Business and finance go global: while the Depression and World War II dampened global expansion, it has been surging in recent decades. Financial executives have seen their own tools and procedures dramatically altered amid a welter of advances in communication, distribution and technology.

If you've been to one of Disney's theme parks, you've probably been on the ride that features dolls from around the world chirping a cute but highly repetitive theme song: "It's a small world, after all."

Would that it were so simple. The notion that we live in a closely knit and easily bridgeable world has been widely popularized but is still debatable; after all, most of Africa is largely removed from the world of Westernized commerce and its attendant standards of living, and there are still many remote areas of the world where people's ways are closer to the 19th century than the 21st. But the change in global awareness and economic interdependence during the past 75 years of FEI's existence has been remarkable, and, in recent decades, largely continuous. The world is indeed a lot smaller--or at least, more accessible--through virtually any measure: transportation, communication, trade or acceptance of different languages or cultures.

Much of that, of course, has come since the nightmare of World War II, which reduced swaths of countries like Germany and Japan to charred rubble and put international trade essentially on hold. Yet it was precisely those two nations that helped spark the industrial recovery of the 1950s and 1960s, helped in large part by American-run economic assistance programs.

"In Europe, we had the Marshall Plan, and there was the effective occupation in Japan, led by General MacArthur, that laid the basis for democracy," says Charles Manatt, co-chairman of Manatt Jones Global Strategies and an ambassador in the Clinton Administration. "The next step in Europe and Japan was the formation of a political platform where a free-market economy could evolve."

Indeed, it has been business and trade that have forged the strongest links between disparate nations and continents. Treaties and diplomacy have frequently been meshed in trouble and controversy, but technology--riding the coattails of free (or at least freer) trade--has brought an onslaught of change that has spurred business growth.

Globalization of business has been boosted by any number of developments, but none more important than quantum leaps in air travel and communications. Long gone are the days when traveling to Europe from North America meant days at sea; you can be there in six hours by jet, then fly on to Cairo or New Delhi. And telecommunications lines, once limited to heavy physical cables, have gone wireless; you can punch in a few numbers on a keypad and be talking within seconds with someone in Hungary or Argentina. Cable television, business newswires and the Internet have ushered in an era of "24-7," much of that arriving just in the past decade.

Many products are still shipped by sea, but containerization has brought vast improvements to distribution. Goods are now loaded into truck carriers that are offloaded from freighters in the country of shipment and whisked to warehouses and distribution centers. In the air, Federal Express, United Parcel Service, DHL and other freight carriers are flying millions of tons of goods every day throughout the world.

Globalization of the workforce has meant hiring foreign nationals to run country-based operations; that's been true for American companies for many years, and increasingly so for Asian companies (like the Japanese automakers who have hired U.S. executives to run U.S. divisions). Nationalities and borders are less important: Consider CEOs like J.P. Garnier, a Frenchman who lives in the U.S. but runs British-based pharmaceutical giant GlaxoSmithKline, or Howard Stringer, a Briton who works in the U.S. but heads Japan's Sony Corp.

Increasingly, FEI members have been part of the globalization stream, chiefly as their companies have gone overseas for the first time or have expanded their reach to still more world markets. CFOs are busily tapping on their Black-Berries or talking on cellphones, whether they are in Tokyo or Chicago; or perhaps they're reviewing spreadsheets on a laptop on a flight from New York to Frankfurt.

But FEI leaders have also been involved with globalization through consultative and advocacy efforts done in conjunction with their counterparts in other developed countries (see "FEI Becomes a Global Resource," page 20). This work is separate and distinct from the effort to unify global accounting standards, which will be covered in a separate article later in the year.

FINANCE

For the finance suite, globalization of business has brought a raft of complications and challenges. Any short list would include the jumble of foreign exchange rates and country-specific taxes; the logistics of collection and settlement in areas perhaps half a world away; the mind-numbing explosion of financial instruments like futures, options and hedges--traded on global exchanges--that sophisticated companies now wield to reduce risk; and reconciling ledger entries and other items coming from regions where finance training or procedural skills may be questionable, at best.

There's also the increasingly daunting task of financial reporting, which now may require pulling together data from dozens of units in various countries and time zones. Back in the 1930s, those relatively rare requests were presumably handled by telephone or mail; now, they are computerized, but still frequently difficult to consolidate from a host of differing systems. The rise of sophisticated enterprise resource planning (ERP) systems, however, has allowed best-practices companies to move onto a "single instance" around the world to consolidate their financials.

