Stop Debating Globalization: It's a Reality
Independent of a company’s size, the greater your involvement in globalization and its market, the greater your profitability.
I Googled “Globalization” the other day and got over 31 million matches. So with so little information available I decided the world really needed for me to do a podcast on the subject.
Interestingly, I also Googled “Anti-Globalization” and got only 1 million 60 thousand hits.
Does that mean for every person against Globalization there are 31 for Globalization? Probably not. But I guess there is an important point here. I believe it is totally ridiculous for people to debate globalization. I see no merit being for or against globalization.
I heard one comment on this where a person suggested arguing against globalization is like arguing against the law of gravity. If you like gravity, or agree with gravity, is not relevant. Gravity is. Much in the same way you can like globalization, you can dislike globalization, but it really does not matter, Globalization just is. It’s a reality.
Now let me begin my view of Globalization by sharing with you a little of my business career. I began Tompkins International in 1975. By 1985 we had completed major engagements around the world into Europe, Africa, Asia, South America, Mexico, Canada, and throughout the United States.
By the mid 1990s we had offices in Mexico, Canada, throughout the US, Australia, Brazil, Argentina, the UK and the Netherlands.
But herein lies a key question. Was Tompkins International a Global business? There was no question we did business globally, but were we a global company?
In fact, let me ask you:
Do you work for a North American company that happens to do business globally?
Do you work for a global company that happens to be headquartered in North America?
You see, Tompkins International for many years did business globally, but we were not a Global company. Only in the last few years has Tompkins International become global. You see, the difference is not where we have offices, but in what we do.
We can solve our client’s problems around the globe and not be Global. To be Global you must solve Global problems.
The key to Globalization is not just to buy and sell products around the world, but to optimize your Global resources as you buy and sell products around the world. So the key Globalization question is not where you buy and sell products, but where are your critical Global resources that require optimization.
I see two ways to answer this question. The first has to do with business creation and the second has to do with investment facilities.
As a measure of business creation, let me suggest Gross Domestic Product (GDP) as an acceptable measure.
As a measure of investment in facilities let me suggest Construction Spend.
In 2007, 87% of the world GDP was made up of Europe, North America, and Asia.
Growth of GDP from 2006 to 2007 was 10.6% in the world – the fastest growing being Asia with 13.4%.
The top nine countries of the world in GDP are all in North America, Europe and Asia and are:
- United States at 26%
- Japan at 8%
- Germany and China at 6%
- UK and France at 5%
- Italy at 4%
- Spain and Canada at 3%.
It is interesting: some want to claim the US has lost its position as the world leader, but our economy is still by a factor of 3 the largest economy in the world and in fact larger than the GDP of the number 2, 3, 4 and 5 countries all combined.
So from a GDP perspective, it is clear the definition of ‘where Global resources are that need to be optimized’ are North America, Europe and Asia. Eighty-seven percent of the economy of the world is in North America, Europe and Asia and what we mean by Globalization is to have the ability to optimize one’s Global resources by optimizing the supply chains throughout North America, Europe, and Asia.
In a very similar way, if we analyze construction spend we see that 85% of the world construction spend is in North America, Europe and Asia. The largest is Asia with 32%.
Growth of construction spend in the world from 2005 to 2006 is 4.8%. The fastest growing is Asia with a growth rate of 7.6%. The United States is 18% of the Global Construction spend and the same top nine countries for GDP make up the top nine countries in the world for Construction spend.
Interestingly, it is forecasted that by year 2016 the Construction Spend for North America, Europe and Asia will grow from, today, 85% of the world spend, to 89% of the world spend – With Asia leading the world in 2016 with 45% of the Global Construction Spend.
The conclusion from looking at Construction Spend is exactly the same as the conclusion of looking at GDP: what we mean by Globalization is to have the ability to optimize one’s Global Resources by optimizing the supply chains throughout North America, Europe and Asia.
Globalization is huge. As an indicator of how big it is, let’s look at the largest companies in the largest economy. The Fortune 500 list tabulates the Foreign Revenue of the largest companies in the United States. Over half of the top 40 companies have more than 20% of the revenue outside of the US. Consider (all numbers represent foreign revenue):
- Exxon Mobile- 72%
- Hewlett-Packard- 67%
- Dow Chemical- 66%
Fortune concludes: “Globalization is a fact of life for the Fortune 500.” And this is just looking at the impact from a revenue perspective – when also considering the sourcing side, it is very clear Globalization is huge.
And in fact, the issue of Globalization is not uniquely important for large corporations – it is equally important for smaller corporations as well. In two studies done by the American Chamber of Commerce in Shanghai, the impact of Globalization on a company’s bottom line was clearly demonstrated.
In the first study, the conclusion that was reached was: organizations that source more than 35% of their materials from China had over double the profitability of firms who sourced less than 35% from China. So, increasing the amount you buy globally has a very positive impact on profitability.
In the second study AmCham found that the average profitability of firms who both sourced and sold in Chinas was 160% higher than the firms who only sourced from China. So, independent of being a large company or a small company, the greater one’s involvement in Globalization the greater one’s profitability.
So to wrap up the podcast, let me summarize with the following:
1. Globalization Is:
It is reality. You can ignore it and cease to exist or you can embrace it and be successful. But arguing about Globalization is silly and a waste of time. Globalization Is.
2. Globalization is about optimization of global resources as you buy and sell products around the world.
3. Critical global resources are in North America, Europe and Asia. Globalization is about optimizing the supply chains in North America, Europe, and Asia.
4. Globalization is huge. The more fully an organization embraces globalization, the more successful they will become.