Business smarts are not enough. The best global leaders are also political gurus and experts in dealing with the nonrational. CEOs are naturally students of the big picture.

Bhaskar Chakravorti, senior associate dean at the Fletcher School at Tufts University and executive director of Tufts’s Institute for Business in the Global Context, wants them to think even bigger. As more businesses become global in scope, leaders must become experts in geopolitics as well as economics and must be conversant in topics as diverse as the domestic agendas of foreign markets and the ways those countries use natural resources and resolve regional disputes. Chakravorti spoke to Inc. about the imperative to follow world events. –as told to Leigh Buchanan

 

In what sense is the worldview of U.S. business leaders too narrow?


Business leaders traditionally focus on market forces, such as customers, competitors, and suppliers. But potential crises–and potential opportunities–often can be found when imbalances or gaps occur in nonmarket forces. By that I mean the forces that surround the market. So business leaders also should pay attention to developments in countries’ political, legal, and regulatory systems. Also to things that might affect those countries’ business ecosystems, by which I mean supply chains, basic infrastructure, their capital markets, their natural resources, and the productivity and quality of their human capital.

Big cities in the world map
Organization for Economic Cooperation and Development (OECD) estimates that Asia will drive 80 percent of global middle-class spending growth in 2030.

You’ve said business leaders are too focused on “rational” frameworks of business and economics. Is the wider world less rational?


When I say nonrational, I mean that people doing business outside the United States have to deal with multiple actors–political actors, regulators, labor unions. They may all have different objectives from one another. Individually, each and every one of those objectives is rational. Taken together, you’re in an extrarational, not an irrational, setting.

For example?
Take China. The Chinese government wants to incubate an internal supply chain that is up to world standards. The way it goes about that is to require Western companies to source from Chinese suppliers and local entrepreneurs; that is one of the requirements of doing business there, even though rational business logic would suggest that companies source from the best available suppliers.

In India, allowing foreign retailers to operate without a local partner is, from a purely rational standpoint, in the best interests of everybody. And yet after the government announced it was going to let retailers act in a relatively unrestricted way, it went back and reversed that decision. Because there are constituencies that argued that it was not in the best interests of local farmers or shopkeepers to have these foreign businesses come in.

So leaders need to monitor events within countries.
If you look at large countries such as China, India, Brazil, Russia, and even to some extent South Africa, there’s a lot of excitement among Western companies about these markets, because they are growing fast. But within these countries are internal politics that most businesses are not fully aware of. There is often resentment among certain groups, and in order to keep that resentment down, certain political entities need to be appeased. Or the government must be able to guarantee a particular growth rate to keep people employed and revolutions at bay.

Business travelers often visit just large cities, where clearly a lot of transformation is taking place. They are less aware of what’s happening in the Tier Two, Tier Three towns, or even in the rural countryside. The reality is so different when you go away from the large cities.

 

This article is from:

How to Think Globally

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