Globalization and

Technology

Globalization

Virtually all companies of any size (let’s say $25 million in sales) are significantlyaffected by globalization. Competition is now international in all sectors andsegments. International markets are now major segments for most companiesand are often the most important source of profitability. Key management staffare now likely to include several internationals. Information has gone global.Trade show participants now come from all over the world. Market conditions inEurope, Asia and South America now significantly affect overall performance ofUS companies. Strategic resources (e.g. energy, labor, raw materials, electronic components, tools, transportation are significantly affected orcontrolled by forces outside the US.) The legal environment for business hasbeen dramatically altered by international agreements such as the WTO.

Globalization Issues

1. Globalizing is generally a New Market strategy 2. These New markets are NEW – old assumptions must be set aside.3. Demand profiles are likely to be different.4. Distribution channels are likely to be different.5. Production and selling methods and costs are likely to be different.6. Labor laws and labor costs will almost certainly be different.7. Technology is likely to be different.8. The view of the investment market must be considered for public firms.9. Local competition may have powerful support.10. Foreign Exchange issues can affect consolidated financials.11. Economics (inflation, interest rates, GDP etc) will be different.12. Local materials and components will have different specs and costs.13. Export distribution requires different skill sets.14. Keeping in close touch with customers and markets may be more difficult.15. Margins could be significantly higher (or lower).16. Overhead costs (SGA) are likely to be different.17. Integrating US and international operations requires coordinated planning.

Business Intel More Critical than Ever

Income

Sales

Raw Mat

SKD

Finished

Service

Cost of Goods

Materials

Freight

Labor

S & GA

Salaries

Promotion

Commun

Travel

Bad Debt

Other Expenses

EBIT

Less Interest

Less Taxes

Net Income

$/$

Made In

USA

Sold In

USA

PURELY DOMESTIC

BUSINESS

Optimizing performance means

giving close attention to all

factors that affect Net Income

and thus return to stake holders

But, when we start doing just

the simplest business in other

markets….

Sourced in

USA

Products/Services

USA

Income

Sales

Raw Mat

SKD

Finished

Service

Cost of Goods

Materials

Freight

Labor

Duties

S & GA

Salaries

Promotion

Commun

Travel

Bad Debt

Other Expenses

EBIT

Less Interest

Less Taxes

Net Income

Made In

USA

Brazil

$/$ $/Real

China

$/RMB

Sold In

Domestic Business with Exports

Now, we have new

variables in the performance

equation including costs, prices,

duties, shipping, taxes, exchange

rates, interest rates, and the

consequences of greater TIME

spans.

Sourced In

USA

USA

Income

Sales

Raw Mat

SKD

Finished

Service

Cost of Goods

Materials

Freight

Labor

Duties

S & GA

Salaries

Promotion

Commun

Travel

Bad Debt

Other Expenses

EBIT

Less Interest

Less Taxes

Net Income

Brazil

USA

Brazil

$/$ $/Real

Real/$ Real/Real

China

$/RMB

Made In

Sold In

China RMB/RMB

Global Business

Products and services are

sourced anywhere, made

anywhere and sold anywhere.

The problem for the strategy

manager is maximizing the

SUM of all these business

operations.

Income

Sales

Service

Cost of Goods

Materials

Freight

Labor

S & GA

Salaries

Promotion

Commun

Travel

Bad Debt

Other Expenses

EBIT

Less Interest

Less Taxes

Net Income

Income

Sales

Service

Cost of Goods

Materials

Freight

Labor

S & GA

Salaries

Promotion

Commun

Travel

Bad Debt

Other Expenses

EBIT

Less Interest

Less Taxes

Net Income

Income

Sales

Service

Cost of Goods

Materials

Freight

Labor

S & GA

Salaries

Promotion

Commun

Travel

Bad Debt

Other Expenses

EBIT

Less Interest

Less Taxes

Net Income+ +

Our goal now is to maximize

the sum of Net Income and

Net Valuations, by using the

advantages of operating

globally while managing the

risks of operating globally.

KM (‘knowledge management’} has become of the buzzword of the new century. based on the idea that knowledge is power (and always has been), strategists look to create a competitive edge in a global marketplace by knowing how to use technological advances to improve products, reduce costs, better serve customers. There is nothing new about the objectives or the principles of using technology. However, the new uses of electronic media to disseminate information have greatly reduced the lead a company (or individual) can gain with innovation. It is not the technology itself, but the application of the technology to business problems that is the key to competitiveness. Therefore, what companies need to get and keep is people who can manage technology and the changes it inevitably requires of the company that will use it

Technology & Strategy

Technology Issues – Nothing New

“ There has been considerable discussion in the industry trade journals this lastfew months about the role of the technological revolution on competitive strategies.Clearly opinions are divided, but in a survey of 76 top CEOs this month, ourreporters garnered the following strong opinions:

This technology is untried and risky. Those who bank on it won’t be banking for long.

The theory is interesting, but actually using this technology is not going to be easy.

We would have to make too many expensive changes to accommodate this technology.

I won’t give this so-called innovation five years. Frankly, I don’t use what I can’t understand.

This is another example where scientific dreamers have no idea of the realities of business.

I cannot see how investing in this technology will give us any advantage.

We will probably experiment with it, but that is about all.

There just isn’t enough infrastructure and support to justify its widespread use.

And, so goes the various ideas expressed by industry’s leaders. Our specialists tend toagree with the general sentiment. There will be few really practical applications forthis technology in industry. The so-called internal combustion engine is just another fad.”

AFLCIO Journal, 1909

Technology has ALWAYS made a significantimpact on company competitiveness.

But it is not technology in itself that matters.It is the strategic use of technology.

Technological develops at an ever increasing rate of speed. This has always been the case. The rate of technological development “today”is always greater than yesterday, and will always be exceeded tomorrow.This is because technology builds on itself. As the base of knowledgegrows, new knowledge multiplies, then multiplies again, just like cell division.All of us are used to the rate of development we experienced in our earlyadult years, and we learned to cope. But the rate keeps accelerating andthe strategic manager must develop means of keeping ahead of the curve.Today, we use technology to help us sort out and keep up with technology.

Tracking Strategic Technology(There are Business Services that will help with this)

Using a Systems Approach, the Manager Tracks

1. Technologies that could improve quality or costs of INPUTS includingMoneyRaw Materials or ComponentsPurchasingHuman Resources

2. Technologies that could improve quality or costs of PROCESSES includingProduct & process design & engineering Production methodsProduction equipmentQuality ControlsScheduling ProductionInventory controls

3. Technologies that could improve quality or costs of OUTPUTS includingInventory ManagementPackagingDistribution channels and shippingBilling & Collection

4. Technologies that could improve quality or costs of MARKETING includingSales channelsAdvertising & Promotion

In Addition, we should track technologiesthat have the potential to improve quality or costs of SGA

The ways we employ and compensate human resourcesHow we acquire, store and use dataHow we communicate internally and externallyHow we track our performanceHow we track customers and the marketHow we track competitors and anticipate their movesHow we obtain and employ capitalHow we cost and price products and servicesHow we make decisions, including strategic decisions