' Academy ol Management Executive, 1999, Vol. 13, No.

The changing rules of global

competitiveness in the *
century
Shaker A. Zahra, Guest Editor
Executive Overview

romorrow's global marketplace will reward companies that value entrepreneurial risktaking, invest heavily in developing their intellectual capital, promote individual growth,
and adopt policies that are environmentally friendly. Successful competitiveness in the
2r' century will demand the use of visionary and dedicated leadership, a balanced
scorecard that enhances corporate accountability, and sustained investment in creating
dynamic capabilities. It will also require the effective management of intangible
resources and assets to achieve growth. A number of important conclusions are evident
from the articles appearing in this special issue.

On the eve of the 21^* century, predictions about

tomorrow's global landscape abound. And, with
the gigantic and breathtaking technological advances made in this century, it is only natural for
some to see tomorrow's landscape in Utopian
terms. Poverty will be eliminated, the natural environment will be saved, social ailments of all
types are likely to be eradicated, and progress will
lead to social and economic justice and human
growth. Globalization will continue to escalate,
transferring technologies, bringing cultures and
societies closer, and creating a community of
peace loving, intelligent citizens. In this vision of
the future, globalization will foster cooperation
among nations and promote good will. Globalization will be an instrument of peace, growth,
progress and prosperity. Competitiveness is
viewed as a marathon to achieve and sustain excellence.

creating enduring and unshakable dependencies.

Limited in their resources and unable to escape the
vicious cycle of their underdevelopment. some
countries are thus doomed to prolonged servitude.
Lacking basic infrastructure and resources, these
countries cannot be expected to absorb emerging
technologies, let alone innovate and compete on a
global scale. These countries also lack the political will and the institutions that make economic
and social transformation possible.' Simply put.
some nations do not have a choice but to tie their
futures to those of advanced nations and hope for
the best. Those who accept this view have also
come to the conclusion that globalization will
eventually decimate some local cultures and wipe
out the political and economic independence of
poorer countries.
Of course, the debate on the effect of globalization in the 21^' century has attracted some prominent politicians across the political divide.^ Conservatives fear that globalization will undermine
the integrity of a country's political and social institutions and may weaken its cultural fabric. Leftists are concerned about the prospect of political,
technological and economic dependence. Others
are concerned over our growing reliance on technology to address complex social and cultural
problems. They believe that quick techno-fixes do
not solve enduring problems, and that our best

Globalization will be an instrument of

peace, growth, progress and prosperity.
Competitiveness is viewed as a marathon
to achieve and sustain excellence.
There are less rosy views of our global future.
Some are deeply concerned that globalization will
widen the gap between rich and poor nations by
36

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hope is to work together toward a commonif not

harmoniousfuture.
But where does this leave executives and their
companies? How can nations and companies participate and compete in tomorrow's global marketplace? There is unanimity that globalization will
continue to escalate, creating opportunities and
formidable challenges for societies, companies,
and executives. Many of the forces that will shape
our future are already in place and their effect will
be felt and understood in time.^ In the previous
special issue of the Executive, we outlined some of
these forces and sketched out some of the characteristics of tomorrow's global landscape as well as
the challenges they pose for managers.
In this issue, we will highlight three additional
variables that will influence success in tomorrow's
global arena. The emerging global economy is
best described as being entrepreneurially based,
human-development-oriented, and environmentally sensitive.
An Entrepreneurial Economy
By all accounts, the pace, magnitude and direction
of change in the global economy will continue to
accelerate. In this dynamic setting, individual and
corporate entrepreneurs will assume a more powerful and prominent role. Adept in spotting opportunities and creating momentum for cultivating
them, these entrepreneurs are the true vanguards
of change in tomorrow's economy. They recognize
that survival and success in tomorrow's emerging
landscapes will require agility, creativity and ingenuity. They will also require innovation, risk
taking, and entrepreneurial action. For rich and
poor economies alike, entrepreneurial risk taking
is a necessity.
The rediscovery of entrepreneurship and its potential importance for growth is one of the most
important developments of the second half of the
20th century. Spurred initially by an interest in
revitalizing existing businesses. U.S. and European companies actively sought to transplant entrepreneurship in their operations. Under attack by
younger and more agile rivals, giant corporations
in the West found themselves slow and unable to
respond. These companies' views of their industries, customers and competitors have become outdated. Their bureaucracies have stifled the ability
to innovate. Throughout the 1980s and 1990s, large
companies undertook Herculean measures to remake themselves by making innovation and entrepreneurship the cornerstone of their strategies.'*
In the U.S. and elsewhere, there has also been a
serious interest in spurring individual entrepre-

