Think you’re a Transformational Leader? Start acting like one.

One person’s boss is another’s leader. The determining factor is the correct deployment of the corresponding, power-based, behaviors of the manager, to match the maturity level of the follower.

We’ve all seen some version of the meme above, typically with the captions “leader” for the character that is helping his followers pull the business along, as well as “boss” for the character instructing those to march on. It is an effective meme. We all have, or had, that one boss that we either didn’t respect, or who was ineffective at inspiring others, and did not have the skill set or emotional intelligence to move beyond active coercion or dictatorial behaviors, which may have manifested in different ways: temper tantrums, illogical decision-making, yelling, etc. Nobody wants to be “that guy.”

If those are the only tools in your toolbox, you’re going to be completely ineffective at managing more mature followers, who respond to other types of power, and are not as receptive to managers who do not exhibit traits and behaviors beyond the power bases that only resonate with lower-maturity subordinates. It is the “leader” in the graphic above that is seemingly motivating his followers with power base behaviors that resonate with more mature followers.

We also want to be the “leader” in this meme – inspiring others through example; we want to be the success that others would follow. I would assume that many of us saw this meme first on LinkedIn. I know I did. One of the reasons this graphic would resonate with many of us, on a professional networking site like this, is that many of us are educated professionals, with many years of experience, and possess a wide range of connections that we’ve built up over the years. A graphic like this is naturally effective in this environment; we know that we wouldn’t respond well to the “boss” we believe to be characterized above, and that’s the point of the graphic.

But, what if the “boss” in the picture isn’t that terrible manager we all immediately picture in our heads? The truth about this picture is two-fold: both are leaders, and both can be effective. That may be a controversial thing to put forward, but I would venture to say that most of you that are reading this are looking to be better leaders yourselves, so stick with me on this, as I’ll explain.

If you’ll notice, both “teams” are in the exact same spot. While I don’t think the artist intended to communicate it, the fact is that they are both neck-and-neck in the speed and direction in which they are traveling. The underlying truth is each leader is exercising different power base behaviors to move the business forward, and, for those who look at the “boss” in a negative light, keep in mind that, if he is indeed an effective manager, it is the maturity level of his followers or their followership behaviors that may, in fact, determine that clear and concise directives, rewards, and passive, not active, coercion are the most effective tools for him to use. If we are to assume that both are effective leaders, then we should look at the key behaviors that make them so, and more.

In this post, I intend to approach transformational leadership through the lense of Situational Leadership Theory, and how transformational behavior that is based on perceiving and reacting to followership styles, by employing emotional intelligence, are positive predictors for management effectiveness.

Power Bases Defined

Amitai Etzioni, in Comparative Analysis of Complex Organizations (1961,) wrote that “leadership is the process of influencing the behavior of others” and power is how a manager achieves compliance. That sounds clinical, but think of how you manage your team and get them to accomplish goals. You don’t need flowery language and feel-good platitudes to define your day-to-day behavior. However, what we doeveryday, that is most effective, depends both on our power bases, and, to start with, the maturity level of our followers. Let’s begin with power bases.

Here are the seven power bases referenced by Paul Hersey and Kenneth Blanchard, the creators of Situational Leadership Theory; five power bases were defined by John French and Bertram Raven in Studies in Social Power (1959,) while Informational Power was introduced by Bertram Raven and Arie Kruglanski in 1975. Connection power is an original concept by Hersey and Blanchard.

These power bases and their descriptions have been reprinted, alphabetically, from Hersey, Blanchard, and Natemeyer in Group & Organization Studies:

