North America

SMEs find new future through global markets

Global
July 6, 2012

Battle scarred SMEs need to broaden their horizons in the new post GFC market, and cross border trade is where opportunity lies. Taking advantage of the opportunities offered by cross border commerce must now be a top priority for any business wishing to ride the tide of global economic upheaval.

 

>Facing down the competition

As businesses in developed economies try to recover from the post GFC traumas and compete for custom against a backdrop of increasing imports from around the world, the pressure to be maximally cost efficient is providing the bottom line incentive to shift production processes to low cost centers, typically to one of the emerging economies.

Across all industries two paradigm shifts are occurring. Firstly, as deflation takes hold many products and services have and will continue to become available to customers at lower prices. Economies of scale achieved through globalisation mean that high cost alternatives among undifferentiated products are simply not viable – especially in economies experiencing deflation. If you cannot produce or get access to low cost inputs and services, you simply will not be able to remain competitive.

The second paradigm shift is that the competitive battlefield is focusing on the customer interface. With products and services themselves becoming broadly cost competitive, the area of differentiation lies with sourcing, servicing and retaining customers in the widest possible marketplace. To a business that traditionally looked to its domestic market for growth that means taking a really serious look at latent opportunities that may exist in other markets. It won’t be easy: it will take some lateral thinking and require working in areas in which you are not entirely comfortable – but the rewards are there to be reaped, especially for early movers.

Entering into cross border commerce is the answer to operating competitively within both these paradigms. On the one hand, you must be a participant in a cost competitive supply chain; increasingly this will mean the presence of an international component in your product or service.

On the other, you must tap into the array of markets re-opening up to businesses as the new world economy begins to evolve. This must be underwritten by transportation systems that allow cheap and fast movement of an increasing range of goods such as foodstuffs, and faster growing communications systems and methods that increase the options for staying in contact with customers and servicing them.

>Improved logistics

Modern transport, logistics and storage systems provide the opportunity to competitively export components and finished goods from one part of the world to another.

The result in manufacture has been a dis-aggregation of production. Teams co-work from different parts of the globe to take advantage of skilled people in different time zones to slash production time; components manufacturing is widely distributed, with and the final product assembled either prior to or, increasingly, after sale. In the area of agriculture and foodstuffs, perishables such as fish and vegetables sourced in South America can be on the shelves for sale within hours in Europe and fresh produce becomes available in season and out.

In this context there is often no compulsion to actually produce a product within the region in which it is to be sold because it can be transported quickly and cheaply among vastly separate regions.

>ICT Developments

Underlying many of the recent developments in cross border trade has been the revolution in ICT. Broadband connectivity now penetrates most regions of the world, computers are cheap, and there has been an explosion in applications that simplify and broaden their range of functionality.

Production can be organised in new ways – proprietary software can chop up a piece of work and send one part to San Diego, another to Bangalore and one to Beijing, making remote development simple. This allows the inclusion of the best elements from a much greater range of suppliers, and in the process creates a global supply chain – an ecosystem of businesses contributing to the production of the final product or service.

> The Global consumer

The consumer cycle of this recession has still some way to run and this will impact purchasing power in the immediate future, so immediate opportunities may best be found in the business to business sector rather than the direct business to consumer element of the value chain.

But as sure as night follows day the global consumer will re-emerge on the back of sustained economic recovery. The impact of global media and well-travelled and culturally aware consumers who feel secure again will inevitably spark demand once again for well differentiated product and service offerings.

Add to this equation the inevitable growth in consumer demand among the populations of emerging economies once their economies get on track again. China has a population of 1.3 billion people and even though this is still 70% rural, there is a growing number of professionals with significant disposable income. India represented the fourth largest economy in the world in purchasing power parity terms in 2005 and its economy will no doubt become one of the fastest growing in the world. This will be driven in part by increasing retail sales of imported products to its huge, and growing, middle-class consumer population. A similar story will be told of a number of other countries around the globe.

> Joining the global economy

In the developed world we tended to think of globalization as being all one way – production shifting from richer to poorer countries – and we perceive the major threat as one of increasing unemployment as jobs go offshore. We also tend to think of globalisation as only affecting lower value-added production and jobs, while comforting ourselves that higher value-added production and jobs will stay in the developed economies. This downturn has turned that paradigm on its head.

The reality is far more complex. Both low- and high-value added production will shift around the world as production and consumption patterns are restructured. More and more companies are sourcing components from abroad as well as exporting their products, finding the best technology from around the world as well as licensing their own design or invention for use abroad, and entering into joint ventures with partners in other countries in order to enlarge their market reach.

 

In effect there is a new business landscape arising out of the new trade landscape that will mean your competitor may be not another manufacturer/service provider in the same country, but an unknown supplier based in Asia, Africa or Latin America, using the latest know-how and additional location advantages.

 

The real challenge for many smaller enterprises will be navigating the threats and opportunities presented by a globalized marketplace. They will have to globalize their own operations in one way or another – outsource some activities, offshore others, import cheap cost products for resale, expand their market through export.

The best companies will be the best collaborators. They will understand that the value chain is now so complex that no one company is likely to be able to provide the whole gamut of inputs and outputs through its own resources and retain any competitive edge over those who are involving themselves in a global commodity chain.