational organizations. Digital is an important part of addressing this puzzle. It serves as the engine for rapid expansion globally while enabling more flexibility, agility, and responsiveness locally.

And though digital is an important part of the solution, I would be amiss not to point out the critical role of people, our employees, and their capabilities in achieving all this—a theme that the authors explore at length in the last chapter of this book. Equally important is the right leadership and a compass to guide the transformation. At Unilever, we act to make sustainable living commonplace based on our three beliefs: brands with purpose grow, people with purpose thrive, and companies with purpose last. These beliefs are our compass in the transformation we have embarked upon, guiding every decision for our consumers, our people, our brands, and our business. I agree with the authors’ notion that senior executives who can provide a clear sense of direction and an inclusive vision for value creation—one that allows for more freedom in how such a vision is realized in practice in different regions and markets—are likely to find greater success.

The journey of transformation is an exciting adventure. I am confident that the concepts, tools, frameworks, and rich examples and case studies outlined by Satish and Yadong will act as a helpful guide to anyone embarking on this journey.

See you in the future!

Conny Braams

Chief Digital and Marketing Officer, Unilever

1

Globalization in Transition in the Digital Age

The dawn of modern globalization can be traced to the year 1000 AD.¹ That is when the Viking explorers left their homeland, crossed the North Atlantic, and reached the island of Newfoundland, connecting preexisting pan-American trade routes established by Cahokians and Mayans with those of Europe, Asia, and Africa, thereby creating new pathways that bound together different parts of the globe for the first time and facilitating movement of goods, people, and information.

Over the past thousand years or so, the nature and the contours of globalization have changed significantly, as have the key players (countries) and their motivations. And, importantly, the forces that drive globalization have also changed. The early efforts in establishing international trading posts across Asia, Africa and South America and in stitching together regional supply chains as part of the colonial economy were driven largely by advances in maritime technologies. The first industrial revolution brought about another wave of globalization facilitated by new modes of transportation (steamships, railroads), new means of production (industrial age machines), new trade routes (Suez Canal, Panama Canal), and new communication technologies (transatlantic cables). Following World War II, newer waves of globalization were launched as a result of novel institutional structures (World Trade Organization, European Union), international transport innovations (airplanes, container shipping), revolutions in manufacturing (mass production) and telecommunication technologies (satellite communication), and even managerial innovations (multidivisional structure).

Arguably, all of these forces have led to a gradual and largely predictable advancement in both the scope and pace of globalization, particularly over the last century. Indeed, starting from about the 1950s, the number of multinational enterprises (MNEs) and their global footprints have grown at a steady clip. For example, in the 1960s there were roughly seven thousand MNEs, but this grew to about thirty-eight thousand by the end of the millennium.

However, in the past decade or two, something unprecedented in the history of globalization has taken shape. As a 2019 World Economic Forum report noted, globalization seems to be on steroids.² Not only is the number of MNEs increasing exponentially (e.g., in the ten years from 2000 to 2010, the number of MNEs almost tripled to over one hundred thousand),³ but MNEs also now account for half of global exports, almost one-third of world GDP, and about one-fourth of world employment.⁴ More importantly, many companies are now able to expand their global footprint on a pace and scale unheard of, and some are being born global. For example, Airbnb, founded in 2008, expanded its operations into more than 191 countries in less than ten years, while Uber, launched in 2010, took only about eight years to establish a footprint in more than sixty-three countries. OYO, an Indian hotel chain launched in 2013, has transformed into being one of the world’s largest and fastest growing chains of leased and franchised hotels, homes, managed living, and workspaces, with presence in more than eight hundred cities in eighteen countries around the world. By contrast, Marriott International, a Maryland-based hospitality company that established its hotel business in 1957, took seventy years to expand its international footprint to about 130 countries. Similarly, it took Wyndham Worldwide, started in 1981, thirty years to expand its presence to around sixty-six countries, while Hilton Worldwide, started in 1919, took even more time for its global expansion to 104 countries.

What is driving this new rapid upward trajectory in globalization? The short answer is digitization.

Advances in digital technologies—from the internet and mobile computing to artificial intelligence (AI), the Internet of Things (IoT), virtual reality (VR), and blockchain—have forged new pathways to bind different parts of the world, new information pathways, thereby inaugurating a new era in globalization, digital globalization.

Digitization has allowed companies to create, deliver, and appropriate value in novel ways that are largely agnostic to national and geographical borders. Indeed, digital globalization connects international businesses and markets through flows of data, expertise, and intellectual assets and through flows of goods, services, and capital that are digitally enabled or supported. Digital technologies have also allowed more diverse sets of actors to participate in cross-border transactions than ever before, from new ventures and small businesses to multinational enterprises, enhancing the scope and reach of globalization.

And the faster-than-normal speed in global expansion is not limited to digital natives such as Airbnb, OYO, Uber, and Ola. Companies that deal with physical goods and services are also enjoying accelerated international expansion due to digitization. Take the case of Xiaomi, a Beijing-based handset and smartphone manufacturer. The company, which launched its flagship Mi1 line only in 2011, started its international expansion in 2014 by moving into growth markets such as Singapore, Russia, India, and Indonesia. In the few years since then, the company has rapidly expanded its global market share by expanding into more than eighty foreign markets, including Western Europe and South America (Mexico and Brazil). In India, Xiaomi is one of the more popular smartphone manufacturers, holding close to 30 percent market share.⁵

Similar experiences are evident in other established product-based companies too. For example, Philips Healthcare, a division of the Dutch conglomerate Royal Philips, accelerated its international growth, especially in emerging economies, with the launch of its HealthSuite digital health platform.⁶ Similarly, multinationals such as Bayer, Johnson Controls, and John Deere have all pursued rapid digitization of their offerings and operations and enjoyed greater than normal growth in international markets.

