Chapter 1

International Business: Shifting

Contexts, Changing Priorities

1.1. lntroduction
The global economy was 'fragile, handle with care' already, according to the World Bank Qanuary
2020) without the subsequent pandemic and economic downturn, and its highly damaging and
unpredictable consequences. What followed was a demonstration of what had been accumulating
for a long time, without governments, businesses and analysts taking it seriously enough. Even by
mid-2020, based on China's earlier recovery and experiences, some were speaking of the '90 percent
economy' for some time to come, possibly years. The crisis underlined that we now, throughout
the 2020s, will live in an uncertain, volatile, highly connected world replete with systemic risk.
As we discuss below, globalisation and technological change have raced ahead of our institutional
capacity to shape, assess and respond to our changing human-made and natural environments. But
in this chapter we argue that none of this showed that global business management had become
unmanageable. Rather, for international businesses, it underlined that strategic and operational
management-their quality, adaptiveness, and foresight-really did make a significant difference.

This chapter sets the frame for looking, in-depth, at how to manage the major operational areas of
an international business. We look at the recent slowdown in globalisation and the implications
and impacts for the global economy and trade. We establish the mixed, challenging prospects
for the global economy-even before the 2020 pandemic hit. The massive impact of the ensuing
crisis is then detailed, and we assess the diverse short-term and long-term business responses.
The chapter then focuses on the management lessons from 2020-2021, including the role of
environmental analysis going forward, and the need for resilience and adaptivity in strategy and
operations.

13
 International Business: Shifting Contexts, Changing Priorities

1.2. The Pre-Crisis Shift: From Globalisation to 'Slowbalisation'

There have been three waves of globalisation in ehe modern era. Tue fir st spanned the 1870-19 14
period; ehe second took place becween 1945 and 1989; and ehe third wave's 'golden' era was from
1990 eo 2008. Commerce expanded as ehe cost of shifting goods in ships and planes decreased;
phone calls got cheaper; tariffs were reduced; and ehe financial system increasingly liberalised and
deregulated. International activity greatly expanded as firms set up around the world, investors
moved to global operations, and consumers were offered an increasing range of goods and services
sourced from many parts of ehe globe.

But from 2010 to 2020, following ehe 2008-2009 financial crisis, we saw a shift towards what has
been called 'slowbalisation'-a new era of sluggishness marked by cross-border investmenc, trade,
bank loans and supply chains all shrinking or stagnating as part of world GDP. Tue period saw
many countries become more protectionist.

One response by global companies has been eo shrink back to their domestic or regional bases.
Multinationals did much less weil in ehe new climate after 2010. In 2016 multinational cross-
border investment feil by 10-15 percent. Tue share of trade accounted for by cross-border supply
chains had stagnated since 2007. Meanwhile multinationals' profits have been falling. Global
integration had offered huge potential for economies of scale. But in fact ehe profits of ehe top
700 multinationals firms based in developed economies dropped by 25 percent between 2012 and
2017, wich worldwide return on equity (ROE) being only eight percent in 2017. Multinationals
in emerging countries fared little better. By 2017 their return on equity was eight percent.
Multinationals were no longer achieving superior performance, and international sales and profits
were inferior to domestic returns.

Why was this? In brief, ehe advantages of economies of scale and arbitrage from global sourcing
practices had worn away. Tue cost of moving goods had stopped falling. Protectionist policies
by countries and economic unions continued to tighten into 2020-2021. While technology
companies continued to be a bright spot, or many industrial, manufacturing, financial, media,
celecoms, and natural-resources firms, global reach had become a burden, not an advantage. This
crend has not looked like changing over the 2021-2025 period.

Multinational firms found that being spread around ehe global had become expensive, arid chat
local rivals had developed, wich many advantages arising from operating from a domestic base.
Activity has also been shifting towards services, which are harder eo seil across borders. And China,
as ehe manufacturing factory of ehe world, has become more self-reliant; China needs to import
fewer parts, and has been developing its domestic markets for good and services. China's recovery
from ehe 2020-2021 crisis was also earlier, faster and bigger chan for other major economies.

14
 International Business: Shifting Contexts, Changing Priorities

Globalisacion may have been making ehe world a better place for many, but globalisacion's coscs had
not been fully obvious until recent years. Tue work of integrating and globalising businesses and
economies had been neglecting all too many problems. Tue resulc, according eo ehe The Economist
(2019a), has been 'slowbalisation'-the process of slowing down, even reversing chese major
crends.

There is a loc of evidence for chis. For example, geopolicical rivalry has been strong in ehe
cechnology industry, which accouncs for abouc 20 percenc of world stock markets. Rules on
privacy, data, accounting, antitrust and espionage concinue to splincer. Tax systems are being
redesigned to favour the individual councry or economic bloc. This could be clearly seen in
the USA's behaviour towards most countries during the 2016--2020 Trump administration-
particularly towards China, though the new Biden presidency moved throughout 2021 towards
multilateralism, and less extreme protectionist policies. Meanwhile Tue European Union (EU)
targeted Silicon Valley, while both the USA and EU developed new regimes for vetting foreign
investment. Meanwhile China concinued-despite protestations-not eo give many foreign firms
a level playing field. All this had effects on firms' long-term investmenc plans, as they sought to
lower their exposure to countries and industries that carry high geopolitical risk or face unstable
rules. Adjustments began several years ago. For example, Chinese investmenc inco Europe and
America feil by 73 percent in 2018. Tue global value of cross-border investment by multinational
companies sank by abouc 20 percent in 2018, and this pattern concinued across 2021.

Whac does all this mean for international business? 'Slowbalisation' has led to deeper links within
regional blocs. Supply chains in North America, Europe and Asia had already been sourcing
increasingly from closer to home. As The Economist (2019b) suggested, it had become a bumpy
world and, despite the earlier belief in hyper-globalised supply chains, 'the world is not flat.' In
Asia and Europe most trade by 2021 was intra-regional, and thac share had been rising since
2011. From 2017, Asian firms have been making more foreign sales within Asia than in America.
lt is likely that global trade and investment rules will disaggregate further into more fragmented
regional deals and influence, as could already be seen in the EU's actions over banking, technology
and foreign investment, for example. For several years, China has been much more active in
seeking regional trade deals, while expanding its technological firms across Asia.

