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. Last Updated: 07/27/2016

Selling Your Strengths

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Russia's economic development in recent years has been extraordinary. Last year, real gross domestic product grew by 6.7 percent, surpassing average growth rates in all other Group of Eight members and marking the country's seventh consecutive year of economic expansion. This growth has led to rapid increases in real wages and disposable income and a tripling of private consumption from 2002 to 2006. Today, across many sectors, the country is booming.

An increasingly integrated and global economy has been an important driver during this period of change. It will no doubt continue to play a central role in transforming businesses and peoples' lives. But even if this transformation continues, the question remains, "How should it happen?" -- Not just in Russia, but around the world.

This is one of the key questions that leaders in business, government and academia are trying to answer. They are considering how every part of the world, every area of society and every enterprise and institution will need to react to a new imperative -- what I call the "principle of global integration."

The principle is: When everything is connected, work moves. And today, for the first time in human history, everything is connected.

After just one decade, there are a billion people, millions of businesses and perhaps a trillion devices connected to the World Wide Web. Almost 20 percent of Russians currently use the Internet, and this population is growing at double-digit rates each year. It is estimated that more than 70 million Russians will be online by 2010. Technology networks are enabling businesses large and small across the country to play an increasing role in the global economy and to sell their products and services all around the world.

Meanwhile, we've seen the expansion of free trade agreements, shifting attention to the importance of services-based economies and the emergence of highly skilled labor forces in India, China, South Korea, Latin America, Eastern Europe and beyond. This combination of technology, demographics, expanding education, regulatory change and business model evolution has produced something genuinely new -- a global platform for work, where business increasingly flows to the places where it will be done best (that is, most efficiently and with the highest quality). It's like water finding its own level.

So the practical question facing businesses and societies today is not, "What will globalization do to me?" but rather, "What will cause work to flow to me?" The answer to that question depends, I believe, on three imperatives.

The first is economics -- the one most commonly talked about in the media. Clearly, cost and profit potential are important determiners of where and how work will move. But low cost is not the only factor of success.

Why, for instance, are European biotech and pharmaceutical companies, such as Roche and Eppendorf, building manufacturing and research and development centers in the United States? Why does Hyundai Motors manufacture cars in Alabama? Why did IBM's annual survey of foreign direct investment trends in manufacturing, services and R&D last year reveal that Europe regained its position as No. 1 in 2005, attracting 39 percent of all projects, against 31 percent in Asia?

In all of these cases, companies are not moving solely to low-cost environments. What they're doing is obeying the second imperative of global integration: expertise. In a world that is placing an ever greater premium on innovation, the obvious way to win is by having better skills, better ideas and more unique solutions.

I believe that expertise is Russia's key differentiator in the globalized and networked world. According to the government, exports of programming products and services increased by 80 percent, to $1.8 billion, from 2005 to 2006. The government expects this to rise by another 1,000 percent by 2010. Russian companies are competitive in the global IT services market not simply because they have lower costs, but because of their ability to tackle nonstandard tasks essential for product development and to manage high-end, complex projects.

That's why IBM has collaborated for years with Russian companies on important areas of its own global product development. The country's large pool of highly skilled professionals with mathematics and science backgrounds is also what led IBM to open a product development lab in Moscow last year.

The last of the three drivers of global integration is openness -- in trade, technology, and commerce. Since the economic problems of the mid-1990s, Russia has come a long way. Foreign trade has grown significantly, and there has been strong foreign investment from many global companies that regard the country as a good place to do business. Membership in the World Trade Organization, I believe, will bring further benefits to Russia, its trading partners and investors.

As a practical matter, how does a company pursue global integration? IBM's own experience may provide some useful lessons.

When I joined IBM in 1973, the company was a classic "multinational." To gain access to local markets, the multinational created smaller versions of itself in country after country around the world, and made heavy local investments. At the time, this was a very reliable way to grow. Once global networking and changes in trade policy set in during the 1980s and 1990s, however, the multinational model of separate supply chains, procurement, finance, human resources -- and even manufacturing and R&D -- became expensive and inefficient. Today, it just gets in the way of speed, responsiveness and innovation.

Businesses around the world are moving to the next model. The globally integrated enterprise shapes its strategy, management and operations in a truly global way. It locates operations and functions anywhere in the world, based on the right cost, the right skills and the right business environment. It focuses on what it does best, and it partners with other specialized companies and organizations as part of a diverse ecosystem.

This is in part a question of how a company organizes itself. It also relates in part to processes, culture, and values. In the end, shared values must form the foundation for a globally integrated enterprise in a radically more fluid and integrated world. By definition, being much more open, collaborative, and trusting is at times messy, uncontrollable, and uncertain. You have to accept a measure of that. But we've found that delegating to our people -- having confidence that they will behave in a manner consistent with our values -- is itself a demonstration of trust and ultimately the most pragmatic approach. It's how we are building a values-based culture and a values-based management system at IBM.

As the world flattens more every day, companies, nations and even individuals must ask themselves on what basis they will differentiate and compete. Economics? Expertise? Openness? What are their unique capabilities and skills? These are big questions, over which most CEOs, heads of government and academic leaders are scratching their heads.

After a good deal of thought, IBM has decided to compete on the basis of expertise and openness, and we are moving from a multinational to a globally integrated model as fast as we can. With Russia's large talent pool and rapidly growing IT and services market, I am encouraged that this country will continue to play an important role in IBM's strategy.

I believe that Russian companies and the government can and must make the same kinds of decisions for their own enterprises and institutions. I also firmly believe that the benefits will be substantial for the country and its people.

Samuel J. Palmisano is chairman, president and CEO of IBM.