Markets are becoming global. This can present great opportunities with extreme rewards. However, customers and entire markets can be won and lost in the blink of an eye. In order to reap the rewards and manage the risks, a business first needs to understand the global forces affecting supply and demand.
“Customers, vendors, partners and shareholders no longer live in isolated pockets and are becoming more interconnected. Physical market boundaries mean very little nowadays. This is the core of globalization,” says Paul Prabhaker, Ph.D., associate dean of Graduate Programs in the College of Business at Northern Illinois University. “Globally efficient markets relentlessly drive human resources, capital and materials. These markets do not respect national boundaries, traditions or cultures.”
Smart Business spoke with Prabhaker about how businesses can deal with these interconnected marketplaces and globally networked supply chains to stay competitive in a furiously evolving marketplace.
What are some key things business leaders need to understand about doing business globally?
Be aware of the underlying trends driving the two sides of globalization: the supply side and the demand side. You ultimately need to proactively place bets around the future you want. This means you’d better understand the fast-changing global trends well enough because the future of your business is at their mercy.
Understand and accept that these global trends affect not just large, multinational firms, but, in fact, present greater risks and rewards to small local businesses. Be intentional in adapting your business on the supply side and demand side. Do you wish to serve markets locally by leveraging the efficiencies of a global supply chain? Or do you wish to serve markets globally by leveraging the nimbleness of a local supply chain?
How can companies deal with the interconnected marketplaces and the rise of networks?
An interconnected world creates customers who are at least aware of what other markets have access to. This awareness is heightened by the proliferation of technologies that provide information on demand to the global population. People all across the world are touched by the same information information co-generated by providers and users simultaneously. It’s then just a matter of time before behavior starts becoming similar.
For example, teenagers in Asia want to look and act like Western teenagers. They mimic television programs and movies and align their purchases and behaviors to the Western model. Awareness is everywhere now, and that’s the difference. Because people are more aware, their behavior conforms to the new global model.
Markets are also no longer respecting national boundaries. Capital increasingly flows in the direction of wherever the market returns are higher. Human and material resources also do not have much respect for national boundaries, for example, the shift of technology skills and manufacturing skills from the West to the East. Businesses now have to rethink their capital-sourcing and human resource management strategies for a global marketplace.
What factors drive global business trends?
A number of significant paradoxes are occurring. The first is that the power distribution has shifted substantially. Currently, the world’s total output is around $40 trillion, with one-quarter of that generated in the U.S. The United States used to generate two-thirds of the world’s output and was viewed as the global economic power in the 1950s.
Thus, the rules that govern the world markets have changed from a predominantly U.S.-centered model to a model centered around multiple countries. Businesses need to understand that the sociopolitical dimensions underlying economic markets are fundamentally different now.
Another paradox is the shift from free-market, open-economy models that create wealth to state-directed economies. The notion that government-directed markets are inefficient is being directly challenged as countries such as China, India and Russia rapidly move up the global economic ladder. As a business, you will need to align your future around these markets that grow in newer economic systems.
There’s also data that show that substantial wealth has shifted from the West to the East over the last 20 years and that this trend is not abating in the near future. This is usually a predictor of where future demand will be. U.S. businesses need to emotionally accept this, even though it is hard to give up years of legacy and history. Once you accept it, you can implement your practices around this new phenomenon.
How can business leaders help their companies stay competitive and win in the global arena?
Stay vigilantly aware of the rate at which globalization is happening. Leverage every global development on the supply and demand sides of your business. Track customers and understand how they make choices in this global marketplace. Watch your suppliers and vendors closely and align your business with those who have the flexibility and scale to extract maximum global supply-side gains.
A contrarian way to success in this relentlessly globalizing world is for businesses to stay strong in their own corporate character and business model. This helps your customers and shareholders understand who you are and provide that all-important confidence in your products and business practices, and what you stand for.
The challenge for businesses is to either keep riding the powerful globalizing waves, with the ups and downs, or set their own standards and character, and choose the less-trodden path to success.
Paul Prabhaker, Ph.D., is the associate dean of Graduate Programs in the College of Business at Northern Illinois University. Reach him at (815) 753-6176 or [email protected].