In the 1980s there was a shift to globalization, in which a Western or Japanese firm would go to a low cost center (e.g. China, Malaysia, Brazil, etc.) that had inexpensive labor rates, set-up operations, and have these businesses export goods to their home countries. This was the modus operandi that was pervasive throughout the late 1980s and 1990s. However, there is a shift from globalization to globality, which firms from developing countries compete with the Western and Japanese firms in the global markets, according to an interview conducted by Knowledge at Wharton of Hal Sirkin, senior partner and Managing Director at the Boston Consulting Group.
For every threat, there is an opportunity. These firms will challenge everyone from everywhere for everything. Everything refers to not just products/services but also raw materials, intellectual captal and human talent. The Western firms need to adapt and compete by the different rules. This rise in globality is attributable to different regions of the world having different capabilities and costs. An example of globality was when Lenovo, a Chinese multinational bought IBM in order to compete more effectively in the developed world, and to acquire new capabilities including intellectual capital and human talent.
For companies that operate in low costs centers such as China and India, these firms need to observe and learn how the world’s best function. These multinational firms from the West and Japan may eventually compete in their local markets. This is also a reality in Western countries and Japan, companies that compete locally need to be cognizant of the emerging multinational as discussed in the previous example of Lenovo. A realization is needed that the old business model of one-way street competition (globalization) has transformed to the two-way street competition (globality) model.
Between China and India, there are already 2.5 billion people. In addition to the sheer size of the market, the economies of both countries are expanding at a rapid pace. People that were in abject poverty are moving into the consumer market. As a result, in the next 20 years, there will be a billion new people that will enter into the consumer market.
Of course to understand the behaviors and the motivations of the consumer, it is a necessity to set up operations in those locations. This extends to both the Western and Emerging multinationals. Each one now has similar challenges in understanding their local markets respectively. Rather than using a U.S. or China centric approach, blend both approaches together and take the best from each.
Here is a quote from the interview regarding the blending of both approaches:
“They’re blending the best of the East and the West and saying, “I’m okay being a high-cost competitor in some places because it’s worth it. I can charge the right price and learn the right skills. I don’t have to be just a low-cost competitor.” And they’ve done an excellent job of blending who they are.”
I think that it was only a matter of time that firms that were principally based in emerging low cost centers would eventually expand their capabilities to compete internationally. When globalization occurred, as Western multinationals set-up businesses in these locales, some of their capabilities were being mimicked by local businesses. Once perfected, they competed internationally. First it was the Japanese, then it was the Koreans and now it is the Chinese. In the future, it would be the Indians, Brazilians and others. In my opinion, there won’t be any borders that separate businesses, as both Western and Emerging firms purchase other firms in various places around the world, it has changed the environment of business in both developed and developing countries.