Zahra

37

neurial risk taking. Therefore, a great deal of effort

has been devoted to creating a business climate,
in which people are willing to build such companies, add to job creation, develop and introduce
new goods and services and achieve wealth. Risk
taking is being encouraged, reinforced and rewarded. In richer and poorer countries, entrepreneurship is widely viewed as the gateway to
growth and prosperity.
As we entered the 1990s, a new breed of global
entrepreneurs took the lead in international trade.
These entrepreneurs have seen the monumental
changes that have taken place in the global economy and have proceeded to create companies that
have capitalized on these opportunities. Realizing
their limited resources, these entrepreneurs relied
on their global networks in assembling their resources, designing and making their products, and
building their distribution channels. More and
more of the younger entrepreneurial companies
are becoming active participants in the global
economy. This is true of manufacturing and service
sectors of the economy, whether low or high technology-based. One of the most remarkable aspects
of this phenomenon is that smaller companies
from emerging and historically lesser-developed
economies are active players in the global economy. If you doubt this, simply visit the Internet.
Companies of every size and national origin are
reaching global customers, proving that traditional barriers to entry and global competition are
disappearing fast.
The revival of interest in promoting individual,
entrepreneurial risk taking reflects several important changes in the U.S. and global economies.
Newer science and technology-based industries offer bountiful opportunities for wealth and job creation. Opportunities in the global marketplace
also offer an important setting in which to creatively compete and create wealth for individuals
and nations. The ongoing restructuring of the industrialized economies has also promoted a need
to pursue growth and wealth creation through new
firm formation. Downsizing and restructuring activities have forced some to seek ways in which
they can assess their intellectual and economic
independence. New firm creation is considered
one of the most viable options available for many
downsized employees. The emerging entrepreneurial economy has also attracted and promoted
the participation of diverse groups. Women and
minorities have found their place in this economy,
also building companies and creating wealth. The
participation of these groups will continue to rise
over the next decade.
The entrepreneurial economy is taking hold now

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Academy of Management Executive

around the globe. Governments and public policy

makers have enacted laws that encourage entrepreneurial risk taking among their citizens. They
have also improved the economic and technological infrastructures necessary to spur entrepreneurship. Improvements in public services, telecommunication and transportation have contributed to
enhancing entrepreneurial risk taking. Changes in
tax laws have also given individuals and firms an
incentive to take risks.
In many countries, governments did the thinkable: they proceeded to privatize their major industries to promote competition and entrepreneurship.
Advanced and advancing countries have concluded that the market works best if governments
stay out of the economy. Competition fuels innovation, entrepreneurial risk taking, and growth. Participation in the emerging global economy requiresin fact, demandsinnovation and entrepreneurial risk taking.

Advanced and advancing countries have

concluded that the market works best if
governments stay out of the economy.
Privatization is reshaping the economic landscape of many countries, where managers and employees now recognize the need to work together in
an increasingly complex and challenging global
economy. Privatization, a bitter medicine for many
countries and industries, has already brought
about considerable upheaval and. also change.
More and more companies are reinvesting in their
operations and upgrading their skills. Companies
are undergoing self-reexamination to determine
their competencies and capabilities and how they
might be leveraged in tomorrow's global markets.
Companies that were once protected monopolies
are shedding their past and embarking on genuine
strategic changes in order to survive. Privatization,
along with other initiatives already in place, will
profoundly shape the way that many countries,
industries and companies can and will compete.
One of the most important ways privatization
can influence competitiveness in the 21st century
is already evident today. Newly privatized companies are finding out they cannot go it alone; they
need to join forces with companies outside their
home markets to gain access to capital, modern
technology, management skills, and innovative
marketing capabilities. These alliances are likely
to increase as the forces of competition intensify,
compelling privatized companies to rebuild their
capabilities and define their core competencies.

