Daniel Park - Associate Consultant, B2B International Ltd
Introduction
I am pleased to have been invited again to contribute to the “White Paper� series of B2B International. In the tradition of the B2B “White Paper� series the aim is to stimulate thought rather than to provide detailed academic discourse. I would like to look at globalisation. It is an interesting subject - one that (a) seems to be in the media daily and (b) gets used as the reason for activities such as violent demonstrations at the plenary meetings of the G8 group of countries, World Bank and International Monetary Fund.
There are economic, business, social and political dimensions to globalisation. This White Paper is concerned with the business dimension. That is not to imply that this is the most important dimension, but it is almost certainly the most interesting one for the readership of the “White Paper� series. Some economic background is set out here because the fundamental economic dimension often gets substantially overlooked, but in the main I concentrate on the impact and potential of globalisation at the level of the firm.
Unfortunately “globalisation� has become one of the great buzz-words of our time and this poses a problem. The problem is that many, if not most, commentators on globalisation do not appear to have an elementary understanding of economics and are fixed in a view of the role and power of the nation-state. The key to understanding the essence of globalisation is found in the reasons why commodity flows and divisions of production occur. This is important because economic exchanges very rarely take place between nations or groups of nations: they take place between organisations (“firms�, etc). The national perspective is a politically sensible but economically synthetic aggregation of activity, because there is no automatic congruence of interest between nation-states and the economic entities located within them. This has been discussed in academic literature ever since the birth of economics as a discipline. As globalisation has gathered pace in the past 20 years, it has prompted some analysts to suggest that the nation-state as a player in the business part of economics has all but disappeared. (Ohmae 1995)
Consider the following - as a starter. Currently the USA spends about 12 per cent of its income on imports; in 1890 that figure was around 8 per cent. During this period his market has shifted from just about the most protectionist to the most open in the developed world. During the 1850s the United Kingdom’s foreign trade element of Gross Domestic Product was around 40 per cent. That is slightly higher than today’s. So if globalisation is to any significant extent about increased international trade, how do we interpret these figures? It is not difficult in economics: the answer is to do with technical progress, production specialisation and factor mobility. Quite simply, a lot of the activity that constitutes globalisation does not appear in trade statistics. Trade is not the totality of international business and it is not always the most important dimension. International production specialisation and optimal allocation of resources are often much more significant. Information technology and the tools and techniques of supply chain management (SCM) are facilitating and accelerating this trend.
Therefore my key points are (a) that globalisation is not about making and/or selling products in all regions of the world and (b) that, more importantly, globalisation is not restricted to marketing and selling. Marketing and selling are not always the most significant aspects of globalisation: globalisation is, however, a powerful techno-economic phenomenon with profound implications for marketers. These are my main themes in this White Paper.
Basic issues
Let us consider two related issues that have very different content and impact - (a) international trade theory and (b) international trade policy. International trade theory is about the flow of goods, services, factors of production and knowledge between countries/regions. International trade policy is about the mechanisms used by governments and inter-governmental organisations, for socio-political reasons, to intervene in the workings of economics. There is no implied value judgement here: pure economics has no moral or social dimension and clearly these dimensions matter.
Not long ago we operated in a market in which goods, especially commodities, could flow freely, but the international mobility of services was much lower and the mobility of factors of production (especially labour) was extremely low internationally whilst being fairly high domestically. Prices tended to converge through the increasingly free (“floating�) exchange rate system, whilst factors of production were accounted in domestic currency. It was therefore the input rather than the output side of economic activity that prompted greater internationalisation of operations. Let us return to the trade figures cited earlier. Though we can correctly point to the absolute growth of trade over an extended period, its growth relative to the general economic trend, reflective of demand as well as supply, shows us something quite different. As markets have become more deregulated there has been a major change in the way in which and the speed with which knowledge is disseminated. This has had profound impact on organisations, often in a way that national governments find uncomfortable and that some social and political groups find threatening. This is the basic reason why so many governments are still stuck with the self-delusion that export is good and globalisation is bad. In trying to define and understand holistically the phenomenon of globalisation, we get to understand the new way in which economies and organisational components of economies interact.
Globalisation is, in my view, about creating a new set of competencies that enable a company to utilise resources on an optimal basis to meet differentiated customer demand profitably and cost-competitively without regard for geography. Put more simply, globalisation is about getting an organisation into a position of doing business in any market it chooses, and doing business is not just about marketing and selling. Looking at globalisation as a process of acquiring and renewing competencies helps us understand how and why new forms of organisation are emerging to take on and defeat established high-profile companies. Additionally globalisation is not restricted to large companies. Many very large companies are not global, and vice-versa. Our concepts of “top� or “leading� companies are changing too. One can justifiably pose the question whether many of the world’s huge (often merger- and acquisition-driven) corporations are true leaders or truly global. There is increasing evidence that such large organisations are not leaders in any real sense of the word. The crucial question is this: in what respects are large merger- and acquisition-based conglomerates “multinational/global� rather than owners of a portfolio of fragmented, under-optimised operations stretching across a diverse range of countries.
Part 2 of this article will be published this Friday
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