  • Coercive Power is based on fear.  A leader high in coercive power is seen as inducing compliance because failure to comply will lead to punishment, such as undesirable work assignments, reprimands, or dismissal. [Side note about coercion: it can be a passive power base. Imagine you were the manager at a McDonald’s franchise, and you’re hiring a 16 year old for his very first job. His reward is his hourly paycheck, but he knows you’re the one that hired him; he damn sure knows you’re the one that can fire him. You don’t even have to be a jerk to have tremendous coercive power.]
  • Connection Power is based on the leader’s “connections” with influential or important people inside or outside the organisation. A leader high in connection power induces compliance from others because they aim at gaining the favour or avoiding the disfavour of the powerful connection.
  • Expert Power is based on the leader’s possession of expertise, skill and knowledge which, through respect, influence others.  A leader high in expert power is seen as possessing the expertise to facilitate the work behaviour of others.
  • Information Power is based on the leader’s possession of, or access to, information that is perceived as valuable to others.  This power base influences others because they need this information, or want to be “in on things.”
  • Legitimate Power is based on the position held by the leader.  Normally, the higher the position, the higher the legitimate power tends to be.  A leader high in legitimate power induces compliance or influences others because they feel that this person has the right, by virtue of position in the organisation, to expect that suggestions will be followed.
  • Referent Power is base on the leader’s personal traits.  A leader high in referent power is generally liked and admired by others because of personality.  This liking for, admiration for, and identification with, the leader influences others.
  • Reward Power is based on the leader’s ability to provide rewards for other people.  They believe that their compliance will lead to gaining positive incentives such as pay, promotion or recognition.

Knowing when and how to effectively apply these power bases to a situation requires a mix of emotional intelligence and an understanding of corresponding behaviors that match maturity level.

All of these power bases can be used to influence the behavior of followers. But, some are more effective than others, depending on the maturity level of the follower in any given situation or task. Furthermore, we know the order in which power bases are most effective from high down to low maturity followers:

By just a glance, I’m sure you can see where you would be most effective as a manager, based on your followers. And you can see that, as much as we don’t like the “boss” in the graphic at the beginning of this post, it is the “coercive” power base that is most effective for extremely low-maturity followers; they need structure, a clear understanding of what is expected of them, and what to expect if they succeed or fail. We’ll be using these power bases to discuss effective managing behaviors as we get into Situational Leadership Theory. Before we do that, let’s just put some leadership styles on the table, with some definitions.

Common Leadership Styles Defined

  •  A transformational leader is distinguished by a special ability to bring about innovation and change by creating an inspiring vision, shaping values, building relationships, and providing meaning for followers.
  • Both charismatic and transformational leaders provide followers with an inspiring vision, an attractive, ideal future that is credible, yet not readily attainable.
  • A charismatic leader is a leader who has the ability to inspire and motivate people to transcend their expected performance, even to the point of personal sacrifice. [These are unicorns, sociopath dictators, or exemplary military leaders. If you find one in your organization, capture them, and bring them in for study.]
  • A transactional leader clarifies subordinates’ roles and task requirements, initiates structure, provides rewards, and displays consideration for followers.

You may see yourself in the descriptions above. Perhaps you’re a blend. Maybe you haven’t yet found the style that best fits you or your organization. However, for those of us who strive to be transformational leaders, it may be that we have to be different types of leaders to different types of followers. And that’s where Situational Leadership Theory comes into play.

Situational Leadership Theory

Detailed by Paul Hersey and Ken Blanchard in the late 70’s, the Situational Leadership Theory sought to match management behaviors and styles to follower maturity. Though Hersey and Blanchard parted ways, they both continued to develop Situational Leadership on their own. I’ll be using Situational Leadership II, Ken Blanchard’s latest iteration, as the basis of the rest of this article.

There are four basic leadership styles in situational leadership: directing, coaching, supporting, and delegating. These correspond with the four basic development levels: enthusiastic beginner, disillusioned learner, capable but cautious performer and self-reliant achiever.

There is a simple graphic that outlines this concept, and it has been iterated on several times. The current model, found in Situational Leadership II, best illustrates the relationships between follower maturity and appropriate leadership styles.

Here we see the intersection of leadership styles and follower maturity outlined in Situational Leadership II. Notice that leadership behaviors flow through follower maturity levels – this suggests that followers will gain maturity and exhibit different behaviors and followership styles over time. Also, note that competence and commitment can be ambiguous terms. Competence can vary from task to task. Commitment may range from indifference to being afraid to start on a task based on what a follower understands to be the limits of their skills. This also makes maturity fluid, and, perhaps, there could be regression in certain situations. So, what can we do, as managers, to encourage their growth?

