Riding the Globalisation
Wu Limin, 2005 EMBA Class 1, Finance Director of Unilever
"Globalisation" is too fashionable a word to be ignored. The first globalisation made Britain the first world super power and then United States emerged after the 2nd world war. How the world will evolve and what role will the Americans play in this new era? With wide-open eyes we started this trip to New York and Philadelphia.
New York, as one of my primary school teachers described more than 20 years ago, was the "Capital of Capitalism", "the place of money and sin". As it revealed itself in front of me, a place of nice streets and parks, a place with Broadway shows and juicy steaks, and a place of money and, the power of money. My reflection about this trip includes 3 key points. Number one: it was so difficult to adjust time difference, I am sorry to admit that I dreamt through most of the late afternoon sessions ? the mental motivation simply could not overcome the physical needs. Number two: it was so nice to travel with the group. The sharing of thoughts and leisure time among classmates was such a great experience. Number three...
Globalisation is about information. If late nineteenth century brought globalisation with industry revolution, the late twentieth century brought a new era with its technology, finance and information revolution. Even before the US trip, we got full access of the financial performance, history and latest news of the nine companies that we would visit. Information is easier to shop than grocery. Imagine two hundred years ago Chinese could trade silk for equal volume of gold, since nobody had a fair, global market value for either. Now, nearly everything you can imagine is priced, indexed and openly showed in front of you at home. Such information transparency deprived many companies of the trading privileges but brought in a lot more clever information surfers.
Why American Express can charge a premium commission to its stores? The answer is information. By providing to stores the shoppers behaviour and purchase information, American Express gains an advantage that is not so easy to be copied by its competitors like Visa. The information about the cardholders is definitely one of the biggest assets of American Express. Why Harrah's can make its top customers happy and come back again to spend more money? The answer is information. By introducing the Total Reward Program and analyse customer profile, it can launch promotions at the right targets, and make sure it manage each individual's mood during every gambling experience. It is interesting that Harrah's mentioned "predictive value of data". We are very much used to the historical performance measurement, the introduction of new KPIs that look at the same history from different angle. Here they are using information to make the future, another competitor advantage. However it is also worth noticing that this can be such a lean advantage. In this open, fast world, your competitors catch up with a blink. The only way you can do, as Harrah's put it, is "hopefully by then we have another great idea that keeps us in the lead".
Globalisation is about business model innovation. A lot of companies that we visited are "old" with many years of history. The most important reason that they still stay at the top is that these companies never cease recreating themselves. It's amazing that American Express started as a parcel delivery firm and J&J started by doing baby powders. Looking back, their history is about endless, acquisition, spin off, strategy revolution and evolution. I question the prosperity of Saks Fifth Avenue, whose long time successful "prestige" is has reached a comfortable status but a dead end. When ABC wants to stick to the good old traditions on its news section, we have to admit that this is not only a world of value and pride, but also, maybe more a world of price and cost. When we talk about innovation, we used to mean product innovation, technology innovation, now it's the time for business model innovation. It's not about displaying things better on the shelf and getting more assortment shipped from around the world, it's about a virtue market place called eBay. So what is next?
Globalisation is about focus on what you do well. The world is getting too sophisticated for any single hand. Bigger size, higher specialisation is unavoidable. Someone is good at branding, someone good at manufacturing, and someone good at servicing. When the whole world is moving into offshoring, Vanguard says that it will keep the call centre in house "because this is not a priority since our strength is not in low cost, but better, more professional and focused service". You don't win because of no weakness or no mistakes, you win because of your strength and a few, big successes. J&J's decentralised operating model gives a lot of pain: lack of global co-ordination, inconsistent culture, resource wastage. However its attention has never been diverted from the strategic focus: innovation, flexible marketing and portfolio management. When LiuXiang won the gold medal in Olympics he comments that "I just have better rhythm. We all know that African athletes have the fastest flat running speed, I can never compete in that, so instead my coach trained my rhythm and consistency". Just imagine what if LiuXiang has been trying all these years improving his running speed?
How can China compete with US? Today, China GDP per capital is around 1,000 USD and the US is 37 times more. Assume that China can grow at 8% year on year and US at 1%, it will take China more than 50 years to catch up. 50 years and nobody knows that far. China is now becoming the "factory of the world", a good sign since this is just where we lost the market. Before the Industry Revolution, China account for one third of the world economy and Britain around 5%. With the Industry Revolution, which China failed to follow the league, China became the "Sick Man of East Asia".
Back from US I learned how the Americans make the America. There are something that we are far behind: business sense, innovation capability, financial system, efficient systemĄand except for the business part, the military power. Maybe the only thing that we can compete is people. Big population, hard working and intelligent people, and most important, they are everywhere. Don't forget that people is also the market. A few Chinese businesses like Lenova and Haier started to enter overseas market, acquiring foreign business and setting up overseas factory. However in my view, the foundation for Chinese businesses is still the local market, we have the talent and technology and local support to win. Chinese government has a long way to go, the success in past more than 20 years does not make the next 20 years easy. In the contrary, unreasonable industrial structure, ageing population, village area poverty, environmental threat, immature financial market, social stability, etc, etc. All such issues like land mines troubling the new China leadership. We have a long way to go.
