Global Environment

Professor Christensen opened the discussion with a story about one of the guest’s younger days. The CEO of The Black & Decker Co. was apparently an accomplished college basketball player – and served as an inspiration for Professor Christensen’s own athletic ambitions. That the professor’s true potential lay elsewhere is perhaps a blessing in disguise. His performance as moderator was in top form, worthy of its own imitation.

The central questions posed to Nolan Archibald (CEO of The Black & Decker Co.) and Boon-Hwee Koh (Chairman, DBS Bank) were: “How does globalization affect the way I run my company?” and “Is globalization a one-way street or is there a U-turn ahead, another transformation?” Mr. Archibald took the floor first. During his 22 years at the helm of his company, he says that there has been a distinct transformation effort about every five years to remain competitive.

The first transformation involved cutting costs and exiting unprofitable businesses. In three years time, he and his team brought ROE from -26% to 16%. He also presided over the DeWalt product line expansion, which was integral to the company’s gaining market share back from Makita. Another transformation was in response to the increase in quality products coming out of China at low cost. Black and Decker embarked on a huge restructuring effort and closed production facilities in the US, transferring production to lower cost environments. Labor costs per hour were the most significant factor in this decision. “If you’re not low cost, you can’t compete in the global marketplace.” The irony is that today labor costs in China have increased and it is becoming attractive to bring production back to the US in some instances. In response to Professor Christensen’s second question about U-turns, Mr. Archibald wonders if globalization goes on forever, or if there comes a point where regionalization occurs.

Mr. Koh began his discussion with the observation that “globalization” was not in the business vocabulary when he graduated from HBS. He joined Hewlett Packard’s Singapore office in 1977, at which point the office was called an “offshore manufacturing center.” At that time, hourly labor costs in the US were six or seven dollars. In Singapore – 45 cents. Just as Mr. Archibald needed to adapt to stay afloat, Mr. Koh needed to lead HP through changing times. China’s opening in 1978 presented a big threat and Mr. Koh dealt with this by bringing product development to Singapore. “This was the heart of HP. I’d like to tell you I think about this at night (how to keep my company competitive) but honestly, often we’re just reacting.” Mr. Koh went on to direct SingTel during the deregulation of the phone industry in Singapore, and served as Chairman of Singapore Airlines for over four years before joining DBS Bank. “Globalization, I don’t know if it’s a one way street. There’s no rest if you’re going to stay competitive.”

Professor Christensen asked the panelists questions that reminded the audience we weren’t speaking in the abstract: “How is Black and Decker dealing with the (financial) crisis?” Mr. Archibald admitted they were fortunate not to be too levered. “Our balance sheet is in good shape, now. The government could help companies out, here. There are trillions of dollars overseas that won’t come back because of tax laws.” For Mr. Koh: “Given the decimation of Wall Street, where is the financial industry going?” The Chairman responded: “Regulation cannot continue to be country by country.” Interesting points, and with the US Presidential election in full swing, maybe these notions will be given proper attention on the national level.