Globalization From the Inside Out

Globalization
From the Inside Out

Authored By:

Kent Brittan







Published:
April 18, 2007


Edited by:
Susan Phillips Bari

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Globalization – From the Inside Out




Overview and Objective
The Aging Population


It is difficult to pick up a newspaper these days
The first of these forces, for which there exists
without seeing a plethora of articles dealing with one
absolutely no historical record (other than
aspect or another of globalization. Virtually all of
Methuselah in the Bible), is the extension in life-span
these articles are written by observers of the
and an ever-growing number of older people in the
phenomenon and reflect a view from the “Outside
developed world. This “aging population” in the
In”, that is, the current and forecasted future state of
major economies, including China, is placing a strain
affairs as the observers see it. This information is
upon governmental and business resources to
often interesting, but does not usually explain why
maintain promised health care and pension benefits
things are happening. Nor are the comments detailed
that are reaching massive proportions. The
enough to be useful to those whose companies are
environmental and other socio-political impacts of
directly impacted by globalization and which seek
the demographic shift to the right are still
guidance as to what to do. This paper proposes,
unpredictable, as we are only in the early stages of
therefore, to give a perspective about globalization by
this transformation. It is surprising that the developed
some leading practitioners who have been deeply
world is only now waking up to the full magnitude of
involved in the entire decision-making process
the potential problems to be faced, even though these
companies use when thinking about the new global
demographic trends were apparent thirty years ago.
environment. Bob Moffat, Senior Vice President,
We can safely say, however, that this huge social
Integrated Operations of IBM, Mike Eskew, CEO
burden is occurring at the worse possible time for the
of UPS, Keith Nosbusch, CEO of Rockwell
G8 countries, most of which are trying to cope with
Automation, and Carmen Castillo of SDI, have joined
the transfer eastward, that is to say, the
me to give a view from the “Inside Out”. The
“globalization”, of portions of their manufacturing
objective is to make it clear that large companies are
and service industries with the potential of a resulting
navigating their way in the world of today with a
decrease of their tax base. A good example of the
different mindset and using a disciplined set of
globalization trend meeting the aging population is
processes to make the right choices. Seeing
the dramatic growth in low cost medical services for
globalization from this
Europeans in Asia and the
perspective will hopefully be
creation of a “medical tourism”
“Another major current
useful to the supply base of
industry as we speak.
metamorphosis of society currently
large companies, and in

going on, and equally
particular, to
The Increasing Power of
women and minority-owned
unprecedented in world history, is
Women
businesses
the transfer of power to women in

in their effort to keep up with
virtually every walk of life.”
their customers.
Again, this structural shift of

Kent!Brittan
control from male to female is
in its early stages, but, like the
Major Forces at Work
demographics above, the educational statistics for

enrollments and test scores in schools are a good
Thanks to all the media attention and what the
guide as to the future. What is of particular interest
world’s shoppers see in their stores on a daily basis
for us in this project is the rapid rise of women in
virtually everyone on the planet has a basic
business. Women-owned businesses in the USA grew
understanding of what globalization is all about. In
at a 42% rate over the last decade or about twice that
some quarters globalization is seen as the principal
of all firms. About 40% of all American businesses
force of the 21st century. But despite having received
are more than 50% women-owned (Source: Center
most of the attention of the media, globalization is
for Women’s business Research). A recent article in
not the only unprecedented major change in the
the Financial Times (October 2, 2006), pointed out
world. There are others.
the huge contribution of women to the increase in












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Globalization – From the Inside Out