For each stage of maturity, here are some (but definitely not all) examples of corresponding, effective management behaviors, according to Situational Leadership II:

Directing – D1/S1

Successful directing behaviors depend on coercive, connective, and even reward power bases.

  • Define the task, leave no ambiguity about what is expected, or even what is to be expected if the task is not completed
  • Plan the task and prioritize activities
  • Orient the follower to the task, giving them the tools to accomplish it
  • Teach, show, and tell the follower how to accomplish the task
  • Check on their progress, monitoring for performance
  • Give feedback at appropriate intervals

Coaching – D2/S2

Successful coaching behaviors depend on connective, reward, and legitimate power bases

  • Explore the task at hand, asking questions that will encourage your follower to think independently
  • Explain and clarify when your follower is not certain about something, but be sure to allow them to continue down a path you know to be correct, which increases their confidence
  • Redirect them if they stray from the correct path
  • Share feedback, in a way that is encourages their growth, and is less transactional
  • Encourage them to take ownership of the task at hand
  • Praise them when they achieve success

Supporting -D3/S3

Successful supporting behaviors require legitimate, referent, and information power bases

  • Encourage follower feedback by asking questions, and more importantly, listen; don’t just hear
  • Reassure the follower should they exhibit a lack of confidence
  • Facilitate self-reliant problem solving by imparting knowledge
  • Collaborate
  • Be appreciative of your follower’s work

Delegating – D4/S4

Successful delegating behaviors depend on referent, information, and expert power bases

  • Allow and trust your follower to accomplish a task or even set their own goals that will benefit the organization
  • Confirm correct actions
  • Empower the follower – give them access to internal resources; human capital and budgetary authority are two examples
  • Acknowledge performance and challenge a follower’s assumptions, strengthening their knowledge

Let’s go back to what I defined earlier as a transformational teader:

A transformational leader is distinguished by a special ability to bring about innovation and change by creating an inspiring vision, shaping values, building relationships, and providing meaning for followers.

That one sentence is the basis of just about every leadership meme one may see out there, or one of the many puff pieces that one would expect to be used in SEO or as click-bait. On the surface, it’s a fine sentiment. But to dig further into what it really means to be transformational, a leader must understand that their own behaviors and abilities, used at the appropriate time, and in the appropriate way, will allow them to have the greatest chance for success.

If I still have your attention at this point (most people browse LinkedIn before and after work on Tuesday through Thursday, so by now you’re probably late to work, or late for dinner,) let’s take a look at another piece of the puzzle: emotional intelligence. While viewing transformational leadership through the lense of Situational Leadership Theory is an easy thing to do, actually performing in accordance requires a bit more than just reading and understanding.

Understanding Emotional Intelligence in the Workplace

Deepika Dabke states, in Impact of Leader’s Emotional Intelligence and Transformational Behavior on Perceived Leadership Effectiveness: A Multiple Source View (Business Perspectives & Research. Jan 2016, Vol. 4 Issue 1) that “transformational leadership behaviors correlated more strongly with leadership effectiveness than did the transactional leadership behaviors. Leaders of yesteryears were seen to control, plan, and inspect the overall running of the organization. But, in today’s changing times, and with the [predominance of] service orientation, leaders are expected to motivate and inspire followers, generate a sense of belongingness and positive association among employees and yet meet stiff targets.”

Remember what defines a transactional leader?

A transactional leader clarifies subordinates’ roles and task requirements, initiates structure, provides rewards, and displays consideration for followers.

This is a militaristic-style of leadership that does not employ all power bases in a way that supports different maturity levels of followers. From what Dabke posits, we can deduce that a lack in understanding of what motivational behaviors bring about effective change and positive results are detriments to a leader.

I believe that utilizing emotional intelligence is the only way to understand what I stated at the beginning of this post, and to use Situational Leadership Theory effectively:

One person’s boss is another’s leader. The determining factor is the correct deployment of the corresponding, power-based, behaviors of the manager, to match the maturity level of the follower.

