Globality replacing Globalization

A recent podcast got me to think of various boundaries that are fast diminishing between developing & developed economies. We all thought after Thomas Friedmans', “The world is flat” that the world is flat but if it was, then their would not be any competitive advantage. If all wage rates were common across the globe then globalization would not exist. But the reality is that the world is very spiky and that's precisely why this is happening. If the world had the same wage rates everywhere, we wouldn't be seeing the rise of ‘GLOBALITY’.

Globalization is actually over, a one-way street. It was about the companies from the U.S. and Europe, and then later on Japan, going to the rapidly developing economies with large populations and very low wage rates and either producing product or buying product, shipping it back to the developed markets, and then shipping over some very high-end and often luxury goods to those markets. So, it was fundamentally a one-way street.

What has changed over the last few years with the rise of the BRIC nations is the emergence of a two-way street. What we have seen over the last five years is not just companies from the West coming to India and China, etc., but companies from India, China, Russia and Brazil becoming real companies that are not just operating in their local markets, but are actually taking their rightful place on the global stage. And, in doing so, they are starting to challenge the traditional multinational companies. Now, it's a two-way street and a competition.

Companies that operate in environments with different spikes, such as low-cost labor, are beginning to use those spikes to their advantage. Then they can build on that advantage by investing in research and development, new product development and distribution.

The opportunities and threats are similar in both developed & developing economies Differential wage rates offer a tremendous advantage relative to companies in the developed economies where wages are expensive.
But if they sit back and just stay local, they'll end up losing the advantage over time, because companies compete on more than just wages. If you want to produce a low-end product, you can do it that way. But you'll need to step out into other markets to learn about how to bring the best of the rest of the world to bear on your own business and if you're not taking a global perspective, your competitors in India or China may come into your market and take your position. The balancing act will be critical and low cost alone won't be enough to win, because at this point in time all the BRIC nations are competing only on that front and there will eventually be a level playing field.

The developed economies or the mature markets must never ignore the potential of consumption of the developing economies. Today with China & India together offering 2.3 bn people of whom at least a billion would be consumers would only grow to add a billion people to your portfolio in the years to come. One of the best examples of this is Nokia and its head on strategy in China & India. They built a position in China in the early days, by selling the traditional way -- by offering a higher-cost Western product. No CUSTOMIZATION.

With the influx of low cost local manufacturers the demand increased from the rich to the masses and Nokia started to lose market share and Nokia was under attack.. Nokia defied the conventional response of retreating and instead moved its product development centre to China and customized for the Chinese consumers. Learning each country is different and nobody understands the consumer there better than their own people. You have to be there, you have to learn, and retreat is not an option.
Nokia regained its 30% market share in China. It then applied the same learning’s in the growing Indian market.

Also it’s only a local member who can bring in the dynamism & creativity that is brought in. e.g. would the developed economies have thought of introducing a car like the Nano. They would have never understood the need for a Nano to produce one. Localization does bring in the flavour.

With the economic downturn there will be more pressure to lower costs, which of course is one of the advantages of operating in developing economies. That may encourage even more Western companies to go beyond their own borders to lower costs, and may also create more opportunities for companies from the BRIC nations. It also may mean more outbound M&A from the developing world, which will give the emerging companies access to brands and technology, possibly at lower prices.

We definitely are heading to a two way street aren’t we?


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