Change or die: 4 things suppliers must do to survive in a Globalization 2.0 world

18/10/2016

Globalization 2.0

Globalization 2.0Globalization 1.0

The 20th century’s first era of ‘globalization’ (roughly 1970-2010) was marked by major changes in global trade, consumption, manufacturing, supply chains, jobs and our daily lives. The world shrank rapidly due to free trade, mass media, technology, easier travel, improved supply chains, the emergence of Asian powers, and the dawn of the BRICS economies.

Thomas Friedman’s 2005 bestseller The World is Flat became the definitive text of, and shorthand for, Globalization 1.0. It gave context and a name to the sense many people and businesses in the US, Europe, and Asia had that an industrial revolution-sized change had taken place.

Perhaps nowhere were the effects of Globalization 2.0 felt more intensely, widely and definitively than in manufacturing.

Shifts in geography, technology, markets and consumer demand drove change in how companies approached their PLAN-MAKE-BUY-MOVE strategies for their products.

What is Globalization 2.0?

The megatrends that emerged from the first era of globalization have evolved to shape the Globalization 2.0 world. They dominate and influence almost every aspect of business and trade, including the way companies make, move and sell their products.

Megatrends:

  1. The emergence of China as a global manufacturing, supply chain and consumer power
  2. The emergence of the Internet and its evolution from something “we do” to “who we are,” as well as the emergence of e-commerce and its evolution to cross-border commerce
  3. The emergence of fast supply chains that are cost-effective, tech-driven, and simultaneously global, regional, local and hyper-local
  4. The emergence of new models in B2C and B2B product sales and distribution due major disruptions in domestic and global consumer demands, manufacturing models, retail disruption and environmental and social compliance demands

Whether you produce apparel, heavy equipment, computer chips or chocolate chips, these mega-trends are essential to understand and embrace for a few reasons.

Companies are, or soon will be, rethinking, reimagining, redeploying and digitizing their entire go-to-market strategy and all six mega-processes (plan, make, buy, move, distribute and sell) of their supply chain to meet the needs of a globalized and digitized world.

They are also resetting their entire MAKE IT-MOVE IT-SELL IT operations, where they consider what combination of Asia, North and South America, and a wildcard 4th destination they will use to make and sell their products. They are rebuilding their global, regional, local and hyper-local supply chains to meet customer demands.

The following are four critical actions suppliers and manufacturers must take to ensure long term survival, growth and profitability in a 2.0 world.

Transition to strategic from transactional operations

You may think you have a long term strategy, but if you are like most manufacturers and suppliers, you still operate on a largely transactional basis.

You must transform your operations, philosophy, strategies and KPI’s to reflect a 2.0 world that uses technology, analytics, market assessments and big data to create a long term strategy mindset.

This sign-the-orders, make it fast and well, sign the next one, rinse-and-repeat mentality is not fit for a 2.0 world.

The first step you need to take is to conduct an end-to-end assessment of your “as-is” business model and your go-to market strategy. This will include a thorough analysis of your operations, technologies, level of digitization, personnel, policies, supply chains, component and raw material sourcing, customer relationships, compliance regimes, and the markets and customers you currently serve.

You should include internal and external primary and secondary research, competitive benchmarking, market, product and customer analysis, channel analysis and the impact of e-commerce for B2B and B2C on your business.

Use all of this to create your “to-be” model, strategies, tactics and sales effort. Prioritize adoption and implementation of required changes and begin implementation immediately – ideally within 3 days.

Fully embrace e-commerce and digitization

After conducting your “as-is” analysis, suppliers need to understand the impact that e-commerce and the digitization of all aspects of the commercial world will have on their current and future business.

E-commerce and cross-border e-commerce have changed the dynamics of retail, wholesale and B2B channel sales. Your customers are adjusting their strategies and operations to meet the demands of an e-commerce driven world, and this means that their relationships with suppliers are changing.

Your customers are shifting their mix of supplier countries, looking to consolidate, seeking more flexibility in capacity and minimum order quantities, and embracing numerous avenues for delivery.

Suppliers must adjust their operations, personnel, IT infrastructure, MOQs, packaging and supply chain capabilities to meet B2C and B2B customer demands placed on brands and retailers by e-commerce.

Customers are also reinventing their go-to-market operations and strategy by digitizing every aspect of their business, including:

  • product development and engineering
  • forecasting and replenishment
  • choice of supplier and engagement with supplier
  • warehouse and DC operations
  • distribution
  • logistics and sales

The smart supplier will have a strategy and operation capable of integrating seamlessly into customer’s digital transformation.

Meet (and exceed) new standards in social, environmental and compliance standards

The need for suppliers to meet social responsibility requirements in their operations, to move toward greener operations, and to comply with local and global regulatory regimes is not new.  All three movements have gained momentum over the last ten years, and many suppliers have differentiated themselves and increased business by being ahead of the curve on these.

However, social, environmental and regulatory compliance is still in the maturation stage and in the next ten years will reach full maturity.

This means that environmental compliance and innovation will be a must for suppliers.

The days of buyers moving from country to country to leverage more relaxed regulations will come to an end. The same goes for social compliance.

Younger, more socially conscious consumers are demanding that their favorite brands are green, clean, human rights advocates.  B2B customers face pressure and are being offered incentives to do the same. Along with social pressure, there will also be greater profits to be had in being not only compliant, but innovative.

Make ANY order size profitable

In a 2.0 world, the manner in which your clients plan, buy, receive, store and sell inventory has changed dramatically, and will continue to do so.

The new realities of a Globalization 2.0 world include a more global landscape for sourcing new markets, the ability to source from new locations in your country, the unwillingness of retailers and wholesalers to hold inventory, major advances in forecasting, replenishment and inventory visibility, and most importantly consumer and business preferences. Together these realities mean that capacity and MOQ flexibility is a must to stay competitive.

Manufacturers must be able to use technology, smart planning, and customer needs research to set up a system where fast ramp-ups and ramp-downs, meeting smaller micro-orders, and direct ship orders can be part of your offering.

Critical to this process is building long-term, focused strategic relationships with your customers and understanding where they are going, not where they are.  This is a key element of shifting from short-term, transactional thinking to 2.0 thinking.

Act now or risk getting left behind

Globalization 2.0 has shattered the traditional norms of the product lifecycle, from engineering to planning and production, all way to sales.

Manufacturers and suppliers can only survive by being proactive on strategy, technology, and “inside the four walls” operations. The alternative is watching others do it and get left behind in a Globalization 1.0 world, wondering what happened.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.
Want to learn more from Michael Zakkour? Check out his book “China’s Super Consumers”

About the author

Michael Zakkour

Author: Michael Zakkour

Michael Zakkour creates and implements make it-move it-sell it strategies for US, Chinese and European consumer product, retail, e-commerce, B2C, B2B and manufacturing companies. He is the co-author of “China’s Super Consumers” and is a contributor at FORBES, Beijing Review, the BBC and other broadcast, online and print media.

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