GNP of the large industrial countries over the past
come. The other day I attended a globalization
years. The growth of the female workforce, now at
seminar where the speakers were all economists.
two thirds of the women working age in the United
Virtually the entire morning was spent trying to
States versus one third fifty years ago, has thus far
evaluate which periods in economic history could
compensated for lower birth rates and the negative
best tell us about the probable future. Fortunately,
demographic effects of the aging population. Similar
during the Q & A someone in the audience suggested
female employment statistics are found not only
that perhaps the unprecedented forces operating at
across Europe but in South East Asia as well. To the
this time make economic history obsolete.
extent that this transfer of power is accompanied by

female entrepreneurs seizing the opportunities
Approaches Towards Globalization
created by globalization will make this phenomenon

all the more powerful. The Economist (from the
Financial Times article) has concluded that this
Globalization means many things to many people.
increase of women in the working population has
Governments around the world have worked hard to
contributed more than China to the growth in the
reduce or eliminate foreign exchange controls and
world’s GNP.
tariffs to create large regional free-trading zones only
to see their work overwhelmed by a “global trading
Environmental Changes
block” over which they exercise little to no control
and try to react with few tools left to them.
Another major unprecedented force is the

environment, namely climate change,
Individuals enjoy the wider array of low cost goods
which is finally receiving the attention it deserves.
now available, while fearing the eventual impact on
Politicians are using global warming as a platform
their jobs. IBM’s Bob Moffat sees globalization as
plank in their campaigns and corporations are
worldwide integration:
seriously addressing the issue

of sustainability. More
“There's no doubt
importantly Earth’s population
globalization is the buzzword
is beginning to feel
Globalization is the ability to
of our time. The term is used in
uncomfortable on an individual
assemble the right skills, in the
so many contexts for so many
basis with the changes in
right place, at the right cost -- and
different purposes I would be
weather patterns that each
being able to harness them along
hard-pressed to say that the
person can observe unfiltered
with your experience and expertise
media -- or anybody else -- has
by news analysis. The recent
missed a key aspect of it.
Stern Report in Great Britain
on behalf of your clients. In this

predicts a far shorter time frame
sense, it's a more a matter of
“That said, globalization is too
for the effects of climate
‘global integration’.”
often portrayed as an either/or
change to occur .The report
Bob!Moffat
debate; something that you
also gives a startling estimate
have to be for or against; think
of the cost of remedying the
is good or bad. It can be -- has
environment, and the resulting
been -- a very polarizing topic.
significant negative impact on the GNP of the major

economies. But not all the news about climate
“There are some who say Globalization is all about
change is necessarily bad for business. Many new
ramping up low-cost operations in emerging
industries will be created; others will have to reinvent
countries while winding down operations in mature
themselves. All of these opportunities are in front of
markets. And there are others who see it as the
us, as very little has been done thus far to avert a
panacea for global prosperity. I have a different
change in the climate.
view. Globalization is the ability to assemble the

right skills, in the right place, at the right cost -- and
While the subject of this review is globalization, it
being able to harness them along with your
important nonetheless to keep in mind these other
experience and expertise on behalf of your clients.
trends because they are interdependent and will be
In this sense, it's a more a matter of ‘global
continually impacting and molding one another in
integration’.”
numerous and unpredictable ways in the years to








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Globalization – From the Inside Out


Mike Eskew describes the UPS journey:
What is new are the breaking down of many of the

barriers to the free movement of goods and services,
“Anticipating the global economy of the 21st century,

UPS in the late l990s transformed its own business
the information technology revolution, the creation of
mission from that of a package delivery company to
regional trading blocks in Europe and North
one that synchronizes global commerce for its
America, worldwide sourcing, and the opening of
customers. UPS has acquired and aligned new
China, Russia and Central Europe to economic
supply chain resources and emerging technology
integration with the Western economies. This has
applications to match customers’ global economy
dramatically increased the scale of international trade
needs for synchronized supply chain, business
by quantum leaps over the past two decades. The
process and export solutions.
large multinational, or more appropriately, “global”

companies, for which the cost and difficulty–both
“UPS’s commitment to China reflects that approach.
financial and managerial--of entering the new
As China began to welcome foreign direct
markets is relatively low, have been quick to seize
investment, UPS not only expanded its air package
upon the growth opportunities created by these
and freight network in Asia and China, but also its
events. These companies have also discovered and
China logistics resource capabilities. UPS is also
developed new low cost sources of supply, by
helping Western companies to take advantage of
building their own factories in low cost sources,
China and other developing nations’ expanding
enabling the transfer of existing suppliers, or by
middle class consumer markets with technology
simply developing new relationships in the new
solutions that simplify exporting.”
markets and thereby dramatically improving their