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Consider the experience of Oracle Corp., whose movement to a centralized global finance function is detailed by former CFO Jeff Henley in this issue ("The Exceptional CFO," page 52). Henley notes that Oracle has four service centers around the world, supporting four operating divisions in more than 90 countries. Moreover, through Oracle E-Business Suite, the software giant operates one instance of its financial applications for the entire world through a facility in Austin, Texas.

Of course, the very creation of software giants like Oracle or Microsoft Corp. couldn't probably been envisioned in the 1930s and 1940s, when computers were still mostly a dream and key finance department tools included the adding calculator and the Ditto copier. Even the development of mainframe computers (marked by the IBM Corp. computer punchcards of the 1960s) hardly presaged the emergence of the personal computer and a finance department where everyone from Tokyo to Paris and New York was working on Excel spreadsheets at their desk.

Robert Walker, FEI's current chairman, draws a helpful distinction between internationalization of business--essentially, taking products to individual countries--and globalization, which he calls a far more recent phenomenon, abetted by the Internet and new communication forms. "Internationalization is about how things are different; globalization is about how things are common," he says. The rise of English as a common business language has also facilitated commerce and allowed more uniform processes, he adds.

A former Hewlett-Packard Co. division controller, Walker recalls the days when HP could price products differently in France and Germany.

That really couldn't happen today, he says, with the instant and worldwide communication networks that exist. Yet on the plus side, he adds, companies can do their financial processing now in one worldwide venue, something that would have been unthinkable a generation ago.

MODERN THINKING AND PRACTICE

It was in the 1980s, following an onslaught of foreign competition, that companies seriously began to consider strategy from a global perspective, argues Vijay Govindarajan, professor of international business at the Tuck School of Business at Dartmouth. No longer was the "rest of the world" viewed strictly as an export opportunity. Major companies built extensive global presences, locating value-chain activities such as basic research, product development and manufacturing wherever it made the most sense.

A downside of that growth, Govindarajan says, was that corporations began building complex global operations before they really understood how these could work. Different subsidiaries faced entirely different strategic contexts, with differing demands from customers and different competitors.

Thomas L. Friedman, the columnist for The New York Times, has helped frame globalization in recent books like The World Is Flat and The Lexus and the Olive Tree. One of Friedman's central tenets is that there are "flatteners," like the emergence of the Internet, that are bringing the various corners of the world into closer proximity--a concept that can be applied equally to the world of business

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With the popularization of the Internet in the mid-1990s, the most influential strategic thinkers were the most radical ones--those who argued that no competitive advantage was secure, Govindarajan says. Strategy was a matter of creating a new and better future, not finding the best way to compete within existing boundaries and conventions. "Branding" became a key strategic concept.

In recent years, especially, much of the rise of global business revenue--and not just in the U.S.--has come from global brands, and those have been abetted enormously by communication. It's all synergistic, and seemingly unstoppable. Asian teenagers crave U.S. jeans and McDonald's, just as their counterparts in the U.S. crave Sony electronics or Samsung cellphones. Companies that have managed to forge those global brands (Nike and Coca-Cola, to name two others) have shipped worldwide for decades and have a huge built-in advantage in the battle for global consumers.

Going back 50 years or more, global brands were in their infancy. Logistics made it difficult, if not impossible, to ship around the world, and promoting and marketing a brand was usually a matter of print advertising and radio jingles. The arrival of television, and particularly color television, helped revolutionize product marketing, and air freight, containerization and superhighways did the same for distribution.

THE EMERGENCE OF THE EU

A polar opposite of globalization is fragmentation, and by the late 20th century, that's what leaders in Europe sensed was holding them back economically. Seeking to emulate the economic might of the U.S. and Japan, ministers in key Western European countries voted to approve the Mastricht Treaty in 1992, creating the European Union. The central concept was simple: to link the economies of the participating countries and remove trade obstacles between them. In effect, the EU was envisioned as a collective entity in which the individual country fiefs could be persuaded to act for the good of the whole.

Predecessor schemes date back to the 1950s, but not surprisingly, national and cultural differences have been chronic obstacles, especially among nations that have never particularly liked or trusted each other. The United Kingdom, for instance, has danced around the EU, never embracing it, and even stalwart EU nations like France and Italy have found issues to bicker over. The euro, the common currency the EU made a centerpiece of its short-term goals, can be deemed a relative success; it swooned briefly after its introduction in January 1999, but within a few years had risen above its benchmark, the U.S. dollar.

But the end of the 20th century and the first years of the 21st helped spotlight what many deemed key flaws in European business practices: worker-friendly labor laws and pension systems that chewed up efficiency; protectionism, often in the form of steep agricultural quotas and subsidies; and regulatory red tape, coming from the country's own bureaucracies and increasingly from the EU. The number of huge, state-run enterprises dwindled, but some clung to life in nations like France and Italy, bringing widespread criticism of corporate bloat and inefficiency.

