The three waves of globalization
The term "globalization" has been around for a long time but it has developed into a “reality” and affect all businesses. Some managers believe they do not need to think about globalization because their businesses are local, not global. The reality is competition can comes from anywhere as companies are now operating in a global environment. Even if a business's is only operating in one city, it does not mean competitors will not come in. Therefore every business must be prepared to deal with this global reality, else it is too late. Today with the internet and faster transportation, any company can compete globally without have to be located in particular places. All they need is a website to sell products and contract with shipping company to deliver to customers. For example, when online business happened few years ago in S. Korea, large global companies would sell products cheaper than local companies and wiped out 80% of small business who locate in small cities. Before 2000, the U.S. had over twenty seven thousands bookstores, today it has less than eight thousands and the number is continue to decline as more people are buying books through online bookstores such as Amazon and making Jeff Bezos, the owner of Amazon, one of the richest men in the world. Today, with open immigration laws and special visas permit, workers can go to work in many places relatively easy. For example, twenty years ago, construction workers in the Middle East went on strike, demanded better salary. When negotiation did not bring result, construction companies brought in workers from India, Pakistan, and Philippines to do the work instead of raising salary. Today there are more than several hundred thousand foreign construction workers work there and local workers either have to accept lower wages or be unemployed.
Globalization is changing the way companies are doing business and impacts more countries than people can imagine. For example, the use of outsourcing is increasing everywhere despite concern about job losses. Developed countries will continue to outsource works to lower cost countries to increase profits as the cost of labor workers in home country continues to rise. Unfortunately, many people do not understand this impact and not prepare to deal with it. With the advancement of telecommunication and transportation, business is no longer be limited to a particular region, city, or country but expands globally. With the shortage of skilled workers and open immigration laws, skilled workers are no longer be limited to a region, city or country but as they can go wherever there are opportunities. Either they go to where the jobs are or jobs will go to where skilled workers live. Some countries are unprepared and lost their talented workers such as doctors, scientists, engineers, business persons as they left for better opportunities in another countries. This “Brain drain” phenomenon is still happening today in many countries. What will happen to a country that lost most of their talents? What will happen to a society with fewer number of medical doctors, scientists, teachers, engineers or professionals? What will happen to an economy where talented people are no longer want to stay and build? They will not last for long and sooner or later will fall into extreme poverty and be exploited by others. On the contrary, some countries are well prepared to keep their skilled workers at home. They have policies and laws to create better business environments, incentives for foreign investments and encourage them to outsource works there. As they gain more works and investments, their economies prosper and move to higher standard of living. For example, in less than twenty years, India become the center of information technology (IT) as more companies are outsourcing IT works to India with revenue reaching 97 billion dollars in 2010. The same thing is happening in China where it became the center for manufacturing, producing many products at lower costs and created hundred million jobs for its citizens.
Globalization opens more opportunities but also more competitions between countries, companies and individuals. Companies that fail to incorporate globalization into their strategies cannot respond quickly to competition and may not survive. With globalization, opportunity to grow is limitless so senior managers must plan their strategies accordingly. Instead of fear, they must use globalization as a competitive differentiator for their companies, else competitors will. The same thing also happens to workers who fail to improve their skills. They may not be able to keep their jobs for long. With globalization, job opportunity is limitless. Workers that adopt a lifelong learning attitude, understand what the job market needs and prepare. Instead of being passive, they must be active and use their skills as competitive differentiator, else somebody will.
Globalization is a dynamic approach that changes over time. It consists of several phases, economists called it waves. The first wave of globalization is about cost where companies move works to lower cost countries to increase profits. Cost is a major factor of all outsourcing decisions. To take advantage of this first wave is to have lower labor costs to bring works into a country. Because these works require labor workers who can be trained in a short time, competition will be fierce. Most works will be moved from one low costs country to another lower costs country as some will continue to lower the cost to attract works. Eventually, this cost benefit will diminish over time just like the wave reaching the shore. Examples of the first wave include textile, clothing, shoes and light manufacturing works etc. Most economists predicted the first wave to last between 10 to 20 years.
The second wave of globalization is about quality and effectiveness where companies access to skills that are scarce in their home countries to meet their needs. Skills is a major factor of all relocation decisions. To take advantage of this phase is to have skilled workers to bring works into a country. Because these works require workers who are highly educated, they are more valuable than labor workers as they demand much higher salaries. To prepare for the second wave, education improvement is important but only few countries would succeed. The second wave is considered an “economic booster” to push economy into higher standard because higher paying jobs can bring significant benefits to the country's economy. According to several studies, one high tech job could generate eight to twelve indirect jobs depending on the local environment. Instead of outsource works low labor works, global companies will have to open businesses and invest in operation facilities to take advantage of the skilled workforce. Examples of the second wave include Banking, financial, business, trades, information technology services etc. Most economist predicted the second wave can last between 20 to 50 years.
The third wave of globalization is about achieving efficiency and innovation where companies take advantage of the success of previous phase. Advanced skills is a major factor of all collaboration decisions. This phase is the ultimate phase of globalization as the value is based on mutual collaboration between countries, companies where the relationship move from customers and suppliers to partnerships. It based on the availability of highly advanced skills exist in certain countries or companies resulting from education excellence. In this phase, globalization enters a balanced state where both sides form alliance to take advantage of globalization. The alliance will compete and dominate other companies from many areas including economic advantage as well as technology superior. As partners, wages would be equal as works and research flow freely from one to another. This is equal to a calm sea where no more big waves as things flow smoothly between companies within the alliance or partnership. Examples of the third wave include research labs, product development facilities, strategic relocation of offices and business partnerships etc. Most economists predicted this wave to last a long time, could be hundred years or more.
Not all companies will move to the second or third wave. Some are satisfied with the cost-benefit focus and will continue to move works to low cost countries. However, the cost of moving and continue to search for new locations will reduce the cost advantage and eventually there will be not much benefits left. To truly reap the benefits of globalization, company must commit to a long term approach that involves all three waves. Management must look at the overall business strategy rather than a tactical action. They must acknowledge that their companies will need to mature in its expertise to deal with this globalized approach. Company that looks at cost only will get limited benefits and will be disillusioned in the long run. Providers that focuses only on labor cost advantage will not prosper long. Of course, not every company will complete the entire three-wave cycle, some will fail and disappear as competition will be more fierce as company transition from one phase to the next. However, achieving the final stage of "global mastery" should be every company's goal. Today, some companies are global leaders, but many other are challenging and with new technologies, new trends no one can be confident for long as things keep changing. Today some countries are doing better but with technology changes and better education, no one can stay on top for long as competition continue. Today some workers are doing well but if they do not take the lifelong learning seriously, others will challenge them for their jobs and since competitors can come from anywhere. It is important to understand that no one can maintain the position without updating skills. Just like wave in the ocean will continue to move and never stop, progress depends on awareness, understanding, and willing to take action to move with the changing time.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