cost structure and competitiveness.
Keith Nosbusch outlines Rockwell Automation’s

progressive approach:
While sales and marketing growth in newly opened

markets is very opportunistic and easy to understand,
“The way we look at globalization as a company has
globalization of supply at the corporate level is not
evolved. First, we expanded sales outside of the U.S.
something haphazard. Many people make the
by opening sales offices, expanding support and
mistake of assuming that the globalization of supply
providing some documentation in local languages.
is equally opportunistic and equivalent to the much-
We began to leverage our global buying power
maligned word “outsourcing”. In fact, outsourcing is
allowing us to source for best of breed services and
only one part of an enterprise-wide operations
products. We then began to identify premier
strategy. This can be better explained graphically in
manufacturing locations and capabilities around the
the simple decision-tree diagram shown below.
world so that we could improve the ability to deliver

a product when the customer wanted it to anywhere
in the world.
STRATEGIC SOURCING
“Today we are focused on proximity to the customer
so we can offer our full range of business products
Roadmap
and services where the customer is located, from
Improve
sales and support, to manufacturing, engineering and
existing
capability
marketing. We are locating the business
Develop regional,
management and strategic decision-makers near the
low-cost supplier
Make
customer.”
Low-cost
Develop regional,

Sourcing strategy
sourcing
low-cost joint venture
From the Inside Out
Acquire & develop regional,
Buy

low-cost subsidiary
Local
When we talk about the globalization of business it is
supply
chain
important to recognize first of all that for many
companies this is nothing new. Large corporations
have been operating on a global basis for years, if not
decades.











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Globalization – From the Inside Out


The process begins with the fact that many
the ABC Company builds a new factory in China, it
companies today are re-examining all of their
could be both to export from China and to serve the
operations from top to bottom to decide what they are
Chinese market.
really good at from a cost and operational viewpoint

or where proprietary or critical technology is
This is true not just for major corporations and not
involved. This analysis can run the gamut from
just in China but for smaller firms and other global
production parts to an in-house print shop. If done
markets as well. ABC might also be generating
properly, this core/non-core study of products, part
increased exports from the United States around the
families, services and functions generally leads to the
globe thanks to lower costs on the series of part
conclusion that many things currently performed in-
numbers sourced in China. It is easy to understand
house would be better performed by the supply base.
how the net impacts of these investments and

transfers of production soon become very difficult to
If the decision is to “buy” rather than “make”, the
calculate, especially when aggregated at the national
next step is to go through a step-by-step sourcing
or world-wide level. Bob Moffat describes the IBM
process to determine where to obtain the product or
approach:
service. Often this simply results in moving

production to an existing supplier down the street. In
“Globalization is changing the fundamental model
today’s global world, however, it could be that
for how businesses shape strategy, management and
obtaining certain components or services offshore is
operations in a truly global way. It is creating the
the best solution. This leads to another decision point
capacity to assemble and deploy global capabilities
as to whether to set up a wholly-owned subsidiary
faster . . . more efficiently and effectively. At IBM,
overseas, a joint-venture, or simply to buy the
we call this new model the globally integrated
product/service from a third party. The point here
enterprise. This kind of enterprise locates operations
is that for most companies outsourcing is, in fact, one
and functions anywhere in the world based on the
result of an overall analytical
right cost, the right skills, and
process to determine the correct
the right business environment;
operational and procurement
“When we talk about the
and it integrates those
strategy, and not an end in
globalization of business it is
operations horizontally and
itself.
globally.
important to recognize first of all

