Fac­ing up to the new re­al­ity

The Smart Manager - - Contents - STU­ART CRAINER DES DEARLOVEL ARE FOUNDERS OF THINKERS50 (WWW.THINKERS50.COM).

The new global par­a­digm that is tak­ing shape may work in fa­vor of de­vel­op­ing mar­kets, opine Stu­art Crainer and Des Dearlove, Thinkers50.

Anti-glob­al­iza­tion sen­ti­ments have started oc­cu­py­ing cen­ter stage in the po­lit­i­cal nar­ra­tive, of late—sig­nal­ing a pro­nounced fo­cus on lo­cal­iza­tion and re­jec­tion of seam­less trade flows. The Brexit vote and the Trump pres­i­dency seem to have added fur­ther punch to this counter trend, spark­ing con­cern the world over. But will iso­la­tion­ism ever work in an in­creas­ingly con­nected world?

As the Amer­i­can pres­i­den­tial votes came in, we were in China. Af­ter hear­ing the news that Don­ald Trump was to be the new Pres­i­dent, we boarded a bus in Qing­dao on China’s Eastern seaboard. Our hour-long jour­ney took us over the world’s long­est bridge over wa­ter (the 26 kilo­me­ter Jiaozhou Bay Bridge) into what a slightly tired sign­post an­nounced as the Na­tional High Tech­nol­ogy In­dus­trial Devel­op­ment Zone. There, in the fast de­vel­op­ing ur­ban hin­ter­land, we were wel­comed into a state-of-theart fac­tory owned by the Chi­nese com­pany Haier.

In the fac­tory, work­ers were as­sem­bling air-con­di­tion­ing units, one of the com­pany’s many and var­ied prod­ucts. Over 500 peo­ple work at this fac­tory. It is what Haier de­scribes as an in­ter­con­nected fac­tory where the flow of ma­te­ri­als, prod­ucts and or­ders is con­stantly mon­i­tored and dis­played. This is mass cus­tomiza­tion, but with users par­tic­i­pat­ing in the man­u­fac­tur­ing process.

Later we vis­ited the Haier mu­seum at its head­quar­ters, tes­ta­ment to its in­cred­i­ble story over the last thirty years. In many ways, its story mir­rors that of China. From a des­per­ately un­eco­nom­i­cal sit­u­a­tion, Haier has grown into the world’s big­gest home ap­pli­ances maker and fastest-grow­ing home ap­pli­ance brand, as well as one of the largest non-state-owned en­ter­prises in China. It has an­nual sales of more than $30 bn. Alex Oster­walder, author of Busi­ness Model Gen­er­a­tion, be­lieves that “Haier is right up there with Ap­ple and Ama­zon” as a cor­po­rate bench­mark for our times.

The peo­ple we spoke to in China replied with a shrug and a smile when we men­tioned the Amer­i­can elec­tion. To them it seemed a dis­tant, per­plex­ing thing, hardly rel­e­vant to their lives.

And, to a large ex­tent, they are right. The eco­nomic jug­ger­naut of China is un­likely to be thrown sub­stan­tially off course no mat­ter how shrill the anti-glob­al­i­sa­tion and pro­tec­tion­ist sen­ti­ments and ac­tions be­come. The China of 2017 em­braces tech­nol­ogy—wit­ness Haier’s shim­mer­ing and ef­fi­cient new fac­tory; rel­ishes glob­al­iza­tion—in 2016, Haier bought GE’s ap­pli­ances busi­ness in the United States for $5.6 bn; and is moving to a re­lent­less rhythm of growth—Qing­dao has a pop­u­la­tion of nine mil­lion and build­ing work con­tin­ues at a fre­netic pace.

While sheer might al­lows the

big­gest coun­tries and their most glob­al­ized com­pa­nies to press on re­lent­lessly, smaller na­tions and com­pa­nies would be right to be con­cerned. There is only one China. Over the last year, the world has be­come a dif­fer­ent place. There are wide­spread reser­va­tions about the na­ture of glob­al­iza­tion with pro­tec­tion­ist poli­cies ap­pear­ing likely to be put in place.

These trends are likely to en­cour­age, per­haps force, com­pa­nies to be more lo­cal in fo­cus. To com­pa­nies in China and In­dia with vast do­mes­tic mar­kets, this is not nec­es­sar­ily a bad thing. The high­tech fridges and air-con­di­tion­ing units we saw be­ing made in China were des­tined for the grow­ing do­mes­tic mar­ket.

“In this kind of en­vi­ron­ment, com­pa­nies need to be­come more lo­cal as an or­ga­ni­za­tion,” says Chris­tian Stadler, Pro­fes­sor of Strate­gic Man­age­ment at the UK’s War­wick Busi­ness School. “To­day it is im­por­tant that com­pa­nies are per­ceived as a lo­cal cham­pion. It is not pos­si­ble to en­tirely undo the ex­port links and sup­ply chains com­pa­nies al­ready have, but per­cep­tion matters.”