The key phrase? “The correct deployment of…behaviors of the manager.” There have been criticisms of the Situational Leadership Theory. If you’ll notice, I’ve used the words “successful,” effective,” and “correct” emphatically in this post in regards to leadership behaviors. Robert Vecchio, in Situational Leadership Theory: An examination of a prescriptive theory, Journal of Applied Psychology (1987,) conducted a study of 303 teachers in 14 schools, in order to gauge the effectiveness of Situational Leadership Theory.  Vecchio states that:

SLT [Situational Leadership Theory, pre-SLII] predicts that highly mature employees require a low-structure-low-consideration style of supervision may be partially misstated. It may be more correct to say that supervisory style is comparatively more irrelevant, in terms of its impact on highly mature subordinates. In short, the conduct of highly mature subordinates may be simply less predictable than that of other employees, from supervisory attributes.

And he goes on to support that in his study. That makes sense, right? Mature followers, through experience and education, are more likely to have a wider range of behaviors and skills, developed over a longer career, and are less dependent on superiors. They may react negatively if the wrong leadership behaviors are deployed. So, how do we predict the effectiveness of the behaviors that we, as leaders, use to manage mature followers? How can we take into account the unique personalities, experience, and skill set that separate mature followers from each other or how we expect them to behave? Our reactions to those varying follower behaviors, based on these variables, play a key part in our effectiveness as transformational leaders. The question is, do we know what to do, and in what situation to do it? That’s largely dependent on the individual follower, and it’s our job to read them. That’s where emotional intelligence comes into play.

Mark Brackett, Susan Rivers, and Peter Salovey , in Emotional Intelligence. Implications for Personal, Socail, Amademic, and Workplace Success, Social and Psychological Compass (2011,) report that:

“Preliminary findings…suggest that emotional intelligence positively contributes to several aspects of workplace performance. In a health insurance company, analysts and clerical employees from the finance department with higher [emotional intelligence] had higher company rank and received greater merit pay increases than employees with lower [emotional intelligence.] Employees with higher emotional intelligence also received better peer and⁄or supervisor ratings of interpersonal facilitation, stress tolerance, and leadership potential than those with lower emotional intelligence.”

Why the brackets? Replace “emotional intelligence” with “MSCEIT scores,” click this link, and you’ll read all about how emotional intelligence can be measured. I won’t go into detail in this post, but it’s important to know that MSCEIT is a more appropriate, objective measure of emotional intelligence than saying, “it’s common sense, bro!” Common sense is not common.

I will, very quickly, give you a graph that shows what it tests with a brief description.

The Mayer-Salovey-Caruso Emotional Intelligence Test

The MSCEIT defines emotional intelligence as the ability to perceive emotion, facilitate thought, understand other emotions, and manage emotions and relations.

There is a sliding scale, and Deepika Dabke states that you can actually learn and grow your emotional intelligence. Clearly, you can see that, by definition, emotional intelligence plays a role in your effectiveness as a transformational leader; it facilities the application of Situational Leadership Theory correctly, and allows you to operate at a more granular level, and evolve over time.

When we take into account the criticism that Vecchio finds with Situational Leadership Theory, emotional intelligence may be the key to making it work. What were the MSCEIT scores of the test subjects in his study? It’d be interesting to know, but impossible to find out, as the MSCEIT wasn’t introduced until 17 years after Vecchio published his findings.

Followership Styles

Armed with the concept of emotional intelligence, let’s take a stab at followership, defined by Donelson Forsyth in Group Dynamics (2009) as :the reciprocal social process to leadership.” This adds an interesting 3rd dimension to the Situational Leadership Theory.

Situational Leadership focuses on identifying follower maturity and matching leadership behaviors. But for SL to be a long-term success, it must also ingest the feedback loop that is created from iterative and accurate followership profiling; proper perception of followership styles relies heavily on emotional intelligence.

