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3.9: Trends in Global Competition

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  • 9. What are the trends in the global marketplace?

    In this section, we will examine several underlying trends that will continue to propel the dramatic growth in world trade. These trends are market expansion, resource acquisition, and the emergence of China and India.

    Market Expansion

    The need for businesses to expand their markets is perhaps the most fundamental reason for the growth in world trade. The limited size of domestic markets often motivates managers to seek markets beyond their national frontiers. The economies of large-scale manufacturing demand big markets. Domestic markets, particularly in smaller countries like Denmark and the Netherlands, simply can’t generate enough demand. Nestlé was one of the first businesses to “go global” because its home country, Switzerland, is so small. Nestlé was shipping milk to 16 different countries as early as 1875. Today, hundreds of thousands of businesses are recognizing the potential rich rewards to be found in international markets.

    Resource Acquisition

    More and more companies are going to the global marketplace to acquire the resources they need to operate efficiently. These resources may be cheap or skilled labor, scarce raw materials, technology, or capital. Nike, for example, has manufacturing facilities in many Asian countries in order to use cheaper labor. Honda opened a design studio in southern California to put that “California flair” into the design of some of its vehicles. Large multinational banks such as Bank of New York and Citigroup have offices in Geneva, Switzerland. Geneva is the private banking center of Europe and attracts capital from around the globe.

    The Emergence of China and India

    China and India—two of the world’s economic powerhouses—are impacting businesses around the globe, in very different ways. The boom in China’s worldwide exports has left few sectors unscathed, be they garlic growers in California, jeans makers in Mexico, or plastic-mold manufacturers in South Korea. India’s impact has altered how hundreds of service companies from Texas to Ireland compete for billions of dollars in contracts.

    The causes and consequences of each nation’s growth are somewhat different. China’s exports have boomed largely thanks to foreign investment: lured by low labor costs, big manufacturers have surged into China to expand their production base and push down prices globally. Now manufacturers of all sizes, making everything from windshield wipers to washing machines to clothing, are scrambling either to reduce costs at home or to outsource more of what they make in cheaper locales such as China and India.39

    Indians are playing invaluable roles in the global innovation chain. Hewlett-Packard, Cisco Systems, and other tech giants now rely on their Indian teams to devise software platforms and multimedia features for next-generation devices. Googleprincipal scientist Krishna Bharat set up the Google Bangalore lab complete with colorful furniture, exercise balls, and a Yamaha organ—like Google’s Mountain View, California, headquarters—to work on core search-engine technology. Indian engineering houses use 3-D computer simulations to tweak designs of everything from car engines and forklifts to aircraft wings for such clients as General MotorsCorp. and Boeing Co. Barring unforeseen circumstances, within five years India should vault over Germany as the world’s fourth-biggest economy. By mid-century, China should overtake the United States as number one. By then, China and India could account for half of global output.40

    ETHICS IN PRACTICE

    The United Nations Sustainability Development Goals

    Corporations like Albertson’s, Unilever, Kimberly Clark, and Siemens are starting to take action on the United Nations Sustainability Development Goals. For many years, through corporate social responsibility (CSR) programs, corporations have donated money and employee time to address various social and environmental problems, both globally and in their own backyards. The Carnegie Foundation and the Bill and Melinda Gates Foundation are examples of this commitment. While these efforts have achieved some progress in environmental protection, ethical business practices, building sustainable positive impacts, and economic development by organizations, they do require deeper and longer engagement. Because the benefits to corporations’ profitability are mostly peripheral, short-term impacts such as a drop in demand often mean that attention is drawn away from CSR programs to attending to immediate bottom-line issues.

    In 2015, the United Nations member-nations adopted 17 resolutions aimed at ending poverty, ensuring sustainability, and ensuring prosperity for all. The aggressive goals were set to be met over the next 15 years.

    1. End poverty in all its forms everywhere.
    2. End hunger, achieve food security and improved nutrition, and promote sustainable agriculture.
    3. Ensure healthy lives and promote well-being for all at all ages.
    4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
    5. Achieve gender equality and empower all women and girls.
    6. Ensure availability and sustainable management of water and sanitation for all.
    7. Ensure access to affordable, reliable, sustainable, modern energy for all.
    8. Promote sustained, inclusive, sustainable economic growth; full and productive employment; and decent work for all.
    9. Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation.
    10. Reduce inequality within and among countries.
    11. Make cities and human settlements inclusive, safe, resilient, and sustainable.
    12. Ensure sustainable consumption and production patterns.
    13. Take urgent action to combat climate change and its impacts.
    14. Conserve and sustainably use the oceans, seas, and marine resources for sustainable development.
    15. Protect, restore, and promote sustainable use of terrestrial ecosystems; sustainably manage forests; combat desertification and halt and reverse land degradation; and halt biodiversity loss.
    16. Promote peaceful and inclusive societies for sustainable development; provide access to justice for all; and build effective, accountable, inclusive institutions at all levels.
    17. Strengthen the means of implementation and revitalize the global partnership for sustainable development.

    Companies like Albertson’s recognize that a robust CSR program can enhance a corporation’s reputation, which can indirectly boost the bottom line. They used number 14 on the United Nations Sustainability Development list in concert with World Oceans Day to announce that they as a company pledged to meet the U.N. goals. “We recognize that the wellbeing of people and the sustainability of our oceans are interdependent. As one of the largest U.S. retailers of seafood, we are committed to protecting the world’s oceans so they can remain a bountiful natural resource that contributes to global food security, the livelihoods of hard-working fishermen and the global economy,” said Buster Houston, Director of Seafood at Albertson’s Companies. The company is also committed to the concept of fair trade and was the first retailer to sell tuna with the fair trade seal.

    Siemens, the German-based multinational, also supported the adoption of meeting the United Nations Sustainability Development goals, which they believe is based on their company values—responsible, excellent, innovative. They define sustainable development as the means to achieve profitable and long-term growth. In doing so, they align ourselves with the goals of the UN’s 2030 Agenda for Sustainable Development.

    Critical Thinking Questions

    1. Why would companies pledge to meet the United Nations Sustainability Development goals when their competitors could ignore them in the name of greater, perhaps short-term, profits?
    2. Are you as a consumer more likely to purchase products from Albertson’s rather than another grocery chain that did not agree to the United Nations sustainability program? If you were working for a company deciding to purchase a large industrial component that was 10% more expensive than a competing product, would Siemens’s affirmation of meeting the United Nations Sustainability Development goals sway your decision? How would you explain the rationale for your decision?

    Sources: Thane Kreiner, “Corporations and Social Entrepreneurship: A Shift?” https://www.scu.edu, accessed June 30, 2017; United Nations Sustainable Development website: http://www.un.org, accessed June 30, 2017; “Practicing Sustainability—in the Interest of Future Generations,” https://www.siemens.com, accessed June 30, 2017; “Albertsons Companies Commits to United Nations Sustainable Development Goals, Joins Influential Seafood Task Force,” Cision PR Newswire,http://www.prnewswire.com, June 6, 2017; Ingrid Embree, “How 17 Companies Are Tackling Sustainable Development Goals (and Your Company Can, Too),” Huffington Post, http://www.huffingtonpost.com, September 14, 2016.

    An accelerating trend is that technical and managerial skills in both China and India are becoming more important than cheap assembly labor. China will stay dominant in mass manufacturing and is one of the few nations building multibillion-dollar electronics and heavy industrial plants. India is a rising power in software, design, services, and precision industry.

    CONCEPT CHECK

    1. What trends will foster continued growth in world trade?
    2. Describe some of the ways businesses can take advantage of these trends to “go global.”