Whatever Happened to Globalization?

The gurus of globalization keep insisting that the world is getting smaller. So why does it keep getting harder to make sense of what's happening in the new world of business? As recently as 10 years ago, most business leaders thought that they had figured out the logic of global competition. The 21st century would belong to Asia, whose fast-growing economies would eclipse the slower-growth markets of Europe and North America. The 21st century would belong to Japanese companies, which had perfected a model of management that their U.S. rivals were scrambling to copy. The 21st century would belong to a small collection of dominant global brands, as ever-higher barriers to entry would put even the most savvy entrepreneurs at a crucial disadvantage.

What a difference a decade makes! Asia is in retreat, Japanese companies are struggling to mimic their American rivals, and the Internet has unleashed an explosion of startup-driven challenges to established players in almost every industry.

Martin Sorrell, 54, chairman and CEO of WPP Group PLC, has enjoyed a bird's-eye view of the changing logic of global competition. Back in 1986, he left the high-flying British ad agency Saatchi & Saatchi, bought a shopping-cart manufacturer -- Wire and Plastic Products PLC -- and turned it into a vehicle for assembling one of the world's most powerful advertising conglomerates. He acquired J. Walter Thompson and Ogilvy & Mather. He bought the public-relations giant Hill & Knowlton and moved his company into management consulting. Today, WPP is a marketing-services colossus, with 33,000 employees, revenues of $3.2 billion, and offices in 92 countries. Its clients include several of the world's most powerful companies -- Ford, IBM, Unilever -- and its operations affect some of the world's best-known brands.

How does Sorrell decode the logic of competition at the turn of the century? "What we're experiencing is not just the globalization, but rather the Americanization, of the world economy," he says. "You see this in every industry: The strongest global franchises belong to companies that have strong franchises in the United States. If you're not strong in the United States, it's hard to be strong elsewhere." The real promise of globalization, he adds, has less to do with "leveraging economies of scale" -- selling the same products the same way all around the world -- than with "leveraging economies of knowledge and coordination": developing, refining, mastering, and implementing cutting-edge business ideas. "That's why America is so important," he says. "For the time being, at least, the United States is where we are creating the most knowledge about how to compete in the future, how to market in the future, how to use the Internet to reshape entire industries."

But even as his company prospers -- its share price has more than doubled since 1997, and its market value exceeds $6.5 billion -- Sorrell worries about the leadership challenges that globalization poses. "Are we building organizations that are unmanageable?" he wonders. "Every CEO wants to run a company that's totally focused on its customers. Every CEO wants to instill a can-do spirit, a sense that nothing is impossible. Every CEO wants to run a business that has not only the power of scale but also the soul of a startup. But bureaucracy gets in the way. The big-company way of doing things gets in the way."

In an interview with Fast Company, Martin Sorrell reckons with the promises and the perils of globalization -- for companies, for leaders, and for employees.

Your company has offices in 92 countries. Your clients control some of the world's best-known brands. What's your current thinking on the status of globalization?

What we're experiencing is not just the globalization, but rather the Americanization, of the world economy. You see this in every industry: The strongest global franchises belong to companies that have strong franchises in the United States. If you're not strong in the United States, it's hard to be strong elsewhere. To dominate an industry -- whatever the scale, whatever the business -- you simply have to have strong representation in the United States.

There are so many examples. All of the professional services -- auditing, accounting, consulting, investment banking -- really are dominated by American companies. Morgan Stanley and Goldman Sachs today control the lion's share of the world's M&A transactions. Just those two firms! Meanwhile, some powerful European brands -- Morgan Grenfell and Warburg -- have virtually disappeared overnight. What does Deutsche Bank, which owns Morgan Grenfell, do about that? What does UBS (Union Bank of Switzerland), which owns Warburg, do about that? The leading European franchises need to be asking themselves those kinds of questions.