With so many businesses expanding globally, Context turned to two seasoned hands to learn more about where the strategic mistakes will most likely appear, about which countries present the best opportunities, and, of course, what role information technology plays in making markets more international. Marvin Zonis, a professor at the University of Chicago known for his work on global risk, and Bob Van Gieson, the chief executive of global operations at CAN, obliged by letting us listen in on a recent conversation. Some of the comments surprised us.

ZONIS: I think we've all been impressed by the extent to which globalization has occurred, and we've seen some shining exemplars of companies that have been extraordinarily successful doing it. The companies range form Coca-Cola to Toyota. The reality is that I think the challenges of globalization are much more difficult than we had ever imagined. The process will go haltingly forward, but there will tremendous casualties along the way. There will be vast numbers of companies that are going to lose vast amounts of dollars in the interest of becoming global actors. In major fields such as financial services we are only beginning to learn about what it means to be global.

VAN GIESON: Globalization has a lot of cachet right now, but, boy, there are an awful lot of messy things about the process. We certainly have to do what we can. For years, the U.S. market has been the biggest in the world. Now, all of a sudden, our customers are building bricks and mortars outside the U.S., and we have to provide insurance to respond to their needs. We find we have to do it as a defensive strategy. Otherwise, we could lose customers to one of the 10 to 15 insurance companies that will be truly global competitors.

The thing that any company doing business globally has to understand is that global skills are not innate skills. In fact, as you work in a market, you become a product of your environment. Within the U.S., we have this huge, ver successful company with lots of skills that could be applied outside our country, but it's not the same.

ZONIS: There are different kinds of problems for companies going global. The insurance company is in a highly regulated industry in each country in which it seeks to operate. So it has to think globally but has to operate locally much more than most other companies.

VAN GIESON: So you really have to acquire tremendous skills in very particular specialties in very local markets. One thing you also have to consider is that in the U.S. we live in this very sophisticated marketplace, where people have become adept at their computers. But, as you go outside your market, things change. If you're trying to create, let's say, a global I/T system, you might as well try to count the number of grains of sand on a beach. You can't do it. The things that are going on in Europe now are not as sophisticated as the things going on the U.S. If you try to bring a product from the U.S., it's destined for failure because the information you need, which is readily available in the U.S., isn't available in Europe.

ZONIS: Do you mean things like information on underwriting risk?

VAN GIESON: Yes. We are a statistically rich country, whereas Europe isn't yet at that level of sophistication.

ZONIS: It seems to me that there are three things going on here. One is that there's this information gap that may affect the way you do business. Second, there are different requirements for information technology. Third, the Internet as a business tool is much more limited overseas than it is in the U.S.

VAN GIESON: Certainly. You don't have the broad number of people who are a part of the Web, although usage may be increasing rapidly, as it is in the U.S.

ZONIS: Can you envision the day when you do more than underwrite the foreign risk of U.S. customers? Will you be out there looking for business directly abroad?

VAN GIESON: We're doing that already. Our acquisition strategy is to see if something fits with core skills that can be transferred into another market. Then, once we've begun an operation in a new market, we will build our other products based on the initial acquisition. We just recently purchased an operation in Buenos Aires called Omega. They're a workers compensation company and really fit in with our global strategy. We at CAN have a broad set of skills in workers compensation, and U.S. practices influenced a legal change in Argentina.

ZONIS: You mentioned Argentina. Do you do things like introduce the technology that we use in the U.S. to those markets? For example, CNA has pretty sophisticated ways of communicating with brokers.

VAN GIESON: Certainly, over the long pull, but usually there's insufficient hardware in those marketplaces to do that initially. For instance, in Buenos Aires they don't do enough volume with brokers for it to make sense economically to talk to them electronically.

ZONIS: I would have thought that there could be a competitive advantage in Argentina if you had brokers communicate with the home office through a computer and produce a quote on an insurance policy very quickly.

VAN GIESON: Well, you know, despite the I/T revolution we've been going through for the last 10 years and will probably go through for the next 25, you can't discount the customer relationship. We can provide a quote quickly over the computer line, but we really won't understand the risk. You've got do the loss control. You've got to know the customer. You have to know who the broker is that's giving you the business. The computer will never replace the personal relationships.

ZONIS: Is there any move by CNA to connect to these new acquisitions, the Argentina company, for example, by the Web or by computer instead of just telephone calls?

