Success Isn’t Guaranteed in the Global Marketplace

The global marketplace has moved from buzzword to reality. For example, villagers in the Middle East followed the Persian Gulf War on CNN via Soviet government satellite and their local television systems. The effort involved both public and private sectors on three continents.

The standard geopolitical map that we grew up with is out of sync with the emerging business and economic map. The consequences are profound. Half of Xerox’s 110,000 employees work on foreign soil. Half of Sony’s employees are not Japanese. More than half of Digital Equipment’s revenue come from overseas operations.

Economic and technological forces are powerful agents for change. In a recent example, an entire Kuwaiti bank was moved by fax. The day of the Iraqi invasion, the bank manager faxed the bank’s records page by page to the organization’s office in Bahrain. The next day, the bank reopened as a Bahraini institution subject to neither the freeze on Kuwaiti assets nor Iraqi control.

Looking beyond today, three regions can be expected to dominate the global marketplace far into the 21st Century: North America, the Asian rim and the reinvigorated European Community. This decade’s most radical changes will likely occur not across the Pacific, but across the Atlantic.

Many discussions of the EC get mired in details and overlook the main points. The EC countries are reducing restrictions on business, trade and labor. People, goods, services and investments will be able to move freely among EC nations. That will make these nations more efficient as they achieve greater economies of scale and as standardization replaces 12 varieties of every product and service.

However, for countries outside the European Community, there will be disadvantages. The EC is maintaining its external trade barriers. In 1960, before the Common Market gained momentum, more than 60% of the foreign trade of those 12 nations was outside the EC. Now more than 60% of their trade stays within the EC.

The economic integration of the EC, scheduled to be nearly complete by the end of 1992, will produce winners and losers on both sides of the Atlantic. One group of winners will be strong U.S. firms with an established presence in Europe. General Motors and Ford have more Europe-wide strength than Volkswagen, Fiat, Peugeot or Renault. The same is true for International Business Machines, Digital Equipment and Hewlett-Packard as compared to their European counterparts.

Losers from EC ’92 will include the old-line European companies that have been sheltered within their national markets. Cheap labor and tax incentives will no longer be important. Tradition-bound companies will be hurt by continent-wide competition.

Stronger European companies with high-skill and high-tech capabilities will benefit from their own growing markets. U.S. firms may thus find it more difficult to export to Europe and will also face tougher competition at home from the stronger EC firms.

And the EC is not static. Gradually, it has expanded from six to 12 nations, and many other European nations are knocking on the door.

Austria is a prime candidate for early entry because Vienna is a gateway to Eastern Europe. Hungary might then be close behind, followed perhaps by Czechoslovakia and Poland. Other attractive candidates are the Scandinavian countries. If the EC goes from 12 members to 16 or 19 in the 1990s, Western Europe will be the world’s largest marketplace.

For U.S. business, there is both threat and opportunity in the rapidly changing global marketplace. On the positive side, advanced economies are the best customers of other advanced economies. On the other hand, our own home markets become increasingly vulnerable to foreign competition.

There is great similarity between the domestic threat of hostile takeovers and the loss of market position due to new foreign competition. In both cases, the firm is forced to review its strengths and weaknesses and to rethink its long-term strategy. Streamlining, downsizing and restructuring are responses to both threats.

Such adjustments are causing fundamental changes in the nature of business. Joint ventures are no longer an obscure legal form. Neither are strategic alliances, which increasingly involve operations on different continents.

United Technologies’ Otis Elevator exemplifies the advantages of geographic diversification in the new global environment. In developing a new product, its French division worked on the door systems. The Spanish division handled the small-geared components, while the German subsidiary was responsible for the electronics. The Japanese unit designed the special motor drives and the Connecticut group handled systems integration. International teamwork cut the development cycle in half and saved more than $10 million.

A word of warning: A global economy does not mean that every company should try to cater to every market. Some firms are learning to focus instead on specialty products or services and on market niches where they have special advantages. Not every company is going to make a grand success in the global marketplace of the 1990s.

Inevitably, there will be winners and losers.