All this may not be a disaster for living standards, and the benefits gained from globalisation have
been considerable and not easily reversed. But the slowdown in globalisation, exacerbated by the
2020-2021 crisis, created at least three new difficulties. Firstly, between 1990 and 2010 most
emerging countries were able eo close some of the gap between them and developed economies.
Trading their way to future prosperity has become that more difficult. Secondly, there are also
tensions between a more regional trading pattern, on the ·one hand, and a global financial system in

15
 International Business: Shifting Contexts, Changing Priorities

which the USA-through Wall Street and the Federal Reserve-set the pace for markets lob
Most countries' interest rares will still be affected by those of the USA even as their trad g aliy.
become less linked to the USA, thus creating financial turbulence. Meanwhile, the Fed:r~a~rns
has become much less likely to bail out foreign nations and corporates by acting as a global l serve
o f 1ast resort, as it used to do only a decade ago. ender

Thirdly, it was also unlikely that 'slowbalisation' would fix the problems that globalisation and
technological progress have helped to create. For example, climate change, migration and tax
dodging will become even harder to solve without global co-operation. From a USA perspe .
ctrve ·
is an interesting question whether 'slowbalisation' will weaken and contain China, or actually '. It
assist
China to achieve regional hegemony much faster. Tue belief that reducing global sourcing, and
bringing work back from abroad will boost domestic employment may well be countered by the
rise of automation reducing the need for much low-skilled, blue collar work in the USA and West/
Central Europe. Tue 2020-2021 crisis only added further complexities and challenges to these
multiple dilemmas.

1.3. 'Ihe Global Economy: Pre-Crisis Prospects

Where had the global economy got to by January 2020? AJuly 2019 IMF report had forecasr
economic growth at 3 .2 percent in 2019, picking up to 3.5 percent in 2020. Tue projected growth
pickup in 2020 was adjudged precarious, and dependent on stabilisation in stressed emerging
market and developing economies, and progress toward resolving trade policy differences. The
IMF pointed out other risks and downsides. Further trade and technology tensions could dent
sentiment and slow down investment. A protracted increase in risk aversion would expose ehe
financial vulnerabilities continuing to accumulate after years of low interest rates. Mounting
disinflationary pressures increased debt service difficulties, constrained monetary policy space to
counter downturns, and made adverse shocks more persistent than normal.

The IMF report also suggested that multilateral and national policy actions were vital to place
global growth on a stronger footing. Tue pressing needs included reducing trade and technology
tensions and expeditiously resolving uncertainty around trade agreements (including between ehe
United Kingdom and the European Union, and the free trade area encompassing Canada, Mexico,
and the United States). For the IMF, the major priorities across all economies had tobe to enhance
inclusion, strengthen resilience, and address constraints on potential output growth. Note that
none of this was able to take into account the degree to which the coronavirus pandemic oflare
2019-2020 would have an adverse impact on globalisation and cross- border coordination tre nds
into the 2020s.

16
 International Business: Shifting Contexts, Changing Priorities

According to Tue World Bank, by January 2020 the global outlook was 'fragile, handle with care',
(World Bank, 2020). Global growth was expected to recover to 2.5 percent in 2020 and edge up
further subsequently. Downside risks predominated, including the possibilicy of a re-escalation of
global trade tensions, sharp downturns in major economies, and financial disruptions in emerging
market and developing economies (EMD Es). All this presented policy challenges compounded
by high debc levels and subdued productivicy growth. How to reignite productivicy growth in
the face of a broad-based global slowdown in labour productivicy since the 2008-2009 crisis?
Countries and firms needed to facilitate investment in physical, intangible, and human capital;
encourage reallocation of resources towards more produccive sectors; foster firm capabilities to
reinvigorate technology adoption and innovation; and promote growth-friendly macroeconomic
and institutional environments (World Bank, 2020). EMD Es were parcicularly vulnerable to the
debt build-up since 2011; !arger, faster and more broad-based than ever before. Low interest rates
were mitigating some of the risks associated with high debt. However, EMD Es also faced weak
growth prospects, mounting vulnerabilities, and elevated global risks.

In summary, as the global economy entered 2020, and even before ehe pandemic crisis struck,
the international business context was very challenging indeed. Bur as international businesses
attempted to come to terms with a 'fragile, handle wich care' global economy, ehe COVID-19
pandemic scruck, together wich an ensuing economic downturn. This threw ehe plans and
prospects of most businesses across ehe globe into serious disarray.

1.4. Tue 2020 Crisis: Worse than Tue Great Depression?

All forecasting bodies were clear that major disruptions would occur. In April 2020 ehe World
Trade Organisation suggested that world merchandise trade was sec to plummet by between 13
percent and 32 percent in 2020 due to ehe COVID-19 pandemic. Meanwhile, in ehe same month,
ehe International Monetary Fund (IMF) projected global growth in 2020 to fall to -3 percent. This
represented a major downgrade of 6.3 percentage points from their estimate of +3.3 percent growth
just three months before. Within this general scenario, advanced economies would be hardest
hit with -6.1 percent negative growth. Emerging market and developing economies would have
negative growth rates of -1. 1 percent (-2.2 percent if China is excluded). But a note here: Recall
the precarious state of emerging market and developing economies mentioned above. During
2020-2021 these faced additional challenges wich unprecedented reversals in capital flows if global
risk appetite declined, currency pressures, weaker health systems, and more limited fiscal space to
provide support. Moreover, several economies entered ehe crisis in a vulnerable state already, wich
sluggish growth and high debt levels.

