Tag Archives: barriers

Global Businesses

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.

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Why do companies rest on their laurels and not embrace change?

It is well-known that in order for companies to innovate and build sustainable businesses, they must adapt both their business model and products/services to match the marketplace and the consumer’s needs and wants.  But many businesses seem resistant to change, even ones that are/were dominant.  If this problem is widely-known, why does this exist?

Knowledge at Wharton examines a book by Black and Gregersen that examines this.  The article cites numerous examples that involve both companies and individuals.

In the case of mobile phones, Motorola was highly successful with analog phones.  Even though digital phone technology existed, it did not feel the need to invest in the future technology because their core competency was in analog technology, and digital technology was an expensive proposition for both the mobile phone producer and the carriers.  Nokia took an opportunity with digital technology, and became the largest mobile phone company in the world.   Samsung was for a while perceived to be a discount mobile phone producer.  It has made inroads in Asia where mobile phone penetration is amongst the highest in the world.  It also recognized the need for a camera in the handset, this was not to replace the digital camera, but rather used as a convenience instead.  Just as Motorola ignored Nokia, it paid dearly with respect to both earnings and market share.  By ignoring the emergence of Samsung as a competitor, Nokia also suffered from the same mistake as Motorola.  Will Motorola, Nokia and Samsung all suffer the same fate with the emergence of Apple and its iPhone? Only time will tell.

The historical example from the article mentioned a Spanish explorer named Cortes was commissioned to find the island of California.  Upon exploring the Gulf of Baja, he was convinced that California was an island.  Another explorer was sent to corroborate the findings of Cortes, and he too was convinced that California was an island.  Because the King of Spain believed this, and that there was difficulty to dispel this notion, it took more than 200 years to correct.

So, why did Motorola, Nokia, and Cortes rest on their laurels and did not effectively adapt to the changing ideas?  This was because both the companies and individuals did not fully understand the strength of new ideas and they did not take the time to fully understand them, and it has led to the downfall of these aforementioned companies and individuals.  More importantly, many companies or individuals are blinded by this missed opportunity because of their current successes in their present model or way of thinking.  Both people and companies develop mental maps on how certain procedures or ideas operate.  The longer these maps have been successful, the harder it is for people or companies to feel a need to switch.  These mental maps also guide both peoples’ and companies’ paradigms.  This trap can happen to any company and to anyone.

I also think that there are other reasons in addition to the ones stated in the article, in my opinion, these include: 1) The hardship and the difficulty that the businesses or individuals perceive as well as experience in order to fulfill the change;  2) Businesses or individuals believe that focusing on its core competency(ies) will minimize its potential failures;  3) From a cost perspective, being already invested in its core competency can reap both economies of scale and scope, and these would not be realized with focusing or investing in new technologies; 4) new and emerging technologies or ideas are unknown, and therefore risky.