February

Access to these capabilities can and will spur further innovation and increased entrepreneurial risk
taking.
In tomorrow's entrepreneurial economy, managers and their companies are likely to face important but exciting challenges. Innovation will become even more important in tomorrow's economy
than it already is today. Innovation in every part of
the firm's systems, operations, culture and organization will gain greater importance. Process innovations, too, will increase in importance. Managing and fostering these innovations will continue
to be a key managerial challenge.
A Focus on Human Development
One of the lessons of the 20th century is that economic progress does not always translate into human development. Of course, these two variables
should be related. Indeed, economic development
can neither be achieved nor sustained if it does not
promote or encourage human development. Statistics of economic or technological developments do
not tell the whole story; they focus on balance of
trade and ignore important dimensions of growth.
Development is more complex and our definitions
of competitiveness should recognize this fact. Recognizing this, both the UN Human Development
Index and the World Competitiveness studies conducted by reputable institutions such as IMD emphasize this complexity in their ratings.^
One of the most important lessons of the past
decade is that intellect and knowledge are the fuel
of global competitiveness and growth. Investments
in developing, nurturing, sustaining, and cultivating this knowledge are among the most important
ways societies can achieve growth and development. The same goes for companies, which must
work hard to attract and retain the brightest and
most capable people. Today, companies across the
globe are struggling with the challenges of creating and exploiting new knowledge. This has led
some companies to migrate closer to where this
knowledge already exists, as evidenced by the
growing number of global R&D and joint sponsored research programs being initiated around
the globe.^
The growing interest in and the recognition of
human development as a key ingredient in competitiveness reminds us of the complex social role
of the firm. For decades now. debate has persisted
about the nature of this role and how it can best be
achieved. Companies and their managers recognize the complexity of this social role. However we
define this role, I believe more and more attention
will be given to human development as a criterion

1999

in defining and evaluating companies' performance in the 21^* century.

A Green Economy

As the 20"^ century comes to a close, many have

concluded that economic growth should and can
be achieved in synchronization with protecting the
natural environment. Economic development in
many parts of the world has been accomplished at
a heavy cost to our natural environment. Despite
repeated promises of responsible stewardship for
the environment, some companies have been slow
in designing policies and adopting work place reforms that will protect the natural environments
and resources.''
Citizen activism, improvements in technology,
changes in corporate values, and the realization
that being green can be profitable have contributed to a renewed interest in protecting natural
resources and preserving them for future generations. Companies have already initiated programs
that have the goal of protecting these resources
while making strategic uses of them. Some companies have found that customers not only appreciate
the importance of adopting green strategies but
they also reward those companies. Executives are
finding that they can do well by doing good.^
In tomorrow's global economy, emphasis will
undoubtedly shift from simply attempting to address the needs of a concerned public to doing the
right thing and doing so in entrepreneurial and
innovative ways. New industries that specialize in
environmental technologies are fast becoming an
important sector of the national economies of some
countries. Moreover, companies are recognizing
the great potential of environmental entrepreneurship, where they can derive a great deal of competitive advantage from their investments in environmentally friendly strategic choices.^
Will the ideals of green economy of today materialize in the future? Global treaties on protecting
the natural environment offer some hope. Changes
in companies' strategies and business practices
are also a good reason for optimism. Some companies are devoting the resources needed to invest in
new, environmentally friendly technologies. The
good news is that some of these investments are
already paying off for companies and their stakeholders. Advances in environmentally friendly
technologies are also likely to promote organizational and process innovations that spur growth
and productivity. These technologies are also safer
and more conducive to higher levels of productivity. Green productivity is fast becoming a wise
corporate investment.'"

39

Zahra

The growing attention given to having a green

economy has many implications for executives
and their companies. Stakeholders are already demanding sound environmental policies and are
making their investment decisions with this in
mind. Executives will have to face the challenge of
changing the corporate mindset to ensure greater
attention to the potential of green technologies and
their implications for organizational survival and
performance. In turn, these technologies can transform organizations in ways not heretofore recognized.
The challenge of green productivity is worldwide; it affects global corporations as well as
small enterprises in even the most disadvantaged
economies. With an increasingly interconnected
global economy and growing emphasis on protecting the natural environment and resources, there
are significant opportunities for cooperation and
collaboration in developing, testing and implementing new technologies. Established global corporations with their huge resources can take the
lead in creating momentum to ensure this collaboration.
What Does It Mean for Executives?