All this would make ehe 2020 pandemic crisis ehe worst recession since ehe Great Depression from

17
 International Business: Shifting Contexts, Changing Priorities

1929 eo the late 1930s, and far worse than the 2008-2011 financial crisis, which ex:perienced
percent reduction in economic growth in 2009, though its impact stretched for a long period.\ 1
example, following rhe 2009 crisis, merchandise exports never returned to their previous levels or

All these were forecasts, of course, and, as such, open to revision in the face of accelerating even
. . . . . . ts.
Willcocks (2021) presented optimistic and more pess1m1st1c scenanos, pomnng out that any
2021
recovery in trade depended on the duration and depth of the outbreak, and the effectiveness of
the health and economic policy responses. The WTO and IMF projections assumed a V-shaped
economic recovery from late 2020 through 2021, at different rates for different economies. Bur
as Willcocks (2021) pointed out, given the high uncertainty around the duration and intensity ~f
the health crisis, the pandemic could lead to langer durations of containment, worsening financial
conditions, and further breakdowns of global supply chains. In such cases, global GDP would
fall even further. This would be more of a U-shaped recovery. The IMF suggested an additional 3
percenc fall in 2020, while, if the pandemic continued into 2021, an additional 8 percent decline
from their original +5.5 percent growth projection for 2021. Most research groups at this time
(May 2020) were not contemplating the most pessimistic scenario of an L-shaped depression, i.e. a
dramacic fall, with no recovery for several years.

The IMF also put Forward more optimistic scenarios. What if the pandemic faded in the second
half of 2020 and that policy actions around the world were effective in preventing widespread
firm bankrupccies, extended job lasses, and system-wide financial strains? In this IMF scenario
projected global growth in 2021 would rebound to 5.8 percent. But such a recovery in 2021 would
be only partial because economic activity would remain below the level the IMF had projected for
2021, before the virus hit. Most sources suggested a massive cumulative loss to global GDP over
2020 and 2021 as a result of the pandemic crisis-some projecting up to US$9 trillion. Tue better
news, by late 2020, was that a number of vaccines for the COCVID-19 virus had proved effective,
and these were indeed distributed on a mass scale beginning in the first half of 2021. Nevertheless
economic recovery and the pick up in global trade continued to be difficult and lengthy across all
the major economies, with some projections suggesting it would take the more damaged businesses,
secrors and countries several years to return to even their 2019 positions.

1.5. Global Business Management for Uncertain Times

Welcome, rhen, to what I am calling rhe new (ab)normal. We will point out the characteristics
of this new (ab)normal below, bur it would be all too easy to believe that a) 2020-2021 was an
unprecedented crisis, and b) that international business had become, and will be from now on, .
unmanageable. On ehe first point, the global economy has had a large number of global economic
and general crises over the last 100 years or so. Human-made disasters indude events such as t be
two world wars (1914-1918, 1939-1945); a series of economic downturns (for example, the i93os

18
 International Business: Shifting Contexts, Changing Priorities

Great Depression, 1997 Asian financial crisis, the 2008-2009 financial crisis); nuclear disasters (e.g
Chernobyl 1986, Fukushima, 2011). Note that, based on past patterns, the IMF expects a global
recession every 8-10 years. Natural disasters have included large impact crises from events such as
pandemics, earthquakes/volcanoes, and tsunamis. There is no indication that such events will not
occur in the future, and indeed some evidence that their scale and frequency may accelerate. Think
(to name but a few)-climate change impacts; water and energy crises; large-scale migrations;
geo-political shifts and tensions; conflicts over resources; economic turbulence; financial system
volatility; failing nation states.

On the second point, it is fair to say that global learning from previous crises has been considerable,
but hardly complete. Willcocks (2021) makes clear that the multilateral institutions developed
over many years to regulate and stabilise the world economy have made positive-but also contro-
versial-interventions, and sometimes have had too much influence, and more often not enough.
Different nation states have coped to varying degrees with crises, while the regional blocs to which
many countries now belong provide degrees of protection and common regulation, but, even by
the early 2020s, still seemed to be in coping rather than commanding mode.

Meanwhile, most international businesses were clearly outflanked by the 2020-2021 crisis. Some
were in the right industry at the right time. Others, like hi-tech companies and on-line retail,
stood to be inheritors of the future. Some went into the crisis in good financial health, and could
handle the damage-revenue loss, staff and work challenges, redundancies-and stabilise and re-
cover performance, and renew their forward plans and operating models. Some, relatively very few,
had built resilience and adaptive forward planning and execution that would see ehern emerge from
the crisis period stronger, with more sustainable advantage than their competition.

Tue problem can be briefly stated. Tue new (ab)normal had been developing for some time, but
most governments, analysts and businesses had not shifted mindsets, let alone created policies to
meet its emerging characteristics. What are these? Goldin and Mariathasan (2016) pinpoint the
new (ab)normal succinctly. We live in a more connected, complex and uncertain world. lnter-
connectedness has turned into complex interdependence creating uncertainty and systemic risk.
Globalisation and technological change have raced ahead of our institutional capacity, and how we
shape, assess and respond to our changing human made and natural environments. Below we put
forward design principles that address these challenges.

Tue pandemic and economic crises, then, were a demonstration of a general failure to entertain, let
alone take actions to mitigate, global systemic risk. But none of this showed that global business
management had become unmanageable. Rather it underlined that strategic and operational man-
agement-their quality, adaptiveness, and foresight-really did make a significant difference. Let's
look at this proposition in more detail.

19
 International Business: Shifting Contexts, Changing Priorities

Business Responses to the Crisis

Tue J"ob of management is to look after the short term in ways that not only protect b
' Ut also
.
enhance medium and long-term prospects. In contemporary busmess .
env1ronments th· .
1S IS
challenging even in periods of growth. During and after the 2020-2021 economic crisis th
.
serious dangers of many internationalb usmesses .
JUSt r·1·
rat mg. p rev10us
. d ownturns dem erewere
.
how difficult it is to survive, for any length of time, dramatic. falloffs m
. sales, having only
onstrated
_
36
months of inventory, customers defaulting on debts, running out of cash, and delays in de .
new products. For those businesses that survived there began the slow process of recovery M ve 1
op1ng
, . . · any
would return to short-termism, and an over-focus on todays busmess-euher out of desperation
or as a recurn eo habics of the past. This may be understandable, but would probably damage '
longer-cerm competitiveness.

