Spotify, Uber and Netflix now span as many countries as global giants Exxon and Rio Tinto. Seven-year old Airbnb helps match travelers and hosts in more places than General Electric operates, even though GE has been around over a century longer. LinkedIn and Fiverr do business in as many countries as Coca-Cola and Nestle sell their products.
As software “pac-mans” more and more industries, the traditional view of multinational corporations as globe-spanning operations mining natural resources in remote locations, manufacturing goods in plants around the world or producing broad portfolios of consumer goods to match their geographic reach needs to be updated.
A new breed of platform companies—organizations that match the makers of goods and services with buyers--have achieved the size, scale and global reach in a fraction of the time it has taken traditional multinationals to build their global presence. This new breed includes well-known companies such as Apple, Google, Amazon, Rakuten and Alibaba, as well as a host of other rapidly growing companies. The geographic scale that these digital companies have achieved is remarkable.
There are also vibrant digital platforms emerging in Asia, Latin America, the Middle East and Africa--companies, such as Tencent, Baidu, Sina, Youku and Didi Dache in China, FlipKart, Naukri, OlaCabs and Naukri in India and Jumia, Konga, M-PESA and Jobberman in Africa. While these young enterprises haven’t yet broken out of their national borders, they share many of the same ambitions and growth characteristics as their global cousins.
Platform companies have different business models, unique organizational structures and confront different management challenges. They also have different agendas when it comes to global trade. A number of important features distinguish platform companies from traditional multinationals:
Asset light—Platform companies have few physical assets. Uber doesn’t operate a fleet of taxicabs and Alibaba doesn’t own the manufacturing plants producing the goods it makes available online. Their businesses harness the Internet, powered by software. For this new breed of multinational, intangible assets--what finance experts refer to as organization capital--are created, preserved, and used to enhance profitability, growth, and competitive advantage. As the influence of platform companies grow, understanding and valuing organization capital—a company’s intangible assets such as knowledge, expertise, values, practices, and processes--will become increasingly important for all firms.
Ecosystems—Given the central role of network effects (when more people use a good or service it becomes more valuable) in how platform companies create and capture value, successful platform multinationals are naturally more focused on customers and the marketplace (externally) than focused on their own operations (internally). Rather than optimizing global supply chains, platforms build value through managing ecosystems. They must not only orchestrate efficient matching of supply and demand, but also establish and cultivate the governance systems necessary to encourage third parties—software developers, hosts, drivers, freelancers, etc.—to actively contribute to the platform.
Indirect employment—In contrast to traditional multinationals, platform companies have relatively few employees. Uber, Airbnb, Spotify and LinkedIn each run their global operations with less than 8,000 employees. However, they have a much larger indirect impact on employment. For example, Apple says its iOS ecosystem and has helped generate 627,000 jobs since it was launched in 2008. Fiverr, a global marketplace for connecting buyers and sellers of creative and professional services, has over 1.7 million registered users that have filled over 3 million “gigs” in more than 100 different categories of work across 196 countries. Likewise, while Airbnb and Uber have a small number of direct employees, they facilitate employment for tens of thousands of people as drivers and hosts.
Globalization 2.0—The global trade agenda has focused on liberalizing trade in goods, removing restrictions on the movement of capital and enhancing investment and intellectual property protections. Traditional multinational have been strong supporters and have actively worked with governments to advance this phase of globalization. While platform companies are beneficiaries and support the progress that has been made, they see important gaps in the current regime. Concerns include restrictions on cross border flows of data and the potential balkanization of the Internet. As their presence expands globally, expect platform companies to focus on cross-border information flows and efforts to keep the Internet resilient and reliable, as well as regulatory measures that support secure and confidential customer information.
The international business landscape is seeing the rise of new global enterprises. Platform companies are going international—some from their very start--with a growing number having already achieved impressive global scale. These developments have important implications for both global enterprise management as well as the global trade agenda as these companies take an increasing interest in the nature, extent and impact of globalization on their business.