Competitiveness based on supply chains
Related to a great extent to the emergence of the agile corporation, we see a major change in the basis of inter-organisational rivalry. Particularly in business-to-business markets we have an increasingly well-informed customer base that is capable of analysing where value is created. The response of many successful suppliers is to base their product on the efficiency of the complete supply system – assigning to each element of the supply process those activities that are logically located there. Where there is value that can be ascribed to the individual set of assets (defined holistically), such activity is performed internally. Where is it appropriate to assign this activity to a different player in the supply chain, the activity can be performed externally. Whether we are in the business of offering a physical or service product, the position is the same.
To take one example, a very high percentage of the final value of the modern Boeing aircraft is outsourced: the comparative advantage of Boeing, its value-add and hence its return on assets derive from its knowledge and skills ranging from basic R&D through engineering design and logistic system management to complex final assembly. Boeing controls but does not undertake fabrication of components and sub-assemblies: these products come from elsewhere. The “elsewhere� is becoming global, and the new core competency in managing sophisticated I.T. systems enables Boeing to control the whole of its supply chain. I have addressed this in more detail elsewhere in a previous “White Paper� for B2B International (Park 2003).
2.The managerial dimension of globalisation
Globalisation brings about changes in the content of the activity we term “management”. The overarching requirements imposed by globalisation are the replacement of procedure-based systems of command and control with a tissue of shared vision and values; an awareness and sensitivity for the commitments other parts of the organisation have made and an acceptance of the role a single part of the company plays in achieving an optimal result for the company as a whole; and a system of empowerment and common, rational performance and reward objectives.
Few organisations, especially in Western Europe and North America, have these managerial characteristics. Fewer accept, even in the face of hard data to the contrary, that effective performance in the global economy includes a radical change in the attitude required for survival let alone competitive success. If you doubt this, just take a look at any UK company of significant size and you will find national sales targets in markets defined on a national basis, national organisations “empowered� (i.e. restricted) to act nationally; reward on the basis of nationally-measured outputs.
Let us assume that the above problems can be overcome. What then will differentiate the global form the national approach?
The starting point is the abandonment of any nationally-based mode of thought and a move towards considering the business domain in which one operates. By “business domain” I mean simply that one defines one’s business as the totality of added value that one can access on the basis of leveraging relevant assets and capabilities – some of which will be owned and others of which will be bought-in or hired-in. Thus there will eventually be no such thing as the “German” or “French” market, but a borderless business domain which will have as its segments not product types or countries but global customers within supply chain structures, each having distinct characteristics. The customer or the supply chain becomes the market segment.
Take the case of telecommunication. The emerging segments are either globalising systems integrators (e.g. Ericsson, Lucent) or globalising telecommunications authorities (eg BT, Deutsche Telecom) which are changing from negotiating nationally to negotiating globally).
How will these single-company segments buy? It will depend on their view of their business domain. Some will source components, some will require complete subsystems, others will require something between. The response will be a mix of product packages that could involve direct product supply from a global product supply function, local or international collaboration with related manufacturers, acquisition of companies up and down the supply chain.
Past management approaches will change. I find it useful at this point to quote Robert Bischof as CEO of the Boss UK Group. What he had to say about the fork-lift truck business is true in most business sectors.
“In global markets stretching from Europe to North America, from the “tiger” economies of South East Asia to Japan, even large companies need strategic alliances and/or further acquisitions to fulfil the conditions of global membership. In marketing terms this means a departure from wholly owned subsidiaries with direct selling organisations in every corner of the world, and instead a network of locally-focused dealerships, licence agreements, co-operation etc.
The biggest change however has to happen in the minds of management and employees of a company going global, and a much larger culture change is necessary than the one from a national to a European player. Globalisation does not just mean global marketing: it also means global sourcing to stay competitive and it means global benchmarking for the best manufacturing locations in the world.”
Let me summarise what all this means in terms of managing a business. There is a process of change which can usefully be looked at in terms of declining and emerging influences on business that illustrate the quite significant change that is now taking place.
Declining influence Emerging influence
National borders Free trade
Product markets Business domains
Planning Coping with the unexpected
Uninformed customers Demanding customers
Standard product Subtly differentiated product
Hierarchy Flattening organisations
Scale Scope
Procedures Processes
Information (know what) Competence (know how)
“The market is always right.” Effective supply can create demand (Say’s Law)
The above changes have major implications for the whole of the corporate management field. They influence marketing in a very profound and challenging way. Let us now turn to this dimension.
3.Implications for marketers and marketing
Globalisation offers marketers the opportunity of reaching a much wider range of consumers than has been the case in the past. This makes some aspects of marketing easier and others more difficult.
Basic tools and techniques of marketing
In an increasingly integrated business environment the emphasis moves from an individual to a collaborative marketing platform. This is set out in detail in a multitude of academic studies on global management (see esp. Coulson-Thomas 1992). The essence of changes in tools and techniques of market is in the response to national/regional aspects that remain during the processes of transition – different aspects of corporate activity mature and globalise at different rates, and national/regional legal requirements and product standards change very slowly.
This has led to Sony’s concept of “global localisationâ€? and this drives the company’s marketing worldwide. The basics are globalised – core technology, design, branding – and the final product specification, mix, promotion, customer support are undertaken just as if Sony were acting as a national/regional company.
Behaviours are converging, but slowly. The influence of history and culture difference will remain significant. However the impact of the information revolution is such that there is convergence and it is beginning to accelerate. Levi’s are in demand in China as on the USA West Coast and can no longer be portrayed as a manifestation of Western decadence. The basic marketing messages aimed at young, well-informed consumers work in Beijing as in San Francisco: the percentage of localisation will slowly decline over time.
Working out the physical channels to market is not enough: marketers now need to understand the informational channels to market.
The fifth and final part of this white paper will be published on Tuesday 16th May
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