In May 2020, in a short on-line survey, we assessed how large international organisacions
across sectors (n= 132) were planning, over 2020-2021, eo recover business, and leverage digital
technologies. We compared ehe results eo similar surveys during the 2000-2003 and 2008-2009
economic downcurns. From this we generated four likely scenarios shown in Figure 1.1. Some
qualifications. Firsdy, these were expectations, which, as in previous crises, would inevitably change
with time and new evencs. Secondly, these results, and ehe comparisons wich previous findings, are
suggestive, rather than statistically valid. Thirdly, ehe scenarios were not shown eo ehe executives.
Therefore, follows is an interpretation of their responses.

Coronavirus
Responses

'Sweat the assets' 'Slow the strategy'

SHORT LONG
TERM TERM

'Underpin today's 'Adapt strategy

business' and
build resilience'
1
- - - - - - PLAN : REFRAME - - - - - -

Figure 1. 1. Business Coronavirus Responses: Scenarios Responses: Scenarios

20
 International Business: Shifting Contexts, Changing Priorities

Let's look at each scenario in more detail:

• Sweat the assets-Prolong the life of legacy processes and technology; work staff
harder eo survive the crisis; shelve IT investments; cut marketing and operational
costs; make headcount reductions; outsource for cost savings.

• Underpin today's business-Focus on the short-term business imperatives of

keeping customers and finding new ones, while keeping the lid on costs; expenditure
limited eo technology, marketing and operational improvements that support these
goals; keep headcount costs under control with more use of outsourced and part-
times labour, and increased work automation.

• Slow the strategy--As in previous downturns, change the time-scale for delivering
the strategy, accepting that it is directionally correct, and will be supported, by
adequate finance and resources. This time, assume that some adaptations to strategy
will be needed both to get to recovery and after recovery, due to an increasingly
unpredictable business environment. Maintain planned technology investments,
albeit at a slower pace, and strengthen business continuity plans. But also invest in
automation where it supports short-term business performance.

• Adapt strategy and build resilience--Assuming a continuing strong fina:ncial

operational and market set-up; take the opportunity to invest in process, technology
and people eo ride out the crisis; shift business strategy and gain competitive
advantage on a five year horizon; ensure resilience in supply chains, mode of
operating; accelerate use of automation and digital technologies.

We found 30 percent of executives opting for 'sweat the assets', 35 percent 'underpin today's
business', 20 percent 'slow the strategy' and 15 percent 'adapt strategy and build resilience'.
A comparison with previous downturns offers some insights. In 2000-2003, 27 percent of
organisations went for a hybrid short-term approach, 48 percent slowed the strategy, and 25
percent built infrastructure. During 2008/2009 some 52 percent went for a hybrid, short-term
approach and, initially, 48 percent slowed the strategy, while none took a long-term reframing
approach. 2008-2009 was a deeper, more serious and longer lasting crisis than the 2000-2003
downturn. Many more organisations went for a short-term approach. As the 2008-2009
downturn lengthened and deepened we found organisations that slowed rhe strategy moving to
much greater prioritisation of short-term responses.

For 2'020-2021 rhere is a seeming paradox. Many more organisations this time were making a
short-term response (65 percent). However, many more were also adapting strategy and building

21
 International Business: Sh,'ftin g Contexts, Changing Priorities

d explain eh1s?
. The shon-termism reflects the changed
d more uncertatn,
.
resilience. How o we . dowmurns. Also the urgency, an depth of the 1
. rs since prevmus . s °"'da
dynamic busmess dcontex . h
mic resulted m ars er h shutdowns and more dramat1c fall-offs in bus·tnes, Wn
imposed by 0 • eh
panO e . tions taking a more long-rerm approach wer, in
ther hand the orgamsa ••onge
globally.
. . th n eh enteting the cnsis m go
' • • • od shape ' and/or were in 'winner'
. sectors. Intere "'%
.
posmons · roug'slow the straregy, eh'IS tim . e (lO percent) did recogmse that there Would need to '1
be adaptattons
those opa~g toconung . out Of th e downturn, exhibiting again a srrong sense of today's ltttcen•n.
dynamic global business environment.

Respondenrs across ehe board tg tg . .

Th h" hl" hted two factors thar received no profile in the two prei,;,
downrums. e rst was a h tg con
fi .
d . h cern for resilience, even where the execuuves d1d not fee! in
a goo positton
. . to but'ld this· lhe second was technology support for both . fi surv,vaI and SToWtl ·
Th d
e pan enuc pro e Vlrtu wor , . ..
d • fil d · al king and dependence on technology m rastructure. lt also
teste -posiave y- ow e . . .
· · l h th se technologies could provide operational resd1ence. We would also
point ro two other inßuences on the changed managerial mindset the rapid stndes husu,- had
made in utifüing
previous decade. technology, and the tise of increasingly capable digital technologies, over the

Some further commenr. In this crisis more organisations were taking emergency measures (swe,1
the assers). lf they were successful, we expected them to then take further action to underpin
today's business in the economic recovery period. We have seen these initial, May 2020, position,
evolve. Just as in the 2008-2009 downrurn, organisations in the 'slow the straregy' mode
increasingly moved to more shorr-term measures to securing today's performance. lhose adapring
sttaregy and building resilience already had the capaciry to look after currenr business health, whik
planning and huilding for the long term. Cenainly, the businesses that came out of the crisis betto
were those who fdt more capable, even in mid-2020, of having long-term plans. Bur therewa,
over-confidence here as a second wave of the virus hit the global economy in late 2020.

