Whatever Happened to Globalization?

You can see the extent of Americanization very clearly in my own business. My home base is London. But at WPP, we run our operations from New York. Why? Because that's where the power is, that's where the knowledge is, that's where the expertise is. Take the advertising business, which accounts for about 50% of our total operations. In terms of expenditures, something like 40% to 50% of worldwide advertising is done in the United States. But I'd argue that as much as two-thirds of all advertising takes its cue from the United States -- and, in particular, from a compact corridor that starts in New York, passes through Detroit, and stops in Chicago. In this corridor are most of the world's most powerful agencies and many of its biggest advertisers. You cannot be a major global player in the advertising business and not have a major presence in that part of the world.

Now, please don't misinterpret my remarks. I am not suggesting that companies should worry only about the U.S. market. If you are the CEO of a major company and you are under pressure to improve your earnings by 20% a year -- and to keep increasing your return on capital employed -- then you have no choice but to spread your business around the world. The Asian markets will continue to be a major force for growth. By the year 2020, nearly 55% of the world's population will be from the Asia-Pacific region. I just got back from a tour of India, Thailand, and Singapore. It's hard to come away from that part of the world without a sense that this will be an increasingly significant market. Especially China. For us, if you exclude our investment in Asatsu (which is the third-largest ad agency in Japan), China will surpass Japan this year as our number-one Asian market: Our billings in China will be bigger than our billings in Japan. So we ignore the rest of the world at our peril.

That's a remarkable mind flip, given how people saw the world as recently as 10 years ago. What's changed?

The original idea of globalization -- or at least the way that most marketers thought about globalization -- was invented by Professor Ted Levitt, of Harvard Business School. His argument (and I'm simplifying, of course) was that companies could basically apply the same marketing methods everywhere, because consumers were becoming more and more alike. In fact, I believe that consumers are more interesting for their differences than for their similarities. No more than 15% of the business that we do at WPP is truly "global" -- if by "global" you mean that we use the same marketing methods throughout the world.

The power of globalization is not about leveraging economies of scale. It's about leveraging economies of knowledge and coordination -- figuring out how not to reinvent the wheel everywhere you do business, how to benefit from knowledge created and knowledge shared. Again, that's why America is so important. 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.

When you combine the competitive dominance of established U.S. companies with the explosion of startups on the West Coast, you end up with something that's very powerful. You can't explain what's happening at Cisco, Dell, Schwab, Intel, and IBM without recognizing that we are living through a fundamental change in how companies operate. It will be interesting to see how the U.S. lead in digital technologies does or does not reinforce America's global position.

You paint a picture of tremendous competitive power. Of course, power tends to breed arrogance, and arrogance invites competition. Are U.S. companies about to get a comeuppance?

There are enough competitive threats out there to keep even the most successful big companies from becoming arrogant. The real challenge is more profound: Are we building organizations that are unmanageable? 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. Every CEO I know worries that his or her company is becoming slow, bureaucratic, lazy, unresponsive. That's always been a problem, of course. But this problem has never been more urgent than it is today.

Why is it more urgent now?

Because the people at the so-called "bottom" of an organization know more about what's going on than the people at the top. The people in the trenches are the ones in the best position to make critical decisions. It's up to leaders to give those people the freedom and the resources that they need to make those decisions. Let's face it: CEOs of big companies rarely get told the truth. We are surrounded by people whose job it is to look after us, to make our lives easier. For the leader of a global organization, it's all too easy to get out of touch with what's really going on.