Robert Kelley, in The Power of Followership (1992,) through extensive interviews with managers and their subordinates, created a model for followership styles:

The four quandrants of this model define followers by their level of critical thinking, and the active or passive role they play in your organization, while utilizing an overlay-ed, fifth category that focuses on pragmatism. Pragmatists may lean to any of the four major quadrants.

Kelley created five types of followership styles based on the above model, which I’ve reprinted here:

  • The Sheep: These individuals are passive and require external motivation from the leader. These individuals lack commitment and require constant supervision from the leader.
  • The Yes-People: These individuals are committed to the leader and the goal (or task) of the organization (or group/team). These conformist individuals do not question the decisions or actions of the leader. Further, yes-people will defend adamantly their leader when faced with opposition from others.
  • The Pragmatics: These individuals are not trail-blazers; they will not stand behind controversial or unique ideas until the majority of the group has expressed their support. These individuals often remain in the background of the group.
  • The Alienated: These individuals are negative and often attempt to stall or bring the group down by constantly questioning the decisions and actions of the leader. These individuals often view themselves as the rightful leader of the organization and are critical of the leader and fellow group members.
  • The Star Followers: These exemplary individuals are positive, active, and independent thinkers. Star followers will not blindly accept the decisions or actions of a leader until they have evaluated them completely. Furthermore, these types of followers can succeed without the presence of a leader.

When taken with the maturity level outlined in SLII, you can develop a 3-dimensional profile of your followers’ styles and behaviors. These followership styles do not not map directly to the maturity model of SLII; however, they give us clarity into how we should attempt to manage followers in the D3 and D4 maturity scale. The un-predictability of more mature followers, especially if you gauge maturity based on capabilities and experience, can be attributed to fluctuations of a follower’s position on Kelley’s model, particularly when they fall somewhere in the grey area of pragmatism. Mature followers may be wary of change itself, not the task at hand. Similarly, they may believe that they have not been able to affect the change that they, themselves, believe they could have accomplished. They’re fully capable, and perhaps even perfectly capable of self-motivating, but something in their organization, or, more specifically, their interactions with their leader, keeps them from moving towards a Star Follower, or responsive D4 maturity follower, that flourishes in an S4 leadership behavioral environment.

Another important thing to note is, your followers’ styles and maturity may evolve over time. A follower may bounce around the two models depending on the leader, the situation, a new position, or over the course of their career.

In Conclusion

If Situational Leadership Theory, based on follower maturity and matching leadership behavior, is one side of the coin, then Followership Styles is the flip side. You need to understand both sides to be an effective leader, and transformational leadership relies on emotional intelligence to be the bridge between the two.

To be an effective transformational leader, one must go beyond memes and feel-good rhetoric. No, it’s not about “common sense.” “Street smarts” is slang for, “I get along with the people I surround myself with, but don’t know anything about emotional intelligence or how it’s defined, measured, and improved upon.” Digging down, objectively, into how you perceive your followers, how they perceive you, and how you decide what behaviors will be the most effective in managing them, is possible.

If you understand power bases, and possess the right amount of each power needed to effectively manage your followers by directing, coaching, supporting, or delegating, then you will be most effective when you can also read and understand their followership styles by learning and growing your emotional intelligence; you will need to make granular adjustments to your leadership styles as they, and you, mature over time.

So, after all of this, what do you think about the “boss” and “leader” meme at the top  now? If we can all agree that the “business” is heading in the same direction, at the same speed, would you agree that we can say that they are both effective leaders? How would you describe each of the two organizations?

Oh, one more thing: keep the Facebook-stuff on Facebook. Even if the meme is business-related, use it in a broader discussion, not just a drive-by posting. This is LinkedIn, and we’re trying to be serious here!

Globalization: Interconnected Economies and Opportunities

Introduction

VIZIO, founded in California by three people with $600,000 in 2002, is a manufacturer of affordable and high end TVs. The company announced in the last quarter of 2015 that it ranked number one in the United States by volume, according to a consensus of top US TV display analysts, while Samsung held on to the top overall flat-panel TV dollar volume.