In the first of the two special issues on global

competitiveness, published in November 1998,
Hugh O'Neill and I have attempted to articulate
some of the key implications of the changing
global marketplace for managers and companies.
One of the key, though obvious, points is that radical change will continue and will reshape the
frontier of the cognitive maps of industries, companies, and managers. Old recipes for competition
will no longer suffice. That much we agree on. Yet
our theories and analyses of the recipes for successful competition in the 2P' century appear inadequate. Societies and companies will continue
to transform themselves, whether through evolution or quantum change.
Editing two issues of the Academy of Management Executive on global competitiveness has
helped drive home the following four basic, but
somewhat familiar, lessons.
Leadership is the key to competitiveness
In a dynamic environment that brings opportunities and challenges, the role of senior leadership
in achieving organizational transformation and
evolution is pivotal. Great leaders build great organizations. While the influences of the firm's external environment cannot be ignored, many companies rise and fall based on the quality of their

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Academy of Management Executive

leadership. ^^ As Ireland and Hitt tell us in this

issue, this will be more true in the next century, as
companies struggle with their missions, identities,
and strategies.
Visionary leaders recognize the beginnings of
strategic change in industry dynamics, see the future before it materializes, and move quickly to
capitalize on these changes. These leaders understand the global landscape, and the myriad of
forces that can affect their companies' global success. They know that the secret lies in building an
organization that values change, innovation, and
the inclusion of diverse skills, views and backgrounds. These leaders realize that resources and
strategies are important for global success, but so
does the soul of their organization.

A balanced corporate scorecard is needed

As I edited the papers submitted to the two special
issues of the Executive, I was struck by the lack of
any submissions about the effective ways managers can evaluate their companies' performance in
the 21^* century. Perhaps, to some, this issue is
passe and has already been extensively written
about. My own explanation is that few of us are
willing to tackle this complex topic.
Managers around the globe continue to struggle
with the issue of measuring company performance. There are. of course, many well-established organizations and groups that analyze the
company's progress in almost every conceivable
fashion and then propose an agenda for management to follow. But managers have to face the
daunting task of identifying, understanding, and
addressing the complex demands of their stakeholders. Managers do this more and more under
serious time pressures, frequently in real time.
Technology has made it possible for different
stakeholders to follow almost every move a company makes. Companies know this and many have
responded by offering detailed explanations of
their moves in real time.
These changes are likely to increase the transparency of managerial actions and corporate accountability. But these practices leave two fundamental issues unresolved. The first is how
managers lead their organizations for the long run
in this environment. The second is how organizational performance is measured. The challenges I
noted earlier regarding the growing emphasis on
green productivity and human development highlight the need for a different, perhaps more balanced, score card.

February

Dynamic capabilities are required ior sustained

global competitiveness
If change is the norm, companies need to develop
dynamic capabilities that can be used as platforms from which to offer new products, goods, and
services. These capabilities are hard to develop.
Once they are in place, they should be nurtured,
replenished and upgraded.'^
One of the key ways of building and sustaining
these capabilities is to harvest the wellspring of
creativity and knowledge among the company's
employees. This will require significant changes
in organizational cultures, systems, and views of
human resources and will require investments in
upgrading the firm's human capital.'^
A second way to build these dynamic capabilities is to selectively use external sources of organizational competencies to complement and augment the firm's existing skills. It is fashionable to
suggest the use of outsourcing, joint ventures, and
licensing agreements as ways of gaining competencies. There are. of course, many situations
where these and similar strategies can give the
firm a competitive advantage. Yet I fear that companies are trading off growth and profitability for
short-term advantage. Building dynamic capabilities requires sustained investments in the firms'
assets and resources in ways that set the company
apart from its rivals.

