Global thoughts are as old as enterprise itself

PUBLISHED : Wednesday, 06 January, 2010, 12:00am
UPDATED : Wednesday, 06 January, 2010, 12:00am

The word itself is unappealing: globalisation. It is, frankly, soulless - a 1960's made-up word with too many syllables and no fixed definition. Yet, however jarring it sounds, the word is frequently charged with intense emotive force and used indiscriminately as a blanket term for concepts that can be political, cultural or financial.

Mostly, though, globalisation is just another word for international trade. Specifically, it has become synonymous with the extraordinary late-20th century phenomenon of global outsourcing: the migration of huge volumes of jobs across continents and of large numbers of rural workers to wherever those jobs land.

Globalisation has been hugely successful, by all economic criteria at least, yet it is often unpopular. It is cited for cultural imperialism, has provoked mass demonstrations and is decried by its opponents as a greed-driven capitalist leviathan which enforces uniformity and the elimination of all that is exceptional in the unrelenting pursuit of capital profit.

Nonetheless, globalisation can claim to have liberated millions from poverty, accelerated the creation of entire new consumer nations and fulfilled one of the prime goals of any business: to make and do things cheaper, faster, better and in greater volumes.

And was it not also globalisation, swiftly blamed when the 2008 United States credit crunch toppled the world's economies into recession, which just as swiftly, and surprisingly, helped with our collective financial salvation through the political will to adopt a global position?

As for the imposition of global monoculture, legions of zealous globalists have learned to their considerable cost that locals will always act local. Even McDonald's and Coca-Cola aren't quite the same the world over.

To anyone in business toughing it out at the day-to-day coalface of capitalism, globalisation is not a matter of debate, or even choice: it's a way of business life. Everyone does globalisation: from MegaCorp right down to the local handyman who orders his materials from an online aggregator.

It is also nothing new.

Enslavement and empire have for the most part been superseded by outsourcing and the corporation, but the principle of looking abroad for cheap raw materials, plus the even cheaper labour to covert them into finished goods, and new markets to trade with, is as old as enterprise itself.

The history of globalisation runs parallel with the history of technological advance: military, industrial and communications. Most recently, of course, it is the internet that has facilitated a continuing revolution in globalisation-specific processes and the way they are managed, particularly at the client interface.

And while globalisation can have various agendas, including the development of new markets for existing products and new products for existing markets, the constant element is cost reduction. Nobody goes global to increase cost.

Consequently, the most likely next significant development in globalisation practice will go back to an old-technology favourite: shortening the supply chain.

Transport and logistics, once the pride and joy of the globalisation disciples, who could boast their ability to ship an apple from China to provincial Spain at less than the cost of one grown locally, are now under radical review.

It is not hard to see why. Volatile oil prices and the more general response to concerns over energy efficiency and long-distance transport are likely to lead to a radical review of manufacturing strategies.

In a 2009 PricewaterhouseCoopers survey of transport and logistics executives on how they thought their industry would look in 2030, 60 per cent of the 48 panellists from 20 countries responded that 'consumers will prefer locally produced products by 2030'.

Nonetheless: 'Respondents do not believe there will be a reverse of globalisation by 2030. Even so, 59 per cent think that [transport] costs will be the predominant factor in the location of production sites.'

A further factor likely to accelerate this shift is the influence of 'real-time reviews' of all products on the internet. Not only can customers specify their product in detail online, they can - and do - criticise it, in blogs and on social networks.

For the manufacturer, who now has no option but to be transparent, the ability to produce locally will shorten lead times for delivery in some cases and add greater flexibility for customisation in others. With customer relationships increasingly described by marketers as a 'dialogue, not a one-way message', local production is better suited to underpinning the client relationship.

'Localised' production will not lead to a wholesale retreat from low-cost manufacturing countries.

Globalisation succeeds by outsourcing mass production in order to obtain greater productivity or cheaper per-unit cost (which to the profit/loss sheet are one and the same).

Mass production requires mass markets, and the mass markets are the cities, which then attract more and more people from the poor rural areas to contribute to, and benefit from, the economic growth.

As such, globalisation is also playing a significant role in catalysing the growth of the Chinese domestic consumer market to which all Western global corporations aspire.

There is, however, a potentially cataclysmic downside to the impact of globalisation on rural migration and urbanisation in developing countries. At issue is not supply chain management or quality control, but the planet's ability to feed itself.

The United Nations Human Settlements Programme's Global Report on Human Settlements 2009, notes that in the early 1900's fewer than 5 per cent of the world's population lived in cities. In 2008, that figure passed the 50 per cent mark for the first time.

The developing world's urban population is growing by an average of three million people per week (or just a little less than the combined populations of Hong Kong Island and Kowloon in the 2006 census).

The report states that by 2050, (the growth in the world's population) will have reached 70 per cent, representing 6.4 billion people. Most of this growth will be taking place in developing regions; Asia will host 63 per cent of the global urban population, or 3.3 billion people in 2050.

The UN Food and Agriculture Organisation notes that as increasing numbers of these migrants upgrade their incomes and living standards, and with them their tastes, diets and material aspirations, 'the world will have to produce 70 per cent more food by 2050 to feed a projected extra 2.3 billion people.'

As to the longer-term social, economic and political consequences of this unprecedented mass migration, none of those is covered in any corporation's annual business goals. That role is reserved for government.

But it is a brave government indeed which dams the main source of its wealth and denies its citizens the right to their share of it.

Or maybe - just maybe - globalisation itself will be the key, and the technologies which have allowed the world to 'globalise' will facilitate a truly global solution.

Neil Runcieman spent seven years as chief executive of a regional online marketing company, building it into the largest independent agency of its kind in the mainland. He now works as an independent writer and marketing consultant.