Many multinational business models are no longer relevant. Skillful companies can integrate three strategies — customization, competencies, and arbitrage — into a better form of organization. (An excerpt from an excellent article from Strategy + Business)
During the high-growth years between 1992 and 2007, the globalization of commerce galloped at a faster pace than in any other period in history. Now, amid the chronic unemployment and anti-trade rhetoric of the post-financial-crisis world, some observers wonder whether globalization needs a time-out. However, the experience of multinational companies in the field suggests the opposite. Whereas GDP growth has stalled in the industrialized world, consumption demand is still expanding inChina,India,Russia,Brazil, and other emerging markets. The 1 billion customers of yesterday’s global businesses have been joined by 4 billion more. These customers reside in a much larger geographic area; three-quarters of them are new to the consumer economy, and they need the infrastructure, products, and services that only global companies provide.
The problem is not globalization, but the way our current institutions are set up to respond to this new demand. The prevailing corporate operating model does not work well with the structural changes that have taken place in the global economy.
Instead of a single center, companies would establish core office “hubs” in many or most of the 20 gateway countries in the world that house 70 percent of the world’s population and account for 80 percent of its income. These 20 countries include 10 from the industrialized world: Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, theUnited Kingdom, and the United States. The other 10 are emerging markets: Brazil, China, India, Indonesia, Mexico, Russia, South Africa, South Korea, Thailand, and Turkey.
A hub strategy enables a company to provide products and services everywhere. But it will not in itself resolve the trade-offs of globalization. Companies can accomplish this only with a more comprehensive business model that (1) customizes their products and services in hubs around the world, (2) unites business units around a platform of proprietary knowledge and the building of competencies, and (3) arbitrages their operating models to gain cost-effectiveness, productivity, and efficiency.
• Customization. The key to this imperative is to deliver products and services in a locally competitive way. That means they must satisfy the needs and wants of diverse customers, in terms of features, affordability, and cultural affinities. That is why companies must leverage the diversity of a decentralized structure.
• Uniting around a platform of competencies. This initiative means aligning your entire global company with a common core purpose, a body of proprietary world-class knowledge, and the competencies that distinguish your company from all others.
• Arbitrage. The final imperative involves gaining effectiveness and reducing cost by finding less expensive materials, manufacturing processes, logistics systems, funds sourcing, or infrastructure. Most companies have addressed this tactically, by offshoring back-office work or moving manufacturing to locations with lower-cost labor. This is generally a defensive or reactive move, rather than a well-considered strategy.
Bringing the Elements Together
Until companies combine these three elements, they will not get the full payoff of the new operating model. They need to integrate all three elements.
Many CEOs and top managers are still asking themselves when the bad times will end. No one has the answer, and even in a robust recovery, competition will not slacken. A better question is, What can we do now to establish ourselves in the new global economy? It can be accomplished only by companies that transcend the old trade-offs and seek operating models that allow them to serve the largest numbers of people while meeting the highest possible standards.
- Expanding globally? Learn how from a venture capitalist (medcitynews.com)
- The Innovation Journey never stops… (globalenglishblog.com)
- Is there a Globalization Penalty? (globalenglishblog.com)
- Global-Arena.com encourages Economic Development Organizations to use Social Media for FDI Promotion (prweb.com)