Cindy Jutras: Shifting sands of globalization require a firm applications base
By Cindy Jutras -- Manufacturing Business Technology, 11/1/2008 12:00:00 AM
Globalization strategies once were fueled by a combination of unprecedented opportunities from emerging markets, and the quest for lower costs. Yet the rapidly changing world economy is impacting strategies that determine where products are made, bought and sold—and how services are delivered.
International business doesn't just happen, and emerging markets aren't progressing fast enough to offset rising energy costs that eat away at the savings companies once reaped by going offshore for low-cost labor and materials. Aberdeen's recent survey of 300-plus business executives worldwide found 65 percent have operating locations in foreign countries, 73 percent procure materials from international sources, and 71 percent sell beyond domestic boundaries. Yet 80 percent of these companies failed to achieve even 50 percent of planned international growth or anticipated cost savings.
In a similar survey conducted in early 2007, 83 percent of companies planned to expand international operations despite supply chain complexities, lengthening lead times, and the need to adapt to the business rules of foreign nations. These companies projected a 9-percent increase in revenue from international sales by 2008, and a 16-percent increase in spend for international procurement.
Furthermore, manufacturers predicted that the reported 27 percent of non-domestic manufacturing operations would increase to 30 percent. Yet we find global expansion is less aggressive than planned, and has actually decreased when measured in terms of both international spend and revenue and foreign operations.
Why such dismal results? While many are lured by explosive growth of consumerism and capitalism in BRIC markets—Brazil, Russia, India and China—the underlying structures—e.g., sourcing, supply, quality control, and shipping—and assumptions about the global supply chain are now in flux due to the shifting economics of labor and energy costs.
In spite of rising energy and transportation costs, which also result in higher-priced materials and components, Best-in-Class companies—the top 20 percent in terms of performance—achieved 85 percent of planned cost reductions and 76 percent of planned growth.However, both growth and cost reduction objectives remain an elusive goal for the remaining 80 percent, which didn't achieve even 50 percent of planned growth or cost reduction.
All these factors give the term globalization a whole new meaning, requiring a profound shift in perspective. The keys to building a market-responsive enterprise include keen knowledge of new markets, careful strategic planning, underlying technology to support global interoperability, and precise execution to reap the benefits of emerging markets. These issues and challenges will lead companies to think differently about how they use enterprise applications.
As globalization assumes a more local face, local operations must be linked via robust use of business applications to assure smoothly functioning operations. Those that plan carefully for growth and expense control, and implement a backbone of enterprise applications to reduce redundant activities and enable globalization efforts will position themselves to weather the economic turbulence and respond to the shifting sands on which the competitive landscape is built.
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