“For example, at IBM, we used
that for many companies this is
When the core/non-core
to have separate supply chains
analytical process leads to the
nothing new. Large corporations
in different markets, now we
decision to move production or
have been operating on a global
have one supply chain -- a
services offshore, it should not
basis for years, if not decades.”
global one -- for the entire
be taken lightly. Companies
company. In our professional
Kent!Brittan
have manufacturing quality
services businesses, where we
controls, IT and engineering
used to think about our human
standards, environmental requirements,
capital -- our people -- in terms of countries and
communications protocols, confidentiality rules, etc.
regions and business units -- we now manage and
that must be respected wherever they operate.
deploy them as one global asset. If you apply that
Moving to a new country or a new supplier usually
same logic to all the operations of a company... from
requires substantial support from the home country,
R&D and finance, to manufacturing and logistics --
both for those things sent to a wholly-owned
you begin to see how different this globally
subsidiary or outsourced to a third party. This support
integrated model is.
adds significant costs that must be factored into to the

financial equation about whether or not to move
“A lot of people think the battle lines are being
activities to an outside source. This is why companies
drawn between companies in the US or other mature
often prefer to transfer them, wherever possible,
race is on between companies that embrace
using their existing supply base.
innovation and those that don't. Companies all over

the planet are aggregating commodity technology
Companies are not moving to China just for low-cost
and emergent labor pools with the internet and doing
sourcing for export, but also to access the huge and
the most extraordinary things for cheap . . . at a very
growing local market for almost everything. Thus, if
quick pace. These are the tools companies are

assembling to develop new business models that are




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Globalization – From the Inside Out


inherently lower cost and highly disruptive. The
“Today, 68 percent of all goods are sourced
companies that are capitalizing on these forces are
internationally, frequently traveling over 8,000 miles
just as likely to be in India as they are in
from point of production to point of sale. Of course,
Indianapolis.
developing economies like China and India are

challenged to ramp up infrastructure capabilities, but
“Like a lot of companies we at one time viewed
so is the U.S., where we’ve shown complacency in
outsourcing as mostly off-loading mundane tasks we
relieving congested ports, airports and roadways,
didn't want to do ourselves. That has completely
and in upgrading rail transportation capabilities.”
changed. Over the past decade, IBM and its clients

have changed structurally, operationally, and
Because lean manufacturing is very time- and space-
culturally in response to globalization and new
efficient large companies are asking their major first
technology. Now the spread of outsourcing is
tier suppliers to take charge of managing many of the
encouraging companies to view themselves as an
smaller first and second tier suppliers. In other
array of specialized components, giving companies
words, the major tier one suppliers become bigger
new choices about where they want the work to be
with responsibilities for quality and delivery
performed and whether they want it performed in-
(including sequencing) for many of the smaller
house or by an outside partner. This is the kind of
suppliers which drop to the second tier. First tier
openness and interaction that leads to innovation.”
suppliers who do not want to take on these new

responsibilities run the real risk of being replaced.
Recreating the Supply
However, to the extent that first (or even second tier)
Chain
suppliers seize the new

opportunities they can benefit
“Companies all over the planet are
by the increased volume and
For Western industrial
future business. It is
companies the result of these
aggregating commodity technology
important to understand that in
new manufacturing and
and emergent labor pools with the
this new complex environment
sourcing strategies has been to
internet and doing the most
large companies are looking to
create a complex global
extraordinary things for cheap . . .
their suppliers for solutions,
distributed manufacturing and
at a very quick pace.”
not just parts. There is an
supply chain environment
increasing burden on tier one
requiring far more orchestration
Bob!Moffat
suppliers to increase their
than before. The complexity is
engineering contribution to
even amplified for those
support the customer. The
forward-looking companies espousing lean
days of simple "build to print" are over. The new
manufacturing techniques to improve customer
paradigm is that of a substantial contribution of
responsiveness and working capital turnover. In the
intellectual capital in the value proposition. If a
lean manufacturing environment where inventory
supplier can provide an improved logistics and
buffers disappear and a superior logistics capability
delivery process and a mistake-proofed zero-defects
becomes a core requirement complete, on-time, zero
product, the doors of opportunity will open. Clearly,
defects products are expected from the supply base
seizing these opportunities requires suppliers to be
with each and every delivery. Logistics, heretofore a
very close to customers and understanding their
field not very high on the corporate radar screen, has
needs, including understanding in detail how their
suddenly moved to the forefront of desired core
parts are delivered, received, moved, presented, and
competencies. Mike Eskew talks to some of the
assembled in the customer’s assembly line. Bob
current failings of the existing worldwide logistics
Moffat describes what is happening this way:
infrastructure:


“Globalization or ‘global integration’ has two
“Sometimes overlooked is the stress rapid global
elements of equal importance. The first is about
trade growth is placing on the world’s infrastructure
having deep local roots; and I don't mean a
capabilities – ports, airports, roadways, rail – to
superficial presence; setting up an office here and
handle the increased volume. Over the last three
there and hiring some people. Deep local roots is
decades, world trade has grown at an annual rate
having the experience or as I like to say the ‘scars’ of
three times higher than world GDP.