Building dynamic capabilities requires

sustained investments in the firms' assets
and resources in ways that set the
company apart from its rivals.
Intangibles will matter a great deal in creating
and sustaining competitiveness
If dynamic capabilities are essential for global
success in the 2P' century, the firm should find
ways to develop, sustain, and protect these capabilities. Tomorrow's global marketplace will be
crowded, with companies of diverse national origin vying for success and prominence. For this
reason, the firm's intangible assets and resources
will become key to building dynamic capabilities
while differentiating it from the competition. Success in the 21^' century will demand greater attention to building the firm's relationships with its
diverse stakeholders in ways that lead to mutual
trust and respect. It will also require effectively
building a favorable corporate image and identity
and leveraging the company's reputations. At a
time where customers appear to have seemingly

1999

unlimited choices of brands, corporate reputation

will be a major asset.
An Overview of the Papers on Globalization
Ireland and Hitt focus on the crucial role of senior
executives in achieving and sustaining global
competitiveness. The authors also tackle the issue
of group leadership, which is an important issue
managers face in building effective organizations.
Ireland and Hitt also discuss six areas that demand attention in developing senior leadership.
Remaining focused on the future is an essential
component of successful competitiveness.
In their paper. Petrick and colleagues focus on
one of the most important issues companies have
to address in the global marketplace: their reputational capital. The authors compellingly argue that
companies need to do more than accumulate this
capitalthey need to change the ways in which
they define, measure, and use it to create a sustainable competitive advantage in global markets.
The authors contend that this capital can be used
offensively and defensively, depending on the
firm's strategic priorities and competitive setting.
The authors offer managers several ideas to effectively use and protect their firm's reputational capital.
The paper by Thomas. Pollock, and Gorman focuses on the important issue of analyzing global
industries. Building on a well established stream
of research, these authors show how managers'
outdated cognitive maps of the industry can blind
them to emerging changes in their markets. These
cognitive maps influence and shape managerial
decisions, especially in terms of selecting the competitive arena and the group of rivals with which
the firm will compete. Clearly, as Thomas and
colleagues argue, competition in the emerging
global landscape will require different types of
analyses. Reading the next three papers in this
issue reinforces this point.
The next two papers have much in common and
help to reinforce the point that different approaches are needed to obtain the knowledge
needed for successful competitiveness. Tsang and
Si and Bruton focus on the role of international
joint ventures in this process. Both articles draw
heavily on the experiences of multinationals in the
Chinese market, where the competitive landscape
is not well defined. Companies in this and other
emerging markets face the daunting task of dealing with considerable economic and political ambiguities. The analyses offered by Si and Bruton
are broader. Combined, the two articles offer some
important lessons for companies seeking to navi-

41

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gate the complex landscape of emerging economies in pursuit of competitive advantage.

In the final article. Ali examines the readiness of
Middle Eastern countries to compete globally. Ali
first recognizes these countries' great potential to
emerge as global players. Next, he discusses several factors that inhibit these countries' ability to
compete. Ali takes note of several developments
that can enhance these countries' participation in
the global economy. Changes in political, social
and economic institutions are important for this
transformation to occur.
Conclusion
Predictions about the 21^' century abound. There is
agreement that forces of globalization will continue to escalate, bringing about fundamental
changes in the traditional boundaries of nations,
industries, and market. Globalization creates
bountiful opportunities but poses significant challenges for nations and executives. The changing
competitive global landscape challenges traditional rules of competition. Companies around the
globe are searching for innovative ways that allow
them to capitalize on the opportunities unleashed
by the global economy. In such a dynamic and
competitive economy, entrepreneurial leadership
will take center stage.
Acknowledgments
I would like to acknowledge with gratitude the
support of the Management Department. Beebe Institute, and The Institute of International Business
at the J. Mack Robinson College of Business at
Georgia State University in editing this and the
previous issue of the Academy oi Management
Executive. I am also grateful for the support of the
Cato Center for Applied Business Research and
the Kenan Institute of Private Enterprise at the
University of North Carolina at Chapel Hill. I have
benefited from my collaboration and discussions
with my colleagues and friends at Cairo University
(Egypt). Academy of Economics in Poznan (Poland).
Jonkoping International Business School (Sweden).
Baptist University of Hong Kong, and the ESC
Groupe in Grenoble (France). I have also benefited
from my work with Gerry George (Syracuse University) and Anders Nielsen (Aalborg University. Denmark). The support of Hugh O'Neill. Jerry Oster.
and Patricia Zahra has been outstanding.
I would like to recognize and thank the following
individuals for their excellent service as reviewers
for the two special issues on global competitiveness. Their thoughtful, timely, and outstanding re-

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Academy of Management Executive

views helped make these two issues possible.

