Idea 23 - Globalization (50 Management ideas you really need to know)

Idea 23 -  Globalization

All right, so globalization is not, strictly speaking, a management idea. It's a worldwide phenomenon. But such a phenomenon, and so worldwide, that it has forced managers to rethink their markets, their production strategies, their supply chains and their sources of competitive advantage. And if some of them believe that globalization is a one-way street, perhaps they should rethink that too.
Like many of the ideas that management has to wrestle which, globalization is not a new one. International trade was in full swing along the Silk Road by the second century BC, and the years leading up the First World War were the high point of internationalism, a frenzy of cross border trade and investment. It's only the fact that national economies turned in on themselves between the two world wars that makes the current phase of internationalism feel like a novelty at all. So managers have had to deal with it before, though not, it's true, on quite this scale, at this speed and with this intensity. One new ingredient, the one that has amplified all the above, is technology-a coming together of telecommunications, the computer and the Net which has made the world a smaller, smarter, speedier place. That would have counted for less without for a second ingredient-the deregulation, privatization and opening up markets by governments everywhere.

In 1983, Harvard economist Theodore Levitt recognized that technology was driving the world towards 'a converging commonality', that global markets were emerging for standardized consumer products 'on a previously UN imagined scale of magnitude'. He called it 'globalization', the growing integration, interdependence and general connectedness of the world. Business and investors have moved fastest to take advantage of, and reinforce, this phenomenon, but it is also social, cultural and political, in varying degrees.

Global fabric in the economic department, mutually reinforcing strands of trade, direct investment and indirect investment are being woven into an increasingly global fabric. International trade keeps growing as higher shares of spending, around the world, go on imported goods and services. Developing country share of trade has tripled in the last 20 years, helped by outsourcing from developed countries. Foreign direct investment, where a company from one country establishes a business in another, has multiplied, thanks partly to off shoring by firms in developed nations. Investment funds and individuals won't start businesses in foreign countries but they can invest their money in emerging markets, and have been doing so increasingly, if selectively, in recent years.
Corporate globalization has been gathering steam since the middle of the 20th century, as successful exporters gradually put down roots in their foreign markets, to be closer to them and to save transport costs. Over time, a number of these integrated their operations into truly global companies. The next phase saw Western firms outsourcing manufacturing activities to cheaper labor markets, followed in time by services like call centers and software development.

The main beneficiaries have been India, notably in software, and China, in contract manufacturing. Both economies are growing fast, and the two countries may join the ranks of the economic superpowers within the next 20 years, alongside Brazil and Russia. The Philippines has captured a lot of admin work and contact centers, and Asia in general has the largest share of the outsourcing market. None the less, it is growing' in Latin America, central and Eastern Europe, and the Middle East. Some believe that even lower-cost outsourcing destinations like Ghana and Vietnam will become more competitive.

Global outsourcing began with blue collar jobs. But now many more white collar jobs, in areas like research and development or product design, are being done abroad, not to cut costs but because firms can't find people to do the work at home. This may well aggravate one of the downsides of offshore outsourcing, a loss of managerial control when surrendering functions close to the core business.

'Think global- act local' the 'great abroad' is not merely a handy addition to the supply chain, however. It's a market, and the really globalizing companies are those with many international markets. We used to call them 'multinationals', which didn't always have positive connotations, and nowadays they prefer the universality of being 'global companies'. The successful ones, some think, are those that know when to act locally and when to act globally. HSBC summed this up in a corporate tagline, 'Think global- act local' though, on discovering that consumers found it too one-size-fits-all, it was recycled into 'The world's local bank'. But you can act local in the wrong way, as Gillette found during its early days in China. Assuming that the market wasn't ready for advanced shaving systems, it began making and selling old-style blades. Then it realized it was selling more in imported products than the local version. The Chinese knew about the new stuff and they didn't want the old stuff. It's called communications.

Gillette today exemplifies the globally integrated firm, with centralized research and development, engineering, manufacturing and advertising. It has many plants around the world (fewer than before) but they are run from the center, and country managers concentrate on local trade marketing. Managers are often transferred around the world, reinforcing what Rosa Beth Moss Kantar calls the 'cosmopolitan' nature, the global management standardize production worldwide while product strategy and marketing is national. A third model has quasi-autonomous country organizations that look for synergies with each other. Companies such as IBM are centering certain activities where they are done best, like procurement in China.

There is a widespread feeling that globalization is something that 'we', the developed world, are doing to 'them'. Don't be so sure. By the time you notice your first Indian global company; its next phase will have begun. Globalization spreads in all directions.

Reference: 50 Management Ideas You Really Need to Know

Book by Edward Russell-Walling

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