The global economy is slowing down. The signs are everywhere. Europe may be emerging from the big recession but progress has been slow. Japan’s “lost decade” has turned into a lost quarter of a century.
China, the locomotive that was supposed to drive the global recovery, is down to less than 7 percent growth (if you trust the official numbers) — a respectable figure but a significant slowdown. And while Chinese exports have declined only marginally, imports have plunged.
Elsewhere things aren’t much better. Africa may be the next frontier, but despite some progress continues to be mired in political, social and health problems. Plunging oil prices have reduced purchasing power from Canada to the Middle East, where the Arab Spring has decimated substitutes such as tourism.
Overall, it’s not a pretty picture.
No time for retreat
All of that makes it tempting for middle market companies who have stayed out of global markets to say “I told you so,” and for those already there to withdraw to the alluring comfort of home. This, however, would be a grave error.
The U.S. share of the global market continues to shrink and it’s difficult to imagine that will reverse. “Home sweet home” is getting smaller by the day, at least when compared to the world as a whole.
Nor is the domestic market immune to globalization: The very traits that make it attractive mean more foreign firms target the U.S., intensifying competition.
Midsized firms that have avoided global markets may find it appealing to say, as I often hear, that “this is not the right time.” But when is?
Firms that stay away from international markets won’t develop the skills and capabilities necessary for success, or be able to take advantage of recovering markets. Plus, they are losing the chance to keep would-be “invaders” off-balance by attacking their home markets.
Firms that have retreated because of the slowdown or competition find it challenging to renew their presence, especially in countries where personal relationships are paramount. (Japan and China come to mind.)
Seeing the opportunities
As in other cases, one company’s problem can be another’s opportunity. For instance, the need to cut costs during a slowdown generates a need for greater efficiency. If you’re in the business of facilitating such efficiencies, demands for your products and services may be higher.
One of the strongest headwinds faced by Chinese manufacturers is higher costs, especially that of labor. Combined with the need to upgrade quality, this creates unprecedented need for industrial automation.
While you may still imagine thousands of Chinese low-wage workers toiling for minimal wages, last year China was the world’s largest buyer of industrial robots. If you’re in the business of assisting with incorporating automation in manufacturing, the market may be better than ever.
Even if trade and investment are growing relatively slowly, the global economy is here to stay. A global recovery and trade agreements like the Trans-Pacific Partnership will only accelerate the transformation. Will you be ready?
Oded Shenkar is the academic director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsized companies, based at the Fisher College of Business, in collaboration with The Ohio State University and GE Capital. Oded is the Ford Motor Co. chair in Global Business Management and a professor of management and human resources at the Fisher College of Business.