“Com­pa­nies may want to choose a dif­fer­ent route to ex­pand­ing in new mar­kets. For ex­am­ple, Shell al­lows its coun­try branches to be very au­ton­o­mous, they only need to con­tact head­quar­ters to ap­prove their an­nual in­vest­ment plan or to find a re­place­ment chair­man, so they can be fully im­mersed in the lo­cal mar­ket. This is an al­ter­na­tive to ex­port­ing, though it is more costly so com­pa­nies need to pri­or­i­tize the im­por­tant mar­kets for them.”

What it means to be lo­cal may well be rein­vented, as com­pa­nies con­tem­plate the new world or­der. The fu­ture begins here rather than over there.

Two other points are rel­e­vant, though they ap­pear con­tra­dic­tory.

First, glob­al­iza­tion may have been over-stated. The Global Con­nect­ed­ness In­dex is pub­lished an­nu­ally by DHL. It is writ­ten by

Pankaj Ghe­mawat of New York’s Stern School along with Steven Alt­man. The In­dex ob­serves that ac­tual lev­els of global con­nect­ed­ness are still only a frac­tion of what peo­ple es­ti­mate them to be. It also ar­gues that ‘dis­tance still matters— even on­line. Most in­ter­na­tional f lows take place within rather than be­tween re­gions’.

So, the glo­ri­ous ve­neer of glob­al­iza­tion covers a more re­gional, lo­cal, and na­tional re­al­ity. An­other in­ter­est­ing el­e­ment of this is that ad­vanced economies are more deeply em­bed­ded in the flows of cap­i­tal, in­for­ma­tion, and money which drive glob­al­iza­tion. The ad­vanced economies are, as a re­sult, more heav­ily in­vested in glob­al­iza­tion. A coun­try like the UK has a rel­a­tively small na­tional mar­ket but highly de­vel­oped global net­works. It has a lot to lose if the pause but­ton is pressed.

The re­search sug­gests that the pe­riod of global re-trench­ment ex­pe­ri­enced af­ter the fi­nan­cial cri­sis caused economies to look within rather than with­out, and that has yet to be changed back. “The ris­ing pro­por­tion of eco­nomic ac­tiv­ity tak­ing place in emerg­ing economies con­tin­ues to prompt in­ter­na­tional flows to stretch out over greater distances (and to be­come less re­gion­al­ized), but this shift to­ward in­ter­ac­tions over greater distances has de­cel­er­ated since the cri­sis years,” con­cludes the re­port.

The sec­ond point is that iso­la­tion­ism can­not work. In the in­ter­net age, it is hugely dif­fi­cult— per­haps im­pos­si­ble—to erect bar­ri­ers whether they come in the form of tar­iffs or border walls. Peo­ple may feel marginal­ized by glob­al­iza­tion, but they do not want to be North Korean.

“When I am at my most fear­ful, or trou­bled, by what I am see­ing and hear­ing, I try to step back, ac­knowl­edge all of the world’s re­ac­tion—in­clud­ing the pos­i­tive— and see the dis­tur­bance as a rip­ple in a wider, big­ger pic­ture. My sys­temic train­ing tells me that if any­thing gets ex­cluded it only gets big­ger. Once you stand in judg­ment, you stop ex­plor­ing deeper, pos­i­tive causal­ity,” says Deborah Row­land, con­sul­tant and author of a new book on the true na­ture of change, Still Moving.

“At some level, I have to learn to agree ‘to’ Trump, even if I can­not agree ‘with’ Trump. So, sys­tem­i­cally, what is his pres­i­dency serv­ing? At face value, it might serve to ex­clude im­mi­grants and pro­tect lo­cal jobs, im­pose pro­tec­tion­ist tar­iffs, and boost US in­dus­try. But, at a deeper level, what else might it serve? Per­haps his pres­i­dency is serv­ing to bring to light a once-ig­nored sec­tion of the global pop­u­la­tion. To re­veal how dangerous it is to di­vide. To show how, de­spite the wish­ful think­ing of build­ing walls, it is im­pos­si­ble in to­day’s in­ter­con­nected world to iso­late.”

All of this sug­gests that we are right to be con­cerned about what is hap­pen­ing and what is likely to hap­pen. But the real­i­ties may serve to ben­e­fit de­vel­op­ing economies— many of which have large na­tional mar­kets and are not yet part of global net­works. The new re­al­ity is dif­fer­ent, the question is how to con­vert its dif­fer­ence into an op­por­tu­nity. ■

Ac­tual lev­els of global con­nect­ed­ness are still only a frac­tion of what peo­ple es­ti­mate them to be. Dis­tance still matters—even on­line. Most in­ter­na­tional flows take place within rather than be­tween re­gions.

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