More broadly, the convergence of digitization and globalization has created a new normal of global connectivity—one that is marked by deeper, broader, and more intricate interconnections among nations, businesses, and individuals. Digital technologies, platforms, and infrastructures are geographically unbounded, and when a company’s products, services, processes, and business models are enabled by or embedded in these technologies, their portability and scalability are enhanced, making international expansion easier, cheaper, and faster. And if the globalization forces are all aligned correctly, companies can experience rapid growth in their global footprints. For example, Airbnb’s digital platform (and accompanying business model) is highly portable across national and regional boundaries, enabling the company to copy and paste its digital global strategy and operations into remote corners of the world. At the same time, globalization has led to an exploding global tourism industry, especially in emerging economies in Asia, Africa, and Latin America, which has driven up the demand for the company’s offerings. While the COVID-19 pandemic has acted as a damper for international travel and tourism, in the longer term, according to the World Travel & Tourism Council (WTTC), travel to emerging economies is expected to increase at twice the rate of travel to advanced economies, a growth that companies such as OYO and Airbnb are well positioned to exploit.

Yet the promise of such digital globalization is increasingly being hampered by the emergence of an alternative narrative of deglobalization—localization and geopolitical nationalism.

It is true that over its thousand or so years of history, globalization has waxed and waned, driven by a host of factors—from wars and conquests to pandemics and trade disputes between nations. For example, World War I led to the collapse of interbank cooperation and expansion of controls on trade, migration, and agriculture and effectively put an end to the international economy led by Great Britain. The resulting deglobalization was further accentuated by the Great Depression in the 1930s and led to a significant collapse in international trade and capital flows.

In recent years, however, concerns about income inequality, job loss, dislocation, national security, and illegal immigration have shifted the conversation about global trade and investment away from a focus on economic benefits and toward more protectionism. This shift is remarkable in two respects. First, unlike in the 1930s, when deglobalization decisions were largely driven by autocracies, this time they seem to have originated in democracies across the world.⁷ For example, several nations, including prior champions of free trade such as the United States and the United Kingdom, have adopted tit-for-tat tariff escalation moves and enacted policies to restrict foreign corporate mergers, immigration, and international data transfers. Similar protectionist measures have also taken hold in the largest democracy in the world, India. While some of these policies may go away with changes in governments, the broader protectionist trend is unlikely to disappear until the underlying causes also go away. For example, as US Federal Reserve Chair Jerome Powell noted in late 2020, while technological advances are going to be positive for societies in the long term, in the short to medium term the pains due to such forces are likely to affect certain parts of the society more, increasing income inequalities and sustaining the reasons for protectionist measures the world over.⁸

Second, digitization itself has become a factor driving some of these deglobalization decisions as concerns about digital colonialism and digital sovereignty assume center stage in many parts of the world. For example, within the EU, there are serious concerns that non-EU-based companies such as Google and Amazon may come to dominate entire sectors of the EU economy, depriving member states of their sovereignty in areas such as data protection and taxation. Similarly, the growing reliance on digital infrastructures and equipment from non-EU-based companies—such as the Chinese 5G infrastructure—has raised critical cybersecurity and national security concerns.⁹ If data is indeed the new oil, then there is no doubt that the continued absence of effective worldwide regulations will lead to more such concerns and the ensuing protectionist measures across the world.

This negative geopolitical narrative of growing protectionism is reflected in globalization metrics that indicate slowdown in global trade, capital flow, and foreign direct investment (FDI). As per the 2018 DHL Global Connectedness Index report, if the world had really become flat and such trade constraints no longer mattered, international trade, capital, information, and people flows would be expected to travel 67 percent further than they do today—thus providing tangible, data-based support for the impact of the new geopolitical reality of regionalization and localization.¹⁰ Such localization and nationalism that has taken root in many parts of the world, including parts of Asia, Europe, Africa, and South America, presents new and complex challenges for multinational companies as they ponder their next international business expansion moves.

Importantly, the COVID-19 pandemic has severely impacted both of these narratives—both digital globalization and deglobalization/localization. On the one hand, a key outcome of the pandemic has been a transformative growth in the adoption or use of digital technologies the world over. For example, it has been estimated that consumer and business digital technology adoption vaulted five years forward in a matter of around eight weeks.¹¹ From lights-out factories (fully automated, hands-off operations) and remote sales to remote work (working from home), telemedicine, and online education, digital technologies have penetrated the creation, delivery, and consumption of value in all types of industries. This is evident in all parts of the world and across all segments of the population. Consider the following statistic. In the US, it took a decade (from 2009 to 2019) for e-commerce penetration (by percentage of retail sales) to increase more than ten percentage points from 5.6 percent to 16 percent. However, the next ten-percentage-point increase took less than eight weeks: it grew to 27 percent by the end of April 2020.¹² Similarly, in India, the use of digital apps and smartphones by smallholder farmers surged so much during the COVID-19 quarantine period (April to May 2020) that the growth in adoption that was expected to happen in two to three years occurred in a month or so.¹³ Indeed, the profound impact of such an exponential pace of digitization experienced by the global economy may force future business historians to study globalization in terms of two different eras: BC (before COVID-19) and AC (after COVID-19).¹⁴

On the