Hal Sirkin, a senior partner with The Boston Consulting Group, recently spoke to Business Finance about the roles that finance professionals must play to help their companies compete globally.

Book: Globality: Competing with Everyone from Everywhere for Everything (Grand Central Publishing, 2008), by Harold L. Sirkin, James W. Hemerling, and Arindam K. Bhattacharya

BF: In your book, you discuss the competitive challenge a new breed of offshore companies is posing to American companies. How did these competitors first emerge?

Sirkin: Well, it was about five or six years ago when a group of colleagues and I started to see some fundamental changes that were taking place with companies in China at first, and then we began to realize that it was more than China. We saw it in India, we started seeing it in Eastern Europe, we started seeing it in other places, that companies that the US, Japanese, and Europeans went to outsource to were starting to -- in these rapidly developing economies -- become players on their own. They had built scale and they had learned how to produce products. Rather than just sitting back and saying, "Gee, we can sell to the multinationals and keep making money," they instead wanted to be in control of their own destiny. They wanted to be players in their own right, they wanted to have their own brands be global brands, and they wanted to be real players.

They started to move from being outsourcing shops to real companies with real distribution systems, not just in their home markets but in the global markets. We thought that this was going to be a huge trend, because they had these low costs, they had innovative approaches to doing business, they weren't encumbered by all the legacy costs, and they weren't encumbered by the legacy mind-sets. A bunch of these companies would emerge -- many wouldn't succeed -- but a bunch of these companies would emerge and challenge the incumbents in the marketplaces, in their industries.

BF: Why did this new generation of management begin to think differently than its predecessors?

Sirkin: This was born out of a couple of things. It was born out of the fact that they had very little. One approach to innovation is to build a large R&D center and spend tremendous amounts of money in looking at new technologies. Another approach to these sorts of things is to become creative. If you think about it, these companies had very little, so they couldn't afford the R&D centers, and the ones that survived were the ones that got creative.

A great story is Dr. Song, who's the CEO of Good Baby, which is a manufacturer of baby products, now with a 28 percent share of the U.S. stroller market. You can think about a large R&D center for strollers, or you can think about a couple of very creative people who look at the world and say, There's lots of new stroller designs. He began with a patent for a very flexible stroller that can be converted into different things. The guy's a very creative engineer and found different ways to do it. He now produces one new baby product every 12 hours. There aren't large R&D centers, and he's very good at customizing for local markets.

In Scandinavia, he produces a product that has that really nice, sleek, Scandinavian design, right? Very smooth lines -- exactly what you would expect from Scandinavia. In Japan, he makes baby strollers that fold up to be almost invisible, they're so small -- because the Japanese really think that this is important. They have small housing spaces and this is very important to them. If you go to the stores in the U.S. and you buy a Good Baby baby stroller, you'll see that the strollers in the U.S. are more like SUVs-- very large with lots of cup holders. Of course, they don't need gasoline, so we're still buying them. He's just very smart about what he does, what he tailors for the local market; he's very creative, and he knows how to do that. They spent some money in R&D, but there isn't a giant R&D lab somewhere that they have that makes all of this work.

BF: Of the small to midsize U.S. companies that are succeeding in the global market today, what is it that they share in common?

Sirkin: I think that it's a mind-set. If you're sitting in China or you're sitting in India, you know that there's this big thing called the U.S. market, the European market, and the Japanese market. They have huge amounts of sales. Their prices are much higher than you're charging in your home market. So there's this big target, and if you could somehow get there, you could make a lot of money and grow really fast.

If you're sitting in New York and you're looking at the world, China's a place that you might think about for manufacturing to cut costs, but do you recognize that, in fact, there are 1.3 billion people there who could buy your product, almost certainly at a lower price point? And probably a very different product? But I would think that the smart entrepreneurs who've outsourced to China will go there and look and say, There's a large market here. I'm already producing here in some way, either myself or through a contractor. Why couldn't I produce a product for Chinese design?

We are starting to see that -- mostly by larger companies because it's hard to do -- but people are beginning to recognize it. Because they may be over in China, or in India, or in Eastern European or Brazil, and they started producing there, and they realize that 1.3 billion people, that's a lot of people. If I can only sell each of them one of my product, that would be a lot.

BF: What role can finance professionals play in helping their companies to compete better globally?

Sirkin: One of the things that finance professionals have to do is to help the management side of the house balance the risk--reward trade-offs. And how to think about what they do as a portfolio, so that you're not just looking and saying, Let's put everything in China. This might be the right decision with the right risk--reward trade-off, but it may be to do some things in Mexico, it may be to do some things in China, it may be to do some things in India or Eastern Europe. And choosing the right things to do where, I think, is a very important function, because it's very easy to look at it and say, Let's put everything in China. Of course, good finance professionals will tell you that there's a lot of risk if you put all of your eggs in one basket.

There's a significant amount of effort and investment as you're going after low-cost new markets that you have to put in place to ensure that the people there are ready to deliver the information that is needed to make decisions and to meet the reporting requirements. The finance world in some of these countries is still developing, and the things that you assume if you sit in New York and think about finance are not necessarily the same if you sit in a small town in some province in China, or somewhere in India. The people don't have the same training, they don't have the same skills, and you have to bring them up to the standards because we all have to live up to all of the things that are necessary to be able to not just report from a public standpoint, but to produce the managerial reports that are needed.

BF: What innovative things can U.S. companies do to move more quickly into rapidly developing markets?

Sirkin: We see finance organizations today helping to set up the systems to enable different divisions to go into different countries. In particular, I think about a company that has set up an opportunity in which 30 to 40 of their own divisions are going to move the back office to the Philippines. They set up a structure whereby if your division wants to move, they can give you the package -- so that you know who to call, who to hire -- and they can basically turnkey that Philippines operation for you so that you could move your back office quickly. Here's where the finance function steps up and is able to say, We can help you to make this happen.