With all the buzz about globalization during the last few years, you start to wonder if this is something new. It seems that we need a buzzword to keep us energized to run our businesses. The reality is that globalization is as old as business itself. I am sure that when Vasco da Gama returned to Portugal from his trip to India and established a new supply chain for spices, precious gems/metals, and silk, the business-people in Portugal and rest of Europe dealt with the same issues that we are dealing with right now. Maybe they did not use words like offshoring, outsourcing, supply chain, global competition, and business process outsourcing (BPO), but on a conceptual level, their challenges were like ours.
Globalization is not an end by itself
During last 50 years, we have talked about globalization in different forms and it has meant slightly different things at different points. So those who say that it is only now that we are seeing real globalization, should go back to read some history. The learning here is that globalization is happening every day and no one knows what form it will take in the future.
Isn't globalization different this time?
Indeed it is to some extent, because we have made enormous advancements in technology, particularly in communications. The other major difference is the almost seamless mobility of all forms of capital, including human capital. Combination of these factors has created a world in which "the sun never seems to set in the global business empire."
On a fundamental level, though, it is no different than what happened at the end of the 15th century when Vasco da Gama created a whole new set of participants in the spices value chain. What we have to understand is that the only way businesses thrive is when they can find the best use for capital. This can be accomplished by finding new markets for your products/services and being able to find cheaper raw materials and labor to do it in the most cost-effective manner. When value is created from this, seek new investment opportunities, and the cycle continues.
How does globalization impacts business today?
Like anything else in the business world, globalization brings both opportunities and threats. An analysis of the current globalization issues clearly shows that while rapidly growing economies like Brazil, Russia, India, and China (BRIC) have provided new markets for auto-makers, consumer goods/oil/software/hardware companies, etc., these countries have also become excellent sources of cheap labor and raw materials.
The right approach for a business leader anywhere on the globe today is to see globalization through the lens of the business model:
- What are new opportunities being created for my business?
- What are the new threats for my business?
- How do I change my business model so that I can take advantage of the new opportunities and minimize the risk exposure from threats?
How to thrive in the rapidly globalizing world?
As I said above, globalization is merely an external force driving change in the business environment. No amount of opposition or prayers or wishes will make it go away. Even the kind of tactics being followed by the pharmaceutical sector will not help. Sooner or later we will see a global market for drugs; the pharmaceutical companies can only delay it, not stop it. In fact, if a firm focuses its energy on fighting globalization, it is actually wasting its time and losing its focus, setting itself up for destruction of shareholder value. The smartest companies (think General Electric and many others) are simply reinventing their business models to take advantage of new opportunities and managing the risks of global competition. Only when a business manages globalization, does it thrive. Anything else is a distraction.
That brings me to the topic of the role that innovation plays in the global economy. Innovation is the process of adopting a new thing, idea, or behavior pattern, and since global economy changes so rapidly in so many complex ways today that innovation has to be part of a company's DNA from day one and can be managed literally in real time.
The days when you could make a plastic bottle, fill it with water, sit back, and see the sales grow each year, are long gone. Today, companies have figured out to make plastic bottles in China, ship empty bottles to Italy, fill them up with water from the Italian Alps, and then sell them at your local supermarket for half the price. Only an innovative company can thrive in this environment. The rest simply file for Chapter 11.
Globalization has created a business environment in which a static business model is irrelevant. A good example is eBay that has incorporated innovation in its DNA to the extent that they can change their strategy several times a day, if needed. All it needs for their leadership is to connect via phone as soon as they see a change in the business environment. At the end of the meeting, they have a new strategy that gets implemented almost instantaneously throughout the organization.
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