Globalisation is still big news, but it has many local flavours; how can a supply chain respond to these whilst still being efficient? How do you make the most of your local operating assets in a globally diverse market? Companies globalise for many reasons, some more likely to create value for shareholders than others, such as: economics, with efficiencies being driven through common platforms or buying power; survival, when existing core markets are restricting growth; opportunity, when existing brand image creates the ability to enter new markets; customer pressure, when globalising customers expect the same of their suppliers, or remote consumers access the internet and want products locally; and, market pressure and CEO vanity, with continued expansion expected to drive up the share price.
These factors have combined to form a traditional approach to globalisation, typified by the race to be in as many countries as possible, construction of global and regional manufacturing and assembly facilities, development of local logistics and sales and marketing infrastructures, and a strong emphasis on central control of how things will be done.
But the world is changing fast, and the traditional approach seems less appropriate: the transfer of wealth and market from West to East is happening quicker than expected, so central control is less acceptable and practical; the growth of megacities continues unabated as, by 2050, there will be another 27 cities with a population of over 10m, and over 50% of the world’s population will live in urban centres; the pace of product obsolescence is ever-increasing, leading to commoditisation of products and the unacceptability of long lead times; increasing oil and resource prices make long supply chains, and single sources of raw materials, more expensive.
Although globalisation creates the same branding, quality and service expectations everywhere, ‘everywhere’ is not the same. Wildly different infrastructure, cost bases and geographical challenges exist, quite apart from culture. A new form of globalisation is needed: standardisation of product is still required, but with emphasis on quality and functionality rather than inputs; agility and flexibility are vital and, rather than having redundancy built into a company’s own facilities, demand spikes should be met by locally outsourced facilities and by ensuring the ability to meet peaks is built into supplier contracts; and, companies need to reduce the number of markets on which they focus, increasing the use of distributors in difficult or small markets rather than establishing their own infrastructure.
Globalisation may be changing but it is as relevant as ever. Unfortunately, many companies are not good at it, with typical problems including poor change management, non-alignment of local management, poor forecasting when serving multiple markets, failure to develop local talent, and imposition of ‘how to’ not ‘what result’ from the centre, resulting in slow decision-making and lack of flexibility.
The challenge for Boards is not whether to globalise, but how to do it effectively, and keep it that way, in a world of changing markets.
Author: Richard Powell, Crimson & Co