Abbas J. Ali. Indiana University of Pennsylvania
Achilles A. Armenakis. Auburn University
Kendall Artz. Baylor University
D. Neil Ashworth. University of Richmond
Alan Bauerschmidt. University of South Carolina
Debbie Bickford. University of Dayton
Debra Cohen. The George Washington University
Teresa Joyce Covin. Kennesaw State University
Deepak K. Datta. University of Kansas
Kofi A. Dazdi. Georgia State University
David L. Deeds. Case Western University
Sevgin Eroglu. Georgia State University
Robert Gatewood. University of Georgia
Ted Herbert. Rollins College
Robert Hill. University of Houston
Richard C. Hoffman. Salisbury State University
J. David Hunger. Iowa State University
Andrew Inkpen. Thunderbird (American Graduate
School of International Management)
R. Duane Ireland. Baylor University
William Judge. University of Tennessee
Ben L. Kedia. Memphis State University
D. Jeffrey Lenn. George Washington University
Anders P. Nielsen. Aalborg University (Denmark)
Donald O. Neubaum. University of Central Florida
Joseph A. Petrick. Wright State University
Thomas C. Powell. Bryant College
Robert F. Scherer. Wright State University
Terrance Sebora. University of Nebraska (Lincoln)
Paul M. Swiercz. The George Washington University
Anisya Thomas. Florida Atlantic University
David D. Van Fleet. Arizona State University. West
Campus
William B. Werther. Jr.. University of Miami
Endnotes
' R.
Alfred
^E.
ments.
1996.

D. Stone. The Nature of Development. New York, NY:

A. Knopf, 1992.
Graham, Global Corporations and National GovernWashington. DC: Institute for international Economics,

February

^ M. A. Hitt. B. W. Keats and S. M. DeMarie, Navigating in the

new competitive landscape: Building strategic flexibility and
competitive advantage in the twenty-first century. Academy of
Management Executive, in press.
^ Shaker A. Zahra, Governance. Ownership and Corporate
Entrepreneuership: The Moderating Impact of Industry Technological Opportunities. Academy of Management Journal, 1996
(39) 1713-1735.
^ S. Garelli, World Compefifiveness Yearbook. World Competitiveness: New Frontiers in 1998.
^Richard Florida, The Globalization of R&D: Results of a
Survey of Foreign-Affiliated R&D Laboratories in the USA,
Research Policy, 1997 (26), 85-103.
'' A. Hoffman, From Heresy to Dogma: An Institutional History
of Corporate Environmentaiism. San Francisco, CA: New Lexington Press, 1997.
^ M. V. Russo and P. A. Fouts, A Resource-Based Perspective
on Corporate Environmental Performance and Profitability.
Academy of Management Journal, 1997 (40), 534-559.
^ S. L. Hart, A Natural Resource-Based View of the Firm.
Academy of Management Review, 1995 (20), 986-1014.
' Green Productivity: In Pursuit of Better Quality of Life.
Tokyo, Japan: Asian Productivity Organization, 1997.
" D. A. Nadler, Champions of Change: How CEOs and Their
Companies Are Mastering the Skills of Radical Change. San
Francisco, CA: Jossey-Bass, 1998.
'^D. Lei, M. A. Hitt and R. A. Bettis, Dynamic core competences through meta-learning and strategic context. Journal of
Management, 1992, 22, 549-569.
'^ D. Leonard-Barton, Wellsprings of Knowledge: Building
and sustaining the Sources of Innovation. Boston, MA: Harvard
Business School Press.

About the Special Issue Editor

Shaker A. Zahra is professor of strategic management at the J.
Mack Robinson College of Business at Georgia State University.
His research centers on entrepreneurship, innovation, and technology management. The author of four books, he has also been
published in the Academy of Management Journal, Strategic
Management Journal, Journal of Management, Academy of
Management Executive, Journal of Management Studies, Decision Sciences. Journal of Business Venturing, and European
Management /ournaL Dr. Zahra has served as guest editor of
special issues of the xecu/ive and the Academy of Management Review. He has received awards for excellence in teaching and research.