lhe grear corporare solace in all this seemed tobe the increasing faith in digital technologies to
align With and supporr business posrure. Even those swearing the assers were still buying more
technology where they
st had no alternative, primarily for home and remore working, automation
of processes lacking aff. lhe key here was to automare and digitise the existing operating model
lhose looking to improve business performance went further and couJd be quite opponunistic;
often •ixelerating previous planned invesrments (parti' ul l . . alytics cloud, and
. . c ar y m automat1on, an ,
social media and cusromer
st facing processes) in order to fulfi) shon-term business imperatives.
Among,r rbe 'slow tbe rategy' corporations,
to the same exrent, if at all· in som •
interestingly,
l
technology invesrment was not siowed
Th crisis
seemed to acc as a wake-up' call · ·e ·cases
· lt . . . and not just for the short term.l
acce erated, e( ee also
' tntttattng • re-pr,orttrsarion of digital transfonnarion Pans s
 International Business: Shifting Contexts, Changing Priorities

Chapcer 9). Meanwhile chose adapting stracegy were looking afcer ehe shorc cerm wich stronger
cechnology, while investing furcher in technology infrascruccure and digital technologies co allow
scracegic flexibiliry and organisational resilience going forward. In ehe recovery, organisations did
emerge more technologised chan ever before, but some were much beccer placed competitively than
ochers, parcly because of cheir cechnology policies before and during the crisis.

1.6. Management Learning from the 2020-2021 Crisis

Every crisis is, amongst many ocher things, also an opportunity for learning. Some fundamental
questions are: How did we get into chis in the first place? Whac worked? What do we do
differencly from now on? Focusing just on international business, chis section looks at the role and
furure of environmental analysis, adaptive scracegy, and adaptive operacions.

Environmental Analysis Moves Centre Stage

Tue 2020 crisis underlined ehe value of regular environmental scanning and analysis co inform
adaptive stracegy. Willcocks (2021) described several highly useful tools for environmental
analysis. Ghemawac's CAGE (Culcural, Administrative, Geographical, Economic) distance
framework will be even more continually applicable as ehe global economy experiences heightened,
complex trends cowards both globalisation and localisation. Tue PESTEL (Political, Economic,
Socio-cultural, Technological, Environmental and Legal) framework is even more comprehensive.
Clearly, social faccors included accelerated moves to home and remote working, and potentially
long-term, shifcing attitudes and preferences amongst consumers and workforces. On ehe political,
economic and legal fronts, we saw, during 2020 and 2021, massive government intervention in the
conduct of business. This was contrary to globalisation's main direction of travel. Politically and
legally, governments cook on more command and control functions. Economically, governments
moved to support faltering economies and businesses.

However, Willcocks (2021) also pointed out that ehe pandemic crisis brought new prominence
co specific faccors. Global businesses now need CO faccor in much more seriously chan ever before
technological factors. Technology proved not only very supportive-in business terms-during
ehe crisis, but technology and hi-tech companies were among ehe inhericors of the future, following
the pandemic. Many businesses have accelerated their digital transformation, and their adoption
of what we ca!! SMAC/BRAIDA1 technologies. Tue reasons: to build resilience against future
unpredictable risk, and also co recover economic performance by becoming more cost efficient,
while driving revenues and competitiveness (see Chapter 9).

The acronym stands for Social media, Mobile, Analytics, Cloud, Blockchain, Robotics, Automation of
knowledge work, Internet ofthings, Digital fabrication and Augmented reality.

23
11

International Business: Shifting Contexts, Changing Priorities

Environmentalfactors-for example climate, disease, pollution, natural disasters, sustainability

practices-have also moved centre stage, given that one environmental factor-an epidemic-
shaped the other five PESTL factors so dramatically and pervasively. Of course, there had been
warnings. Climate change correlates with a number of natural disasters in the last 15 years. lhe
prognosis: such events will become more frequent. There have been pandemics, notably 1997
'bird flu', 2002-2003 SARS, and the HlHl 'swine flu' in 2009. There have also been many
impactful human-made and natural disasters. But the problem is that such events are increasingly
less isolated in their impacts. Tue world had become so interconnected and interdependent that
systemic risk is the norm, requiring much more careful, regular environmental analyses. Hopefully,
the coronavirus experience will lead to a new business mindset about how interdependent the
global economy is, and how, from now on, environmental risk needs high profile attention.

Adaptive Strategy-To Survive and Thrive

As Willcocks (2021) demonstrated, the 2020-2021 crisis also supported regular updating and
regeneration of international strategy using frameworks like SWOT (Strengths, Weaknesses,
Opportunities and Threats), and MiniMax, (Minimise weaknesses and threats by Maximising
strengths and opportunities) positioning and resource based frameworks. For competitive
positioning, Ghemawat's AAA (Aggregation, Adaptation, Arbitrage) strategies appeared ever more
relevant, though the mix of globalisation, and deglobalisation together with the crisis impacts led
to changes in emphases going forward. By 2021, international businesses could be found making
shifts in global sourcing (Arbitrage) strategy by repatriating more work, near-shoring, or spreading
locations across more geographies to mitigate risk (see Chapter 4). Adaptation-stressing local
responsiveness-became even more prevalent, while Aggregation (scaling and scoping economies
through international standardisation) became less privileged. What was driving these trends?
Partly international businesses shrinking back to regional and national markets. In the new (ab)
normal, MNEs had to find new balances and trade-offs in their AAA strategies, going forward.

Porter's Five Forces framework and generic strategies tool remained highly useful, but had to be
even more sensitive to shifts in the broader general environment, and not just in the immediate
competitive task environment a business was operating in. Some limitations of the Five Forces
framework became more obvious. Tue tool assumed a more stable environment, a more easily
defined sector, and more stable competition than prevailed by the 2020s. Tue role of cooperation
via strategic alliances, and with complementors was underplayed, as was the, by now, widespread
use of third party sourcing of resources and services. Meanwhile the generic strategies rool
remained, with the exception that the stipulation not to 'get stuck in the middle' had been
outflanked by competitive necessity and enabling technological developments. By the 2020s
companies regularly pursued cost and differentiation strategies simultaneously, in both !arge global

24
 International Business: Shifting Contexts, Changing Priorities

markets and in niche markets.