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U.S. multinationals themselves came to chafe at the EU's rulemaking. General Electric Co., for instance, was rebuffed in its bid to acquire Honeywell International Inc. in 2001 after the European Commission--the EU's governing body--concluded that the deal would stifle competition in industries like aerospace. Following the ruling, Assistant U.S. Attorney General Charles A. James said the EU's decision "reflects a significant point of diversion" with U.S. antitrust regulators.

Opposition to such restrictive rules is widespread. In PricewaterhouseCoopers' recently released 9th Annual Global CEO Survey, 1,410 chief executives in 45 countries were asked about the principal barriers to globalization efforts. They ranked over-regulation first, followed closely by trade barriers/protectionism.

Clearly, however, the EU has brought a new sense of economic community to a fragmented region; now, even Eastern Europe is being brought on board. "The exciting thing about modern Europe is opting to invite the Baltic countries, the Czech Republic and Poland into the EU," says Manatt. Most have little or no tradition of democracy or free markets and spent many years in the orbit of the old Soviet Union.

BEST PRACTICES

Ideas and intellectual capital know no boundaries, and one giant factor in globalization of jobs and capital has been advances in manufacturing and technology coming from outside North America and Europe. According to Anand Sharma, CEO of TBM Consulting--a U.S. firm specializing in "LeanSigma"--much of the global focus on best practices in manufacturing evolved from Toyota Motor Co. Its "lean production" system, sometimes called "just-in-time" manufacturing, features low inventory levels and carefully sequenced assembly. Widely written about and emulated, this evolved into what Sharma calls the "transformational management" theories of the '90s and 2000s that focus on "lean" methodologies.

Today, however, says Nabil Nasr, Director of the Center for Integrated Manufacturing Studies at Rochester Institute of Technology, the old Toyota model is being updated. Instead of insisting on local facilities and suppliers, "if you have the best-quality component at the best price and enough infrastructure to bring it to me, I'm okay with that. It doesn't matter where you are."

Another, somewhat related phenomenon gathered steam in the 1990s and burst on the business world with a thunderclap early in this decade: offshoring. Essentially an advanced form of outsourcing, it grabbed headlines when it became clear that major Western companies were moving work to countries like India, Hungary or Ireland, where labor costs were dramatically lower. Technology, in particular, became a core focus, as minions of programmers in developing countries worked at far-lower rates to write code or develop new applications.

In a very real way, offshoring came to represent a central tension in globalization: the interests of domestic workers vs. a company management's duty to shareholders to maximize profits by trimming costs. Company executives with large offshoring centers strove to emphasize that they weren't cutting jobs, just adding them elsewhere, but the loss of higher-paying domestic jobs to overseas workers created reams of publicity and a continuing source of employee agitation.

DEVELOPING WORLD & GROWTH

Especially in the Third World, modernization and economic advances owe much to the creation of the International Monetary Fund and the World Bank in the 1940s. As global exporters of capital, these agencies have been both praised and reviled over the years, yet "a big part of what they offer is technical assistance and some kind of legal framework that is enforceable," Manatt says. "Ninety percent of developing countries don't have a civil service--employment comes through a spoils system" beholden to the political winners.

That's especially true in poverty-riddled Africa. "We need a sustainable business model [there] that minimizes corruption and has on the ground sufficient infrastructure to allow people to learn in a safe and healthy environment," says Manatt. "Corruption is still a huge problem in Africa," echoes Mark Cymrot, a litigation partner with Baker & Hostetler LLP in Washington and a specialist in Third World debt issues.

Elsewhere, more sophisticated emerging economies will be the focus of the next generation of great strategic thinking, along with issues of global strategy, says the Tuck School's Govrindarajan. The "Asian tigers" like Singapore and South Korea, for instance, have been growing with enormous strides. Singapore, the burgeoning city-state, has become a mecca for businesses such as pharmaceuticals, biotech and financial services.

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India has ridden the technology boom as well, especially as an outsourcing venue for Western companies, but questions remain about Latin America--where a leftward drift away from free-market capitalism has been evident during recent elections of socialist candidates.

Then there's China. The push into China, arguably the expansion du jour these days, will be playing out for many years to come as the world's most populous nation--opened to Western ideas following President Nixon's historic meeting with Mao Tse-tung in 1972--takes an ever-larger presence on the world economic stage.