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Globalization – From the Inside Out


actually having run a business in different markets
Internet environment. They just don’t “get it” even
around the world. It’s having a local management
after their customers explain the technologies and
team with leaders who understand the culture, the
their new requirements to them. These suppliers
customs, the regulations and the local business
quickly become dinosaurs and go out of the supply
conditions. It’s building deep relationships with
chain. Any service company which has not
governments, with suppliers, academia and being an
reinvented itself on the Internet is headed for trouble.
integral part of the community, and then it’s
Mike Eskew gives a view of the future competitive
leveraging that experience to drive growth.
environment where globalization will create millions

of new customers for service industries:
“However, serving clients locally does not mean

doing everything, everywhere; the other aspect to
“Innovation will spring from all players within the
being global is about creating truly global
network. A catalyst to global innovation will be
operations. That entails three things: first, gaining
increasing access to information via emerging
access to talent and skills everywhere they are in the
networking technologies that will make access to
world; and integrating them globally to develop new,
knowledge universal. That will give rise to legions of
distinctive capabilities to drive productivity and
consumers in developing countries like China, India,
enable growth; second, it’s transforming business
Brazil and Russia. A billion new consumers will
processes – componentizing, simplifying,
enter the global marketplace by 2015”.
standardizing and globalizing them, doing work

where it is most effectively and efficiently done; and
Many people make the mistake of viewing off-
third, infusing technology; automating workflows to
shoring IT and engineering work as a zero-sum (“I
improve speed, eliminate
win/you lose”) game. In fact,
latency and improve
it can be a tremendous catalyst
responsiveness to clients while

for growth. In today’s highly
dramatically lowering your
“A new paradigm will emerge. It
competitive world most
cost structure.
will be one of 24 by 7 global
companies have more work

collaboration. Industry-leading
than budget for IT and
“Deep local roots and global
enterprises will be networks of
Engineering. Take the XYZ
operations, these are two
Company that has 1,000
interconnected, interlinked
elements of globalization.
engineers in Europe and the
Skills in emerging markets like
contributors from all parts of the
United States but has a backlog
India and China are important,
globe.”
of work for new product
but they're not the whole story.
Mike!Eskew
development and product
Being global is making efficient
adaptation for new markets for
and effective use of global
1,600 people. How can they do
capabilities -- all capabilities
all the work and still keep within budget? If routine
everywhere in the world. “
work of 200 of the engineers in Europe and the US

can be transferred to a low cost source in Asia, for
Service Companies
example, 800 engineers (assuming they are properly

trained and supervised) can be brought on board for
It is well known that the globalization occurring in
the same cost. The math is compelling: 1,000-
manufacturing is also happening in Information
200+800=1,600 engineers, the number needed to
Technology and Engineering services. Not everyone
keep the company competitive and growing.
understands that globalization is spreading to service
Outsourcing is not just about cost reduction or
areas as well. Why? Because the delivery and
substitution; the engineering budget remains the
administrative aspects of virtually every service can
same. It is about firepower, growth, and
be “Internetized”, that is, digitized and totally
competitiveness. Similar arithmetic can be seen in
reformatted to the Internet environment. While this
most every service industry, from health care to
sometimes takes a certain imagination and
finance. The ability to leverage the intellectual power
willingness to experiment after decades of success in
of an organization is huge. A company simply cannot
a paper-based dis-integrated world, surprisingly
let the competition get a head start in doing it.
many companies cannot make the jump to the new









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Globalization – From the Inside Out