Meanwhile resource-based approaches have remained foundational to competing in international

business environments. Tue VRIO framework differentiated resources and capabilities in terms of
whether they had value, rarity, were inimitable (copiable) and were backed by distinctive supportive
organisational capabilities. This and the similar VRIN tool (the N stands for Non-substitutable)
were vital ways of establishing how resources built to capabilities and core competencies, creating
possibilities for sustainable competitive advantage. Tue constraints being exposed in fast moving
markets and competitive environments were twofold: does a business now have the time needed
to develop the necessary capabilities? How fast would the utility of the capabilities be eroded?
Nevertheless, by 2021, and going forward, all these frameworks-from SWOT, MiniMax, AAA,
Five Forces, generic strategies, VRIO/VRIN-had become even more vital tools for arriving at
international business strategy (see Willcocks, 2021).

Global Business: Dealing with Systemic Risk

At the same time, the 2020s are clearly a much riskier environment than the previous decade
and most of our risk analytics need fundamental updating. Goldin and Mariathasan (2016,
2020) look at how globalisation, allied with information and communications technologies, has
generated systemic risk. Their evidence sweeps across the financial crisis of 2008-2009, previous
pandemics, and multiple examples of supply chain, infrastructure, ecological and social risks. They
make a convincing case that we live in a more connected complex, and uncertain world that we
are largely responsible for creating, but, at best, are only half prepared for. Today we address the
fundamentally changing environment and its related challenges with old, learned ways of seeing,
behaving, and outdated solutions. In the author's view, this passes into how global business is
conducted. Let's look at this proposition, then some foundational ways forward.

Many businesses tend to have an optimism bias, and a bias towards dealing with today's revenue
generation and performance rather than the future (Collins, 2009; Slatter and Lovett, 1999). Such
biases create risks. Observe how these biases played out across previous economic cycles. Though
the existence of economic cycles is very well known, it is startling how many businesses have
assumed that economic growth will always continue, that the down cycle does not need much
preparation for, and that resilience in the face of a deeper, longer term downturn is an unnecessary
expense impinging on present financial health. All this leads to a risk attitude that downplays the
serious use of risk assessment methods detailed in Chapter 8.

This does not even begin ro prepare such businesses for coping with the systemic risks that
Goldin and Mariathasan delineate-nor with the changing nature of risk. Approaches to risk
are needed that can deal with the prospect of a breakdown in the entire system, as opposed to

25
 International Business: Shifting Contexts, Changing Priorities

the breakdown of individual parts. Traditionally risk is seen as quantifiable an~ P_redietable. But
uncertainty also encompasses unidentified and/or unexpected threats. Systemic nsks and uncertain
events and threats derive from increased interconnectedness (more linking between things),
and more interdependence (one thing depends on and is affected by another). Complexity and
integratedness make redundant our old risk assumption that causality between actions and events
can be known. The normal distinction between risk and uncertainty unravels.

So what can international businesses do? A major learning from 2020 and 2021 is that systemic
risk and uncertainty require systems thinking to build resilience. Let's unpack this rather abstract
statement. Throughout this book, we treat the organisation as an open system linked to many
other systems. lndeed the organisation's systems will be part of, and interdependent with, many,
much larger systems. Environments are full of systems e.g. government and legal systems,
transportation systems, energy infrastructure-that link with the organisation and its activities.
The more immediate task environment of a business includes its supply chain systems, publie
and private IT infrastructure, strategie alliances, while, internally, the organisation has multiple
systems-financial, business process, HR, procurement, as weil as those explicicly called IT
systems. This book will stress the importance of alignment between the environment, strategie
positioning, and operations. We will emphasise that effective organisational performance depends
on efficient interconnectivity and coordination. An international business is indeed a complex set
of interdependent systems striving to optimise business outcomes. But this creates systemie risk.
How?

The work of Charles Perrow (1984, 2011) helps us here. He studied natural and human-made
accidents and disasters to find out what caused them. He concluded that tighcly coupled and
highly complex systems create what he called the 'normal'-by whieh he meant inevitable-
accident. Look at Figure 1.2. A system is tightly coupled when there is little slack or buffer
amongst its parts. The failure of one part, however small, can easily affect the others, or the whole
system. In such tighdy coupled systems it's not enough to get things mostly right. But isn't that
just what we have been building with lean systems, just-in-time approaches, hyper-fast global
supply chains, and automated financial trading systems? Then there is complexity that both creates
and obscures latent risk. A complex system-think of a nuclear or nuclear plant, a global enterprise
resource planning system-has parts that are intricately linked, can easily affect one another and are
more likely to interact in hidden and unexpected ways. In our organisations we enter the serious
danger zone when we build or participate in tightly coupled, highly complex systems. In Perrow's
words: '11 normal (i.e. inevitable) accident is where everyone tries hard to play safe, but unexpected
interaction oftwo or more foilures (because ofinteractive complexity), causes a cascade offoilures
(because oftight coupling). " In this danger zone small failures can create meltdowns. One should
add that, if the system is working ac full chrotde and is under high pressure to perform-think

26
 International Business: Shifting Contexts, Changing Priorities

of ehe underground and rail systems in capital cities around the world-this also increases the
likelihood of catastrophic failure.

HIGH

Rlsksfrom:
lnterconnected High systemic • llght coupUns
• Complexity
risk risk • Pre$Sure on the system

light
Coupllng Rtducedby:
• Slack In the system
• Modulartty
• Flexlblllty
Low systemic Opaque • Default mechanlsms
risk • Reduced extemal pressure
risk • Contlnuous monltorlng

LOW

LOW Complexity HIGH

Figure 1.2. Business Design and Systems Risk

How can we mitigate such systemic risks? By not building brittle systems that operate close
to breaking point. One of the learning points from the 2020-2021 was to build resilient
organisations. In systems terms this means:

• Building slack into a system i.e. becoming less tightly coupled. 'Slack' may come
in the form of more time, resources, lowering connectedness, reducing pressure on
the system, and/or putting default mechanisms in place. As one example, it may
well be that the pandemic experience of mass home and remote working utilising
technology will encourage organisations to adopt such mechanisms to protect against
likely future crises.