The upstart American company entered into a crowded, established market with a disruptive business plan that undercut foreign companies on price, while introducing cutting-edge technology. Their recently announced P-series brings the latest panel technologies to market, and introduces a category-unique companion tablet dubbed the VIZIO Smartcast Tablet Remote with Google Cast built in. This is on top of their previously announced Reference series, a direct shot at the higher end offerings by respected players like Samsung and Sony. VIZIO’s disruptive business plan, bolstered by innovative products serving developed countries like the United States, has also put it on the map for increasing global market share. VIZIO is one of many examples of multinational enterprises that are leveraging globalization to its benefit as well as benefiting its home country. As far back as 2007 and 2008, it is estimated that this privately-held company (they have announced an IPO will happen in the near future)  more than doubled its revenue from $700 million to $2 billion dollars during that time period. They are providing hundreds of jobs to Americans and additional tax revenue to the federal government. While they source production of their TVs abroad, they are innovating and designing domestically. They are a good example of how domestic companies are adapting to foreign firms entering or entrenched in the market.

In discussing globalization, one should always remember the business component. That’s why it’s important to look at globalization as Global Business, an integrative term that looks at both domestic and foreign businesses and their activities from a global environment perspective.

Global Business is an integrative term that encompasses all aspects of globalization.

The Global Economy: By the numbers

Data extracted from (1) United Nations, 2011, World Investment Report 2011, New York and Geneva: UN; (2) World Bank, 2012, World Development Indicators database, Washington: World Bank. All data refers to 2011.

Here are a few numbers for points of reference: developed countries/economies (of which there are 33 according to the IMF) comprise of 20% of the world’s population, yet account for over 80% of the foreign direct investment outflows. And those developed countries contribute over 70% of global GDP pegged to nominal exchange rates, and about 55% when adjusted for purchasing power parity (think ‘adjusted for cost of living.’)

Adapted from (1) C. K. Prahalad & S. Hart, 2002, The fortune at the bottom of the pyramid, Strategy+Business, 26: 54–67; (2) S. Hart, 2005, Capitalism at the Crossroads (p. 111), Philadelphia: Wharton School Publishing.

In context of the global economic pyramid, the top of the pyramid, or “The Triad,” includes about one billion people whose per capita GDP/GNI is greater than $20K a year. By contrast, the base of the pyramid includes five billion people whose per capita GDP/GNI is less than $2K a year. Finally, the global economy at the beginning of the 21st century (global GDP calculated on nominal exchange rates) is estimated to be about $60 trillion dollars.

Those numbers just tell a small part of the story, yet form a basis for studying globalization and its effect on global business. Typically, discussions in the United States center around domestic multinational enterprises and their foreign direct investments – think Apple outsourcing manufacturing to Foxconn in Asia. But in context of global business, and not just globalization, there are domestic businesses in foreign markets, particularly developing economies, that engage in innovation that is adopted in their home country and then proliferated around the world. While most innovations are fostered in Triad-based developed countries, with the relatively richest of global customers in mind, their derivative products are typically simplified when entering foreign emerging or developing markets, which constitutes a top down innovation flow. (London, 2009, Making better investments at the base of the pyramid, Harvard Business Review)

Reverse Innovation: Emerging economies and what they can teach us

Reverse innovation, however, is a recent development, where emerging economies produce domestic products that better suit the needs and wants of their home country. (Govindarajan & Trimble, 2012, Reverse Innovation, Harvard Business Review) A good example would be Mahindra & Mahindra of India. Deere & Company, the iconic manufacturer of tractors and other farm equipment, based in the United States, was unsuccessful in producing a product for Indian farmers due to their price points. Mahindra & Mahindra developed their own, domestically designed and produced, affordable small-horsepower tractor that not only was a run-away hit in India, but became a global niche-success even in developed countries, including the United States. Today, Mahindra and Mahindra is the world’s largest tractor maker by units sold. In response, Deere abandoned its US tractor designs intended for export and instead “went native” in India, producing a very successful 35-horsepower tractor that was competitive both in India and the rest of the world. I would argue that reverse innovation can apply even to developed nations. What is US-based VIZIO doing other than taking a page out of the play book of Asian electronics companies that dominated American markets with low prices and other competitive advantages?