Keith Nosbusch talks about Rockwell Automation’s
“Multi-national companies will also emerge from
holistic view of transferring functions to Asia:
developing nations and across industries. It will be a

worldwide race to the top, won by organizations
“…. it is not just about resources, it is about bringing
through a commitment to collaboration, and by
all business functions into Asia. We started in the
individuals through a commitment to education and
region with sales and support and then
life-long learning.”
manufacturing. But we soon realized that being

successful there is not just about sales, support and
Keith Nosbusch talks about Rockwell’s focus on
manufacturing, it is about local business
employee and supplier development:
s management, regional development resources, and

the ability to be closer to the customer in all
“Internally, we nurture employees’ skills and talents
dimensions. In China and India, we are putting in
so they are prepared to work in a global
resources across the breadth of the company to be
marketplace. We offer employees international
close to the customer, to be able to hear the voice of
rotations that place them in a hands-on, immersed
the customer and to be able to quickly respond.”
environment. They learn how to adapt their skills and

style to our customers’ geographic markets, business
Future Competition
practices and social customs. We hold Global

Universities where colleagues
Globalization is not all good
and customers from other regions
“ Moving overseas may seem
news for large corporations.
share perspectives and needs.
relatively easy to do for the large
While many of them have
Our GlobeSmart web tool,
benefited from access to new
global company; it is far more
introduced in 2000, was cited
markets and low cost sources
in a recent Catalyst Member
difficult for the domestic supply
of supply, they are now
Benchmarking Report
base, which is generally made up
witnessing the creation of
as a best practice for promoting
of much smaller companies with
new competitors from low
global diversity. This website
fewer financial and managerial
cost countries that they never
provides employees with
expected to see even in
resources, to follow their major
information on cultures in more
“their” domestic markets. As
than 80 countries. One of its
suppliers to low cost countries
the developing countries
features, Peer Notes, provides
where they have little experience.”
increase in economic
employees access to experiences
Kent!Brittan
importance, this trend will
documented by their colleagues
only continue. The rise of
who’ve traveled on international
new competitors will not be limited to competition
assignments. During sourcing reviews both domestic
for market share. New corporate giants from the
and internationally, we pro-actively mentor and
developing world are now competing for funds in the
provide assistance to diverse suppliers so that all
world’s capital markets and even acquiring some of
suppliers have equal access to purchasing
the large corporations of the major economies. This
opportunities“
free movement of capital is now sometimes being

challenged by governments, which sometimes engage
Supplier Reaction
in anti-globalization protectionism, even within their

own trading bloc, to protect national corporate
Moving overseas may seem relatively easy to do for
standard-bearers. The suppliers of large Western
the large global company; it is far more difficult for
companies must get used to the fact that sooner or
the domestic supply base, which is generally made up
later they might become suppliers to a Chinese or an
of much smaller companies with fewer financial and
Indian conglomerate as a result of acquisition. They
managerial resources, to follow their major suppliers
must be prepared to deal with this transition. Walking
to low cost countries where they have little
away is usually not an option. Scenario planning is.
experience.
Mike Eskew talks about what it will take to compete

in this new world:










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Globalization – From the Inside Out


Sometimes larger customers will help the supplier
not mean to a poor quality source. Generally the
make this transition, if they are critical to the
customer holds the new supplier to an even higher
production process. More often than not, suppliers
standard than that existing before the activity was
should not count on this support and need to expand
out-sourced.
on their own.


IBM recently took a major decision to relocate the
Carmen Castillo, President of Superior Design
headquarters of its global his procurement operations
International, a first tier supplier to several large
to China. Bob Moffat describes the reasons for that
corporations, talks about her experience with
decision:
globalization:
“Moving the headquarters of our global procurement

operations to Asia was a landmark event for IBM.
“Globalization at my company (SDI) is the result of
It's the first time we have located a corporate
the need to serve our customers, and has had a major
function outside the US. The motivation behind the
impact on my business as both a purchaser and seller
decision stems from our commitment to becoming a
of goods and services. My organization now has to
globally integrated enterprise, where the imperative
manage programs and project initiatives in many
is to think, act, organize and optimize globally. This
countries around the world. This geographic
applies to every facet of the organization, but it is
expansion has lead to major changes in the way I
espe