Making People Decisions in the New Global Environment

Economic power has been shifting at an unprecedented pace from the United States and Western Europe to a host of emerging countries. A recent forecast from Goldman Sachs Group Inc. predicts that in just 20 years or so, the gross domestic product of China could be larger than that of the United States. Together China, Russia and India have amassed almost $2 trillion in foreign currency reserves, and local companies from Southeast Asia, India, China, Russia and the Gulf countries have been buying industrial assets all over the world. In the past, these emerging countries relied on cheap labor to compete at the bottom of the pyramid. Not any longer. Their competitiveness is already reaching the high end, including knowledge-intensive sectors like biotechnology and information sciences.

A Changing Landscape

Senior executives around the world haven’t been blind to the changing landscape. My colleagues and I recently conducted a major global study with the CEOs of 50 of the world’s largest multinational corporations, which together employ more than three million people and have a combined market capitalization approaching $2 trillion. These companies are fully aware of the dramatic global changes that are occurring and are aggressively planning to intensify their presence in developing regions. In particular, they recognize that Brazil, Russia, India and China (the so-called BRIC countries) represent not only a growing market of almost two billion people but also a source of inexpensive labor and cheap brains.

Accordingly, the multinational companies in our study have been planning to increase the percentage of their talent outside their original headquarters region substantially over the next five years. Moreover, CEOs of these companies have been heavily involved in senior talent management issues (including recruitment, development and retention), spending up to 40% of their time on such tasks. Even so, the unfortunate truth is that many companies are still woefully ill-prepared to handle senior talent issues in the new global environment. There are three reasons why: widespread ignorance about how much (and how fast) things are changing, a number of unprecedented challenges for people decisions, and existing talent practices that are far from adequate.

Widespread Ignorance

Although executives are generally knowledgeable about changes in global competitiveness, many are ignorant about specific markets. For example, an international study by BT Group PLC found that 55% of Western business executives didn’t even know that the Indian currency is the rupee.