These examples of global business highlight one fundamental question: What is it that we do in global business and what determines the success and failure of firms around the globe?

Live or Die: Two Perspectives

There are two core perspectives in regards to a firm’s success: Institution and Resource-based. An institutional perspective would be global business constrained by “the rules of the game.” All countries have laws and values that formally and/or informally determine the behavior of a foreign firm entering the market. For instance, prior to 1991, India’s rules were tremendous hurdles for foreign firms. Deere & Company could not have even attempted its entrance into that market prior to 1991 with any hope of success. In fact, Coca-Cola pulled out of India in the 70’s due to the government demanding they hand over its formula for their secret syrup. That they were able to return in the 90’s speaks to how much the times have changed.

The second core perspective centers on resources. If we only looked at institutional factors as the sole determination for a firm’s success or failure in global business, we would be ignoring the internal resources and capabilities of a firm, which may find ways to adapt and succeed, even in an institutionally harsh environment. While the success of most firms is greatly influenced by institutional restraints, it would be naïve not to consider their resources and resourcefulness. (Cantwell, Dunning, & Lundan, 2010, An evolutionary approach to understanding international business, Journal of International Business Studies)

A good example of a market that has severe institutional constraints that have been overcome by the resources of foreign firms would be Brazil. For example, computers imported into the Brazilian market are subject to a 60% import tax. The majority of the components that make up the PC must be manufactured in Brazil. Given that PCs are a commodity product, this tax has historically prohibited foreign manufacturers like Dell or Asus from importing their products and has given way to leading domestic PC firms like Positivo and Megaware dominating the Brazilian market. In order to avoid this tax, foreign manufacturers have opened up their own SMT lines to locally produce motherboards, GPUs, etc, or partnered with domestic firms to manufacture their products under the foreign firm’s brand. This has led to Dell becoming the #1 manufacturer of PCs in Brazil in 2015.

Global Business is constrained by formal and informal institutional laws and values, as well as a company’s internal resources.

There is a lot of talk (bluster?) in the United States about globalization, and a lot of fear-mongering. While I don’t intend to write the definitive blog post that will settle the issue of whether or not globalization is bad, or even dive into the politics of globalization, I wanted to highlight that there are three views on globalization, and it all depends on your perspective.

The Controversy: Three Views on Globalization

If you just take a look at the surface, you might think that globalization is a recent phenomenon that is draining jobs and resources from the United States and other developing countries.

But there are two other views: one that says globalization is a long-running evolution of business since the dawn of recorded history, or that globalization is a pendulum, swinging from one extreme to the other. My personal view, based on some of the examples given in this post, is that globalization is indeed a pendulum, and it has been swinging for a long time.

Those who hold the view that globalization is a recent phenomenon typically think that it is a force that needs to be slowed down, if not downright stopped (BusinessWeek, 2006, Free trade can be too free, July 3.) With news dominated by sweat shops and Western technological innovations that are viewed by some to be exploiting and dominating the world via MNEs (multinational enterprises), opponents who hold onto this view focus on the environmental stress of globalization and social injustice, with few worked-out alternatives.

Alternatively, historians who believe that globalization dates back to the dawn of man are currently researching as far back as 8,000 years; the earliest traces of globalization have been discovered in Assyrian, Phoenician, and Roman times (Moore & Lewis, 2009, The Origins of Globalization.) To them, global business competition is not a new concept. The first known implementation of an import quota dates back to the first century CE; the Roman emperor Tiberius sought to stem the flow of low-cost Chinese silk imports. (Yergin & Stanislaw, 2002, The Commanding Heights) In fact, today’s MNEs don’t come even close to the global clout that the East India Company held during British colonial times.

For over 300 years, the East India Company, formed and supported by the British government and military, held a vice grip monopoly in international trade.

Lastly, globalization as a pendulum suggests that globalization is the “closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of the costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, service, capital, knowledge, and (to a lesser extent) people across borders.” (Stiglitz, 2002 Globalization and Its Discontents)

Globalization’s Pendulum Swings

Globalization is neither recent nor one-directional. It’s a process, swinging back and forth like a pendulum.

