Impact of Changes in International Trade on Our Clients.
Since the last world war ended, there has been a move towards harmonization and international trade across the world. The EU experiment, wherein 28 countries now have strong political and economic ties, and 19 sharing a common currency, there is a significantly reduced likelihood that another world war will break out.
The exception to this is of course the rise in international terrorism, wherein disenfranchised second and third generation migrants, in particular, are fighting a destructive guerilla war against western society. The mass exodus from the Middle East in the last few years into Europe has exacerbated the problem and now first generation migrants are increasingly getting sucked into violent anti-western terrorism groups. With high levels of youth unemployment in these ethnic groups, young people are being radicalized.
Ignoring the socio-economic problems described above, we have also seen the emergence of non-western economies like China, India and Brazil that have quickly become powerhouses of economic activity. With the end of the cold war, we have also seen former communist countries adopting democratic capitalism and joining the European Union.
Since the 1970’s, we have seen a clear drive towards economic cooperation and international trade with the forming of the G7, a group of the world’s seven largest economic powers. Since the turn of the century, we have also seen the emergence of a larger group, the G20, representing the EU and 19 other nations representing 90% of the world’s economy. Although economic cooperation is becoming the norm, there is of course the tendency for independent nations to concurrently pursue their own national policies.
So what is the impact of all this international trade and cooperation and how does it impact the clients that we work with? Primarily, it increases globalization and that means that businesses no longer compete solely in domestic markets. It also means that domestic markets are no longer protected and that businesses are in fact competing on a global stage. And if you thought that this just affects large multi-national corporations, you could not be more wrong.
There is now a planetary market for goods and services and every business is competing in the international space. Barriers to open trade, and restrictions such as trade tariffs, are quickly falling away and the new order is for trade pacts and institutions that facilitate international business. According to Associate Professor of Management at Georgia State University, Patricia Phillips McDougall, we now see the emergence of global entrepreneurship in the format of International New Ventures (INV’s), wherein business organizations, from their inception, seek to derive a significant competitive advantage from the use of resources and the sale of outputs in multiple countries. See Patricia Phillips McDougall Article
Essentially, what McDougall is saying is that anyone, with a moderate amount of capital and the right business experience, can set up an international business and compete successfully across the globe. It is no longer the preserve of established multi-national corporations or multi-domestic companies. Businesses no longer have to start with sales in their home market before moving to export markets, as was the tradition just a few decades ago.
This has profound implications for domestic businesses that have not seriously considered doing business overseas. They may be caught in a situation where in foreign competitors are able to sell directly into their markets, perhaps at a lower cost, while they are unable or unwilling to do the same thing. They can eat your lunch whereas you make no attempt to eat theirs.
I started a small business as a hobby in 2005 because I was interested in the product and I also saw it as a means of enhancing the income I made from my consulting business. Operating from a spare room in my house, I started importing and selling the product domestically in Ireland, where I live. In the first year or two, 99% of my sales were in my home market. By year five, 99% of sales were in overseas markets and I was exporting to 60 different countries around the globe. The evolution of the Internet and global markets created an opportunity that would not have been open to me just 10 or 15 years earlier.
As consultants, we need to be tuned into this phenomenon and be in a position to advise clients on correct strategies that allow them to leverage their strengths and to internationalize their businesses. Political initiatives are clearly in place to allow internationalization to continue developing at a pace. Old-fashioned protectionism is dying and technological innovation is advancing rapidly. When you combine these changes with the cost advantages available when firms locate some of their production and distribution assets in new or emerging markets, you have created the perfect storm.
We need to be aware how our clients can successfully compete in overseas markets and in how they can follow their customers around the world and deliver differentiated products that meet local market characteristics and needs. We also need to be able to show clients how to remain competitive by using resources in overseas markets that are cheaper than those available domestically, and which contribute to sustainable competitive advantage.