Globalization and your Business Strategy

by Patrick Daly on 2012-01-03 14:43:23

First off please allow me to wish you a very happy and successful new year 2012.

Richard Rumelt, who has been dubbed “Strategy’s Strategist” by the McKinsey Quarterly describes strategy as a process with three distinct but essential components – first there is a diagnosis of the business situation, followed by the development of a guiding policy which leads ultimately to cohesive action in pursuit of a specific outcome which, after all, is the real point of the whole exercise.

If we consider that the first stage – diagnosis – is an interpretation of the facts of the situation to allow us to make sense of that situation and devise focused action to improve our business, then it seems to me that this is a great time for all businesses to take a look at what is really happening in the wider world as the processes of globalization continue to unfold at pace.

Your interpretation of what these changes mean for your business will enable you to consider how your response can change your policies and actions so that your business can grow and thrive in 2012.

First here are some of the facts:
 

Most developed economies face several years of austerity and low growth meaning that home-driven growth, or growth from traditional  export markets in other developed economies will be hard to come by in most sectors.

China has been growing at over 9% per year for over 30 years. 400 million people in China have moved out of poverty in that time. Twenty of the fastest growing cities in the world are all in China.

There are 1 million millionaire households in China.

With the inability of the traditional western consumer engine to drive the world economy, China and other emerging economies will need to develop internal consumer markets to compensate for the loss in export growth. Consumption still accounts for only 36% of the Chinese economy as compared to 70% in US.

The greatest generation of spenders ever known is expected to be the post-‘80s generation of Chinese now in their 20s and 30s.

Almost 100% of global growth is now coming from emerging markets. This is not just the BRIC countries but also other rising stars such as Turkey which had 9% growth in 2010, Indonesia 6%, Argentina 9%, Colombia 4%, Chile 5%, Vietnam 7%, Philippines 7% and there are many others.

More Indians have moved out of poverty in the last ten years than in the preceding 50 years. By 2050, India’s per capita income is projected to be 20 times the current level. The Indian middle class in now made up of 300 million people.

Trade and capital flows between emerging economies in projected to grow tenfold in the next 40 years.

In 1990 the total value of global trade was $22 trillion – in 2010 it was $62 trillion.

No doubt, developing economies still have many challenges to overcome and it is imprudent to extrapolate current tends into an unpredictable future. Nonetheless, the processes that are currently at play have already changed things far beyond the model of the world that many business leaders are still operating to. This transformation, often lazily referred to as “Globalization”, is driven by technological change, demographic change and sociological change and is being accelerated by the debt crisis and the Great Recession. These are long term trends that are difficult to interrupt. This is happening now!

No matter what business you are in, whether you trade internationally or not, your business will be impacted by this reality. As a business owner or controller it is your job to interpret how your policies will adapt and what you plan to do in response.

Should you begin to source overseas or in new markets, should you begin to export or export to new markets, should you change product and service offerings for these markets, what supply chain solutions and capabilities will need to be put in place, what new skills will be required, what are the financial implications? – there are many questions to be answered.  

The fact is, most business strategy is not strategy at all but rather a collection of wish lists, conflicting goals and uncoordinated action items many of which work at cross purposes with each other.  Focused, coordinated action in pursuit of well-formed business outcomes requires strong leadership and single-minded determination from business leaders.

What are you going to do in 2012 to ensure that your business thrives in the face of these globalizing trends?

Until next time……

Patrick Daly
Alba Consulting