The latter half of the 20th century shows that globalization, whatever your view on it, rapidly increased, especially with the participation of non-Communist developing countries like Brazil, India, and Mexico, as well as the “Four Tigers” (Hong Kong, South Korea, Singapore, and Taiwan – the only economies once recognized by the World Bank to be less developed, have since then transitioned into developed economies, and are now included in the list of 33 countries/economies referenced at the beginning of this post.) As a byproduct of this rapid expansion of globalization, pendulum swings became much more visible. Backlash in the 90’s and early 00’s to globalization in foreign nations led to local economic factions resisting change. As an American it’s easy to say we’re losing jobs abroad, but we often ignore our impact in foreign countries, and they’re not all happy with us, especially when we succeed. The protests in ’99 and the Twin Tower attacks notably affected globalization as international travel was curtailed, and investment flows and global trade slowed down. However, in the mid-00’s, worldwide GDP and cross-boarder trade soared to historically high levels.

But how could we forget the global recession of ‘08-‘09? It showed how interconnected the global economy truly is, and it affected even emerging economies. While recovery has been slow in more developed countries, some of the emerging economies that are bouncing back are bouncing back quickly. As we recover, we may see more protectionist measures, as government stimulus around the world focus on local job creation schemes and “buy national” programs. It is here that reverse innovation and the resource-based core perspective on globalization are important to understand and are used in evaluating the global market.

“Buy national” programs and initiatives have led multinational enterprises to rethink some of their global business strategies.

Another prime example of the pendulum swinging back would be foreign car manufacturers like Toyota and BMW opening up manufacturing facilities in the United States, providing thousands of domestic jobs. This offsets, to an extent, domestic firms outsourcing some or all manufacturing to countries like Mexico as we are adding manufacturing jobs even in a time where we may be losing them elsewhere.

While VIZIO may be a good example of how the pendulum may be swinging back towards equilibrium and beyond, there are other examples as well. My current employer, BOXX Technologies, a leading manufacturer of high performance workstations for the creative professional, resisted the manufacturing outsourcing prevalent during the turn of the century, which has paid off in superior product quality and agility in regards to responding to rapidly-changing market demands.

Semi-globalization or “Are we there yet?”

Total globalization may not be an inevitable state of global business; we may in fact see symbiotic and diverse approaches to global business for quite some time.

We have arguably not reached a state of total globalization. Think of the two extremes. Total isolation would mean coming up with 100 versions of a product for 100 different countries. Complete globalization would result in something like a “world car” or a “world phone.” Clearly, the latter examples are not yet possible. Even Apple was forced to create a cheaper version of its iPhone, the iPhone SE, for markets where it’s not competitive with its higher end devices engineered for developed countries with higher per capita GDP/GNI. Similarly, Samsung uses two different processors for nearly every revision of its Galaxy line of smart phones to align features with what local markets demand.

The Bottom Line

Engaging the phenomenon of globalization through the analytical lens of global business leads to an objective view of how the world’s economies are interconnected, dependent, and evolving.

The global economy is a complex beast, with wealth disparagement and per capita GDP/GNI gaps between emerging and developed countries driving a seemingly one-way flow of foreign direct investment. But the truth is that globalization is a pendulum, and history proves that. We can see that through two core perspectives, the success or failure of multinational enterprises is largely dependent on formal and informal institutional constraints, as well as internal resources and resourcefulness. As firms adapt to these changing environments and business models, we see fascinating examples of global business exchanges between developed and emerging economies.

As we go forward into the future, globalization should not be viewed as an enemy, nor should it be praised as the ultimate solution to world-wide problems. Instead, I believe, globalization is something that we should engage with vigorous academic study and objective reasoning, leaving our biases at the door.

What are your thoughts on globalization, global business, and how has your business been affected?

Additional references and graphs for this article were included from Western Governors University’s “Global Economics for Managers” by N. Gregory Mankiw, Harvard University Professor of Economics.