VAN GIESON: We're not at that point yet. We just made this acquisition. But within the next 12 months, the company will have things like e-mail and voice mail so that we can communicate with them. But communicating with the company isn't the same as providing the links to the brokers.

ZONIS: Let me push you on something I've been struggling with for a long time. I think I/T is the future, too, but it seems to me there are two dimensions. First, I/T is going to help me do what I do now more efficiently and more effectively. Second, I/T is going to make it possible for me to do very different things. Where is your part of CNA on those two ideas?

VAN GIESON: If it's a 25-chapter book, we're halfway through Chapter One. We've got a lot of infrastructure things to do.

ZONIS: I know you just took a tour of the Far East. What conclusion did you reach about Japan?

VAN GIESON: You have to go back in history. Japanese businesses doing business outside Japan usually were focussed on serving the needs of customers that they did business with in Japan. Because of regulation, there was so much profitability in the Japanese marketplace that they could even write business outside Japan at a bit of a loss and still make money. But, because of deregulation, I think Japan is now going to be a very competitive market. Without that guaranteed profitability, I think you're going to see Japanese companies start to build indigenous operations in places like the U.S. or try to find partners who can work with them in the U.S. to help them build businesses.

ZONIS: You know, I'm surprised, because my sense of Japan is that the regulated parts of the Japanese economy, which could of course include insurance and banks, are really very inefficient. How are these indigenous companies going to be successful when they've been protected for so long?

VAN GIESON: I think they are going to have to go learn the basic set of skills the rest of the world has employed in the insurance industry for the last 20 years.

ZONIS: Do you think that there is going to be an opportunity for American companies to buy Japanese companies then?

VAN GIESON: Certainly it's a possibility, but in Japan, regardless of what regulators say, you're going to have nationalistic buying habits. If you say this is a real opportunity because I know how to work in a deregulated environment, then you make a purchase and try to apply your normal management tactics, I think that could be a formula for terrible failure. I really do. Japan, in my opinion, in the next two to five years is going to be a great business school case to see how management deals with the complexities of teaching people. The U.S. went through this in the '70's when the market was deregulated. Japan is just taking a little longer to do what was inevitable.

ZONIS: India is going to go through the same thing, don't you think?

VAN GIESON: The thing about India is that the diversity is mind-numbing. There are 250 political parties, of which 13 are in a coalition. I don't think 13 political parties in the U.S. could agree on anything. But in India, where you have so many other issues—whether they can be cultural, religious, or regional—the diversity problem is 10 times what you have to deal with in the U.S. A very tough market.

ZONIS: So, it's going to be hard to foreign companies to get in at all. And once they do they're going to be confronted by a country that isn't really a single country.

VAN GIESON: And you've heard the number about the 250 million people in the middle income group in India. Well, it's important to understand that you're judged to be in the middle income group in India when your household income equals $150 a month.

ZONIS: Wow.

VAN GIESON: So whether they will have sufficient economic latitude to buy an insurance product remains to be seen. I don't think any executive doing business globally can ignore what's going to go on in India. But I think that if you rush into India at this point, history might judge you have to be a little too quick.

ZONIS: You say that global opportunities are immense, but that your resources are tremendously stretched and that you have to be very discriminating in how you commit those resources.

VAN GIESON: Any company that thinks it has skills to embark upon a 75-country, we-can-do-it-everywhere strategy is destined to failure. It has to be an opportunistic thing. I think there will be some things going on in central and eastern Europe and in Russia that might generate short-term results more quickly than in some of the monolithic countries in Asia. Not that over the fullness of time you wouldn't generate more revenue from China or India or places such as that. But the fullness of time could be defined in decades, in my opinion.

ZONIS: What about the argument that the rapid adoption if information technology will speed deregulation and accelerate globalization?

VAN GIESON: I do think that they will play out, but I think it will play out over a long time. The focus in the financial services industry costs: How can we deliver a cheap, quality product at a cost where we can make a buck? That's where the computer and information technology is going to play an enormous role.

ZONIS: There is another argument to be made, which is that the short-term response to the "invasion of Argentina" by a company like CNA is to increase the resistance to deregulation and actually increase protection of the home market. I agree that change is inevitable over time. The interesting question is: How long is it going to take?

Dr. Zonis is reachable at marvzonis@aol.com. Mr. Van Gieson is reachable at rt.vangieson@cna.com.