Coping With Globalization
“It’s worth noting that there are virtually no bras made in the U.S.,” writes Suzanne Berger, professor of political science at the Massachusetts Institute of Technology and author of this impressive study of global business.
Her point is a serious one. The textile industry has been turned upside down by the series of phenomena commonly described as globalization: technological advances, liberalization of markets and the entry of low-cost competition.
But Berger and her colleagues at MIT’s Industrial Performance Center have not tried to offer yet another top-down analysis of what globalization may or may not have in store for us. Their five-year program of research, whose findings are presented in this book, involved talking to 500 companies around the world to discover what specific approaches they were taking to meet today’s challenges.
This is an evidence-based, bottom-up account of the realities of globalization. It is more varied, more subtle and more substantial than many of the popular works available on the subject.
“Virtually everything people think they know about [globalization’s] consequences comes either from opinions, anecdotes or very general economic theories,” Berger writes. But this book is not an attempt to uncover “the one best way” of facing the future. “We discovered no misconception about globalization more dangerous than this illusion of certainty.”
What does globalization mean in practice? For many, it is all about convergence.
“The prediction is not only that Big Macs drive out the French croque-monsieur, but that the culture portrayed on American television comes to be the standard of the good life presented to audiences around the world,” Berger writes.
This is a vision of the future that excites many business leaders. Think of China and its market of 1.3 billion people (or, as Procter & Gamble Co. has allegedly put it, 2.6 billion armpits).
But perhaps convergence is not the only possible outcome. National and even regional variants are still possible: the clusters of northern Italy’s textile industry, for example -- menaced but not yet killed off by China’s low-cost alternatives, or Japan’s high-tech products still manufactured at home.
Berger sees the challenge of globalization leading to two central strategic choices for businesses: reorganization and relocation.
What is the right structure -- and right sector -- for us to be in? And where should we base ourselves to prepare for the fight?
While the pressures leading to convergence are real, they do not dictate a single best strategy for surviving and growing, even for businesses in the same industries. The “dynamic legacies” inherited by companies leave them with a range of options.
The low-wage, low-cost route may be the least advisable, says Berger.
“As low-end firms that compete on price move from one overcrowded segment of the market to the next, there is virtually no chance of gaining any durable advantage,” she writes. “In the end, what matters are unit labor costs, and these may be very high in low-wage economies where workers are inexperienced, need close supervision, work on old or poorly maintained equipment, and move frequently between jobs.”
We used to worry about products being “made in America,” Berger says, but with the “modularity” of modern business, perhaps products should simply have “Made All Over” stamped on them.
Consider the iPod. It contains a Toshiba hard disk, a Nidec disk-drive spindle, an ARM core processor, a Texas Instruments firewire controller, a USB interface chip from Cypress, and flash memory from Sharp. It is assembled by Inventec, a Taiwanese company. Half the retail cost of the iPod is made up of the cost of all the components and services that Apple buys.
“It’s the combination of modularity and the break-up of the production system, together with the opening of the international economy, that delivers the real punch of globalization,” Berger says.
Reorganization and relocation go hand in hand, creating threats and opportunities at home and abroad.
Nor should the rush to offshore be adopted by everyone. As Berger points out, some successful companies keep jobs in-house, others move the same ones offshore. In certain cultures offshoring everything is unthinkable. There is a risk, as some Japanese businesses put it, of “creating your own competitor.”
Globalization offers no easy choices, Berger says, but the point is to choose.
Whichever route you take, you will be managing by the seat of your Timothy Everest-designed, made-in-China, Marks & Spencer pants.
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This article appears by special arrangement with the Financial Times.
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No Easy Choices
* How We Compete: What Companies Around the World Are Doing to Make It in Today’s Global Economy
* By Suzanne Berger (and the MIT Industrial Performance Center)
* Currency Doubleday, 352 pages, $27.50
