The second day of the conference started with welcoming comments from Hume, the new general manager of IBM global business partners, who by now was running the show. In keeping with IBM's push to help its business partners expand their international business, Hume introduced the first speaker of the day, Paknaj Ghemawat, professor of global strategy at the IESE Business School in Barcelona, Spain.
Ghemawat said that, contrary to popular belief, cross-border integration is exaggerated.
For instance, he said only 2 percent of all calling minutes worldwide are for international calls, only 3 percent of the world's population are immigrants, only 5 percent of students worldwide are studying outside of their country of origin, only 12 percent of direct investment is cross-border, only 15 percent of stock investment is cross-border, and trade accounts for only 26 percent of the world's GDP (gross domestic product).
"While the world gets closer, it's still a long, long way from being integrated," he said.
Business partners looking to expand their business internationally can learn from retail giant Wal-Mart, which discovered that the farther it expanded from its original Bentonville, Ark. headquarters, the lower its margins. In fact, he said, Wal-Mart found business conditions in neighboring Alabama so different from Arkansas that it had to appoint a special team to look at how to localize its expansion.
Because of that, Wal-Mart changed to what it called the "AAA" strategy.
The first "A," adaption, meant learning to adjust to local conditions, including changing merchandising policies based on local markets. For instance, Ghemawat said, it went into India with its first joint venture because of Indian law that prevented foreign ownership of multi-store chains.
The second "A," aggregation, overcame the restraints caused by policies which varied from market to market by grouping countries by regions with regional headquarters to take advantage of economies of scale.
The third "A," Arbitrage, exploited local differences. Ghemawat said that Wal-Mart uses China mainly for sourcing profits, which exceed the profits of its other international operations by several times.
