Impact of Globalization in Creating Sustainable Competitive Advantage

In this business environment, what does it take to win?


Globalization. For many executives, the word conjures up many emotions, not the least of which is fear and anxiety. Why? Globalization has created a market dynamic that fosters new competition, demands higher levels of efficiency and requires true expertise in supply chain optimization.

For the first time, new competitors from regions around the world with flexible supply chains are effectively competing against established market leaders that have formidable brands, customer loyalty and deep resources. If that is not enough, many of these aggressive new competitors are government-backed companies with access to lower-cost capital — a real business advantage.

As global commerce equalizes the business landscape, speed becomes even more critical and supply chains become the new competitive weapon.

In Thomas Friedman's landmark book The World is Flat he explains how companies in the developing regions of India and China are becoming part of large global supply chains that extend across oceans. David Barnes, chief information officer of UPS, commenting on Friedman's book in a November 2006 issue of the Financial Times, said that by 2010, companies will no longer compete against companies. Rather, in this new environment, supply chains will compete against supply chains. He emphasized that in the past the competitive advantage of a company's supply chain was undervalued. Companies competed on products and services, not processes. But the intensity of global competition and the increased commoditization is forcing companies to compete on the strength of their supply chains. In short, having the greatest product at the lowest price is only valuable if it gets to the intended customer before the competition.

The impact of globalization has yet to be fully realized, but one thing is clear: the business rules for engagement will never be the same. Companies can no longer go it alone and expect success. It requires collaboration. Teaming with the right partners is essential to increase speed, promote innovation and gain market share.

What's Changed

Catapulting from a Regional Focus to the Global Arena
In 1984, a small Chinese company named Legend built and marketed PCs for the Chinese market. By 1994, it had sold 1 million PCs to Chinese consumers and, with a 25 percent market share, became the dominant PC provider in China. In 2003, the company was renamed Lenovo, and in 2005 it catapulted onto the global stage when it purchased the legendary IBM PC business. Not long ago, the notion that IBM would exit the PC industry it helped create would have been absurd; even more incredible was that a relatively unknown Chinese company would someday acquire IBM's PC business and become an instant global competitor.

Time will tell if Lenovo can transfer its growth strategy success, which was perfected in China, to gain leadership in other global emerging markets. But the competitive disruption it created in the PC industry cannot be denied. Ten years ago this would never have happened, but it is happening today.

Outsourcing across Industries for Competitive Advantage
You don't have to look much farther than the German automotive industry to see how globalization is causing executives to rethink business models to improve competitiveness.

Renowned for precision engineering and manufacturing, German automakers are experimenting with outsourced manufacturing. According to a September 2006 Harvard Business Review article, luxury automakers are identifying partners that can help them become more competitive. Porsche and BMW are testing new manufacturing models to improve cost and flexibility by setting up manufacturing facilities in lower-cost regions, placing manufacturing sites close to end markets and outsourcing the manufacturing of select models to third parties. Finland's Valmet Automotive assembles the Porsche Boxter and Austria's Mägnä Steyr assembles BMW's X3.

PC makers and German automakers are not alone:

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