• Lowering complexity i.e. making the system clear and reducing interdependence.
Lower complexity will come from, for example, becoming more transparent, putting
in place more controls and fail safes, process simplification, more modularity in
designing systems, processes, products, software, and technology.

27
International Business: Shifting Contexts, Changing Priorities

Whether or not businesses cake an board these design principles will depend an whether man
. . agers
view business concinuicy managemenc and disaster recovery as thmgs you acnvace once ehe crisis
occurs, or believe chat the risks can be mitigaced by how you design systems in the firsc place. A
further issue is whether managers are _prepared co gamble CO take ehe upsides from tighc coupling
and complexicy e.g. fast, seamless, IT-enabled logistics, in the hope that ehe downsides are rare, and
not that serious. Most of ehe evidence points to this being a gamble increasingly not woreh taking.

Can some companies get away wich doing less? What may persuade managers not to change is
ehe likely higher cost of creating looser coupled, less complex systems and placing them under Iess
pressure. Unfortunately, under severe cost pressure following ehe economic downcurn of 2020,
many businesses would go inco short term coping mode, keeping cost down and 'sweating ehe
assets', rather than changing practices.

Going forward, as can be seen, resilience must be a key concept shaping the future global
management practices discussed in chis book. In a major scudy Denyer (2017) defines
organisational resilience as "the ability ofan organisation to anticipate, prepare for, respond and adapt
to incremental change and sudden disruptions in order to survive and prosper. " There are two core
drivers: defensive (stopping bad things happen) and progressive (making good things happen),
as well as a division between approaches chac call for consiscency and those thac are based an
flexibilicy. Defensive approaches focus an lass avoidance and value preservacion. Progressive
approached focus an 'bouncing forward' inco growch and prosperity Denyer (2017) identifies four
ways of thinking abouc resilience:

1. Preventative control (defensive consistency). Resilience is achieved by means of

risk managemenc, physical barriers, redundancy (spare capacity), systems back-
ups and standardised procedures, which procect the organisation from chreats and
allow ic eo 'bounce back' from disrupcions eo restore a stable scate. i.e. defensive+
consistent.

2. Mindful action (defensive flexibilicy) . Resilience is produced by People who nocice

and react to threats and respond effectively eo unfamiliar or challenging sicuations.
i.e. defensive + flexible.

3. Performance optimisation (progressive consiscency). Resilience is formed by

continually improving, refining and extending existing competencies, enhancing
ways of working and exploiting currenc technologies eo serve present cuscomers and
markets i.e. progressive+ consistent.

4. Adaptive innovation (progressive flexibilicy). Resilience is created chrough creating,

invencing and exploring unknown markets and new technologies. Organisations
can be ehe disruption in their environmenc i.e. progressive + flexible.

28
 International Business: Shifting Contexts, Changing Priorities

Organisacional resilience needs co be fit for purpose. Companies in the study achieving this
included Infosys (India), Baiada (Australia), SAP (Germany), Nxtradata (lndia) and Ciena
(USA). They show that there is no single recipe for success. lndeed Denyer (2017) suggest three
major challenges. Firscly, leaders need co find a balance between preventative control, mindfal
action, performance optimisation and adaptive innovation that is appropriate co their mission
and sector. Secondly, leaders have co manage the tensions between the need co be both defensive
AND progressive and also consistent AND flexible. Thirdly, there is the problem of erosion.
Organisational resilience requires constant effort: 'ff neglected, preventative control, mindful action,
performance optimisation and adaptive innovation will erode over time and can result in organisatiom
sleepwalking into disaster.' Our book series is designed to suggest ways to prevent this from
happening.

Adaptive Operations give Resilience and Execution

Our companion book Global Business: Strategy In Context focused on environmental analysis,
adaptive strategy making, and market entry approaches. This book focuses on ehe management
of operations-essentially the different value creation activities a firm undertakes, and the means
by which international business strategy is executed. An essential pre-requisite for organising
operacions and delivering strategy is an enabling structure. Tue rule of thumb here continues to
be: structure follows strategy (see Chapter 2). This means that the more adaptive and flexible the
business strategy becomes, the more adaptive and flexible the organisation structure needs to be.
'Operations' covers a range of primary and support activities that align with each other to form the
organisation's value chain. Tue difficult task is co achieve a high measure of'fit'-i.e. alignment-
between the business environment, business strategy, and how operations are coordinated and
conducted. In practice such 'fit' is an ideal; given today's business environments and competitive
volatility it could hardly be otherwise. However, if'fit' is very rarely achieved, it is still very much
a goal-a 'sweet spot'-worth pursuing. Without actioning the notion of optimal organisation, an
international business would fall apart very quickly.

To assist the ongoing aligning process, each operational area will develop its own sub-strategy
that coordinates with business strategy and other operational area sub-strategies. Let's take an
example. IKEA is a Swedish born, Dutch-headquartered multinational group. IKEA designs
and sells ready-to-assemble furniture, kitchen appliances and home accessories, and related goods
and home services. Recent revenues regularly exceeded US$40 billion per year. Tue company's
website contains over 12,000 products and receives over 2.1 billion visits annually. IKEA's basic
competitive strategy is to be an international business that offers the greatest range of products at
the lowest cost for every new market it enters. To do this it focuses its marketing on the product
and price elements of the '4Ps' marketing mix (Product, Price, Place, Promotion-see Chapter

29
International Business: Shifting Contexts, Changing Priorities

3). Tue furniture retailer targets cost-conscious customer segments that are looking for what they
perceive as value for money at low price. Accordingly, IKEA has sought the lowest costs for its
products along with the widest range as the unique selling proposition of the brand. IKEA also
integrates several communications channels such as print and media advertising, sales promotions,
events and experiences, public relations and direct marketing. Some 70 percent of its marketing
budget is spent on its product catalogue. IKEA also does product placement in movies and TV
programmes. IKEA sells heavily on-line, and constantly introduces new products.