Robert Goodwin, program director of the international management program at the University of Maryland University College's (UMUC) Graduate School of Management and Technology, says China's exports to the U.S. have increased 1,600 percent over the past 15 years. The country now rivals the U.S. as the world's top destination for foreign direct investment, and Wal-Mart Stores Inc. has moved its global purchasing center to China.

Everywhere now, there are articles about the Chinese economic threat, especially based on price. Because the average hourly pay, including benefits, of production workers in China is 80 cents versus $21.86 in the U.S., explains Good-win, a comparable U.S. production facility would have to be 25 times more efficient to remain competitive.

China's total foreign trade in 2005 topped $1.4 trillion, making China No. 3 in the world in foreign trade after the U.S. and Germany, and ahead of Japan. Just a decade ago, the value of China's foreign trade was only $289 billion.

Looking ahead, the nations with historic manufacturing and marketing advantages may find that ideas and innovations carry more weight. "Challenges to knowledge-driven industries will have far-reaching implications for global business," says Subash Bijlani, a professor at the UMUC Graduate School. "The biggest impact for the United States is that its capacity to innovate will be challenged."

There's another, obvious feature of today's business world that isn't about to go away: the pace of change. "The world has changed, in terms of how we make products or achieve competitive advantage," says Rochester Institute's Nasr. "There's a saying now that industry moves in 'Internet time'--and an Internet year is 25 man-years." That's a number that no financial executive could consider small.

RELATED ARTICLE: FEI Becomes A Global Resource

Financial Executives International can lay claim to being a powerful force in disseminating ideas about the finance profession around the world, both as a resource and as a partner. That influence, in fact, can be traced back more than two generations.

During the 1950s, delegations from more than 20 foreign countries visited what was then The Controllers Institute of America to learn about U.S. practices in finance and professional organization. The Institute "developed working relationships with the Economic Cooperation Administration, the Foreign Operations Administration and the International Cooperation Administration of the U. S. State Department, and seminar teams organized by [the Institute] were active in programs with European and Asiatic countries," noted the International Association of Financial Executives Institutes (IAFEI) in its 25th anniversary retrospective in 1994.

"In several international congresses of accountants, the leaders of FEI emphasized the effectiveness of financial professionals in dealing with problems of international commerce and control," the IAFEI retrospective continues. "The need for increased interaction by financial executives in different countries was driven by changing global markets."

As the 1960s progressed, the ranks of national financial executives' institutes grew, and many of them turned to FEI on issues like standards and goals, as well as operational matters and the formation of chapters. In 1961, for instance, following the formation of a Mexican national institute (IMEF), FEI and the Mexican group quickly began a relationship--one that continues today, in a different form, through a memorandum of understanding signed in 2004.

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In 1963, FEI formed an International Liaison Committee whose stated purpose was "to stimulate in other countries interest in the formation of autonomous groups similar to FEI." This committee decided to reach out to institutes in nations like Mexico and France, but not to try to assimilate those under the U.S. organization.

Within a few years, the contacts and discussions had grown to the point that there was a collective decision to create a body for international associations. And so IAFEI was born in Switzerland in May 1969; its first president was Herb Knortz of FEI. The fledgling group turned to FEI for a standard of excellence, but found itself wrestling with issues like professional standards, language and organization (since some governments required the institutes to maintain a national identity in order to organize).

As IAFEI grew and solidified, it offered a platform for the exchange of ideas, experience and finance techniques, chiefly through its annual International Congresses. In the 1980s and 1990s, FEI made its presence felt though the leadership of its top staff executives, presidents Robert Moore and P. Norman Roy; Moore was IAFEI chairman in 1983-84, and Roy was chairman in 1997-98.

FEI members also played prominent roles in IAFEI and its technical committees over the years. Herbert A. Phillips Jr., FEI chair in 1989-90, chaired IAFEI the following year, and David Morris, senior vice president of JP Morgan Chase, was a technical committee member who went on to become IAFEI chair for 2001-2.

In recent years, as IAFEI's finances and influence have waned, FEI has worked to develop its own resources. In late 2003, for instance, FEI signed a memorandum of understanding with the Australian FEI, giving individual members of that group access to FEI's services. The agreement with the Mexican FEI came in early 2004, and that spring, FEI co-hosted a bilateral conference in Paris with its French counterpart, the DFCG.

The Globalization Oversight Committee (GOC) was formed in late 2002 under Grace Hinchman, FEI senior vice president, Public Affairs and Technical Committees. The panel's objective, revamped in 2005, is to "create opportunities for the FEI membership to share best international business practices, to engage in an international business network, to follow a common code of ethics and to play an advocacy role in front of international regulatory bodies."

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