Globalization? There is More to Consider

The journey to globalization is a perilous one. We live in a time when industry is rapidly turning to low cost geographies in order to capture low production and design cost. The world is getting smaller as recent technological advances along with reduced third-world country trade restrictions now make the globalization conundrum seem like a business imperative. Shouldn’t every company reduce cost through leveraging lower cost geographies? Does every company need a global footprint to remain competitive? The answer is no, but it is not that simple.  

 

Expansion for the sake of cost reduction is a short-term reactive strategy that does not yield lasting benefit; instead, executives should steer the discussion towards the need to increase global competitiveness. Rather than focus on cost, executives should be asking management teams these questions: Are we competitive? Do we have distinct competencies from the competition? Are we leveraging core competencies to capture market share? What is our hit rate? Are we selective when quoting projects?   

 

If the organization has the goal of becoming more globally competitive, it is recommended to first look inward to improve profitability by eliminating operational waste through exercising lean methods and institutionalizing continuous improvement programs. Once the opportunities to streamline are exhausted, then the executive team should consider if the company is in a competitive position to expand their global footprint.  

 

Technical Control. It is important to determine what form of business relationship will best serve company objectives. The key consideration in this process is protecting intellectual capital while simultaneously maximizing profit; this statement sounds simple, but if not handled judiciously it has disastrous consequences. Whether to construct a new facility or form a joint venture or legal partnership, each alternative has advantages and disadvantages. 

 

Technical teams will also need to determine which facility should perform the product design, program management and engineering required for prototype and first product testing. The nuances of the knowledge transfer will depend on the nature of the relationship, the technical skills of each party and often will vary by project. 

 

Productivity. One of the most important but often forgotten considerations is that of standardizing operational processes. This activity may first appear to be easily managed, but there are often cross-cultural issues such as language translation difficulties, workforce and labor agreements and cultural attributes that challenge many aspects of the knowledge transfer process. These issues should be planned and comprehended during the training phase and monitored post-implementation in order to increase the likelihood that process consistency is maintained. 

 

It is also important to establish productivity measurements across the organizations in order to perform comparative analysis. Facilities need directional targets and goals in order to challenge current behaviors and push for productive breakthroughs. 

 

Material & Supply Chain. Purchasing standards remain inconsistent as material quality and standards remain a concern. Over the last decade, executives have frequently shared stories of the challenge that developing countries have in locating statistically equivalent and reliable raw material sources. These business challenges are increasing transportation costs and having an impact on company financials. 

 

If the decision is made to form a joint venture or a partnership, supply chain has a critical role in performing outsourced supplier readiness assessments. 

 

If cost reduction is the immediate goal, then lean initiatives offer the quickest way for an organization to capture immediate cost savings. Should an organization already be committed to expanding globally, then develop plans that incorporate technical design and production capacity controls. Without these controls in place, an organization should reconsider their global strategy.