lts R&D (research and development-see Chapter 3) is headquartered in Sweden and, consistent
with 11<.EA'.s business strategy and marketing, focuses on low price, sustainability, form, function,
and quality for customers with limited space and money. R&D also looks at customer research
and retail outlet design. IKEA'.s marketing has to be supported by an integrated global sourcing
system of production and a logistics supply chain (see Chapter 4). These replenish over 430 IKEA
stores operating in more than 52 countries. In doing all this IKEA is increasingly dependent on
its technology platform and digital capabilities (see Chapters 5 and 9). Without these, IKEA
would_not be able to run the on-line service; market the brand; operate each retail outlet; manage
finances and staff; optimise logistics and supply chain processes; and coordinate third party
services. Meanwhile managing finances, including currency rates is vital for a globally-positioned
business (see Chapter 6), while staffing internationally throws up its own complexities (Chapter
8). Finally, IKEA, like all businesses operating in today's dynamic and unpredictable economies,
has become increasingly project focused. There are always new projects, many small-scale-for
example ehe launch of a new product, some large-for example building and opening a new retail
mega-store in Asia, or deploying a new enterprise resource planning system worldwide. Without
project management capability, IKEA'.s ability to deliver on competitive business strategy would be
irreparably compromised (see Chapter 8).

IKEA, like every international business, continually seeks alignment. Tue worrying thread through
all this-what makes 'fit' highly challenging-is the context. Global business environment and
competition are dynamic, and unpredictable. Meanwhile integrating operations is necessary
for faster, cheaper, better quality performance. Bur high levels of interdependence in uncertain
environments can create systemic risk-as discussed above. This has placed a new importance on
ehe concept of developing dynamic capabilities that enhance an organisation's capacity to efficiently
and responsively change internal operations and develop its resources (Teece et al., 1997). Even
more pertinent today is ehe New Dynamic Capabilities framework. This focuses attention on
the firm's ability to quickly orchestrate and reconfigure externally sourced competences, while
leveraging internal resources. Shuen and Seher, (2009) use the example of going digital by using
platforms, know-how, user communities and digital, social and mobile networks, as well as internal
digital capabilities and resources. And indeed, to extend the argument, one major learning from

30
 International Business: Shifting Contexts, Changing Priorities

the 2020s crisis has been the importance of digital technologies and platforms for giving strategy
more opportunities and adaptiveness, while making operations more responsive. Chapter 9
provides an illustrative example of this in action at DBS Bank.

1.7. Conclusion

This chapter provides an overview of the global context in which businesses develop strategy, and
then design and run their operations. International businesses must monitor the environment-
the general environment, and not just the immediate competitive environment in which they
operate-ever more closely and frequently than before. Business strategies and operating models
require, amongst many others, two standout distinctive qualities-adaptiveness and resilience.
Meanwhile managing risk and uncertainty must be reconsmicted, not least to handle the
phenomenon of systemic risk. Tue likelihood in all this is that ehe pandemic and economic crises
of the early 2020s will not be a one-off but a signal of more crises to come as part of the new (ab)
normal. If this is an assumption, it is a dangerous one to ignore.

This chapter also acts as an introduction to the chapters that follow. These focus on operations.
Many years ago Sam Walton, the CEO of the highly successful US-based Walmart supermarket
chain, commented that:

"You can make a Lot ofmistakes and still recover ifyou run an ejficient operation. Or you can be
brilliant and still go out ofbusiness ifyou're too inejficient."

He was correct to underline the central role of operations in business success. But his firm
operated in a much more stable context than we do now. Operational efficiency is a necessary
but insufficient condition in today's global business environment. We have made the case that
operations must align with environment and strategy, and remain highly adaptive to changing
conditions. In this book we detail how this proposition plays out across the major operational areas
of an international business. But first the focus is on the fundamental requirements for organising
and alignment-an enabling structure and integrating processes.

References:
Collins, J. (2009), How The Mighty Fall, Random House, New York, USA.

Goldin, 1. (2020) 'Coronavirus is the biggest disaster for developing nations in our lifetime', The
Guardian, April 21st.

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 International Business: Shifting Contexts, Changing Priorities

Denyer, D. (2017), Organisational Resilience: A summary ofacademic evidence, bu.siness ins·

new thinking, BSI and Cranfield School of Management, UK. zghts llnd

Economist, Tue (2019a), 'The steam has gone out of globalisation', 7he Economist, th]
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anuary,
Economist, Tue (201%), 'Report on Global Supply Chains', 1he Economist, July 1 th.
3
Economist, Tue (2020), 'Best In Show'. The Economist, March 28th, pages 63-64.

Goldin I. and Mariathasan, M. (2016), The Butterfly Defect: How globalisation create:s 1"11, •

and what
'
to do about it, Princeton University Press, NJ USA and Oxford UK. ris'k

Goldin, I. and Muggah, R. (2020), 'The world before this coronavirus and after cannot be the
same.', The Conversation, March 27th.

Perrow, C. (1984), NormalAccidents: Living With High Risk Technologies, (Revised edition, 199 ),
Princeton University Press, Princeton, NJ, USA. 9

Perrow, C. (2011), The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and
Terrorist Disasters, Princeton University Press, Princeton, NJ, USA.

Shuen, A., Sieber, S. (2009), 'Orchestrating the New Dynamic Capabilities', IESE Insight Review
(3): 58-65.

Slatter, S. and Lovett, D. (1999), Corporate Turnaround, Penguin, London, UK.

Teece, D., Pisano, G., and Shuen, A (1997), 'Dynamic capabilities and strategic management',
Strategie Managementjournal. 18 (7): 509-533.

Willcocks, L. (2020), 'Robo-Apocalypse Cancelled? Reframing Tue Automation and Future of

Work Debate', Journal ofInformation Technology, September.

Willcocks, L. (2021) Global Business: Strategy In Context, SB Publishing, Stratford-upon-Avon, UK

World Bank, The (2020), Global Economic Prospects: Slow Growth, Policy Challenges, Worl<l Bank,
Geneva, January.

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