Globalization creates opportunities for many domestic companies<\/p>\n
Michael Nicholas, Jakarta<\/p>\n
Changes in the business environment have made it easier for
\nsmall and medium sized companies from countries such as Indonesia
\nto access international business opportunities in a way never
\nbefore possible. But research shows that managers will have to
\ndevelop a more innovative and international mindset if they are
\nto succeed in global markets.<\/p>\n
At the recent ASEAN summit in Laos, leaders agreed to proceed
\ntowards a China-ASEAN Free Trade Agreement (FTA) which will
\ncreate the world's largest free trade zone with a market of over
\ntwo billion people.<\/p>\n
ASEAN is also considering similar agreements with Japan, South
\nKorea, and possibly even Australia and New Zealand. Meanwhile in
\nJanuary, officials from Indonesia and Japan met to lay the
\ngroundwork for discussions on a bilateral FTA. Falling import
\ntariffs are just one of several global trends that have created
\nunprecedented opportunities for companies from smaller markets on
\nthe periphery while at the same time increasing the amount of
\ncompetition they will face at home.<\/p>\n
Until quite recently, companies were constrained by various
\nbarriers of geography: Import tariffs, market regulation and
\nexpensive telecommunications and transport expenses that
\nsignificantly increased the cost of doing business from a
\ndistance.<\/p>\n
According to Lowell Bryan and Jane Fraser, these barriers
\nfavored local producers and provided companies that emerged in
\nthe large mass markets of the U.S., Japan and Western Europe
\nafter the World War II with an advantage in economies of scale
\nthat was hard to beat. These companies integrated vertically to
\novercome the high interaction costs of the market and then
\ndiversified horizontally into new industries to reduce risk. With
\ntheir large size, they were better able to attract and access the
\nscare resources needed to compete: Capital, skilled managers,
\ntechnology and relations with governments.<\/p>\n
But, times have changed dramatically. Barriers that once
\nprotected the large incumbents have crumbled under waves of
\nderegulation, privatization, and new intermediary markets,
\nallowing smaller companies from locations on the periphery to
\ncompete and win global market share. New technologies, including
\nnew computing and communications technologies, have cut
\ntransaction costs making it possible for companies to specialize
\nmore than ever before.<\/p>\n
By combining the same small niche market in dozens of
\ncountries, companies can create one larger more attractive
\nmarket. The increased availability and mobility of capital in new
\nfinancial markets has diminished the corporation's role as a
\nfinancial-portfolio manager. Investors can more easily diversify
\nrisks and generally prefer more focused \"pure-play\" companies to
\nbroad-scope ones.<\/p>\n
This sea change has allowed specialized players to achieve
\ndramatic growth and global scope rapidly giving rise to the
\nemergence of small companies that are \"born global\". A McKinsey &
\nCompany study of Australia's high value-added manufacturing
\nexporters highlights the rise of numerous small to medium-sized
\ncompanies that are now able to successfully compete in global
\nmarkets -- virtually from their inception -- against large,
\nestablished players. These firms do not slowly build their way
\ninto international trade, but rather are born global in a way
\nthat would have been virtually impossible 20 or even ten years
\nago.<\/p>\n
Born global companies began exporting on average only two
\nyears after their foundation and achieved about three-quarters of
\ntheir total sales through exports. Though small, with total
\naverage sales of US$16 million, these firms can successfully
\ncompete against larger established players once they overcome
\nset-up hurdles and develop both an innovative and international
\nmindset.<\/p>\n
An International Labor Organization (ILO) report found the
\nsame companies in most OECD countries. According to the report,
\nthe factors that most frequently hindered export growth were
\ncredibility, access to finance, market information, technology,
\nand, most importantly, the lack of an innovative and
\ninternational mindset.<\/p>\n
The same phenomenon has also been found in developing
\ncountries such as Indonesia. In a study of companies from India,
\nBrazil and the Philippines, Christopher Bartlett & Sumatra
\nGhoshal found many so-called late movers competing globally once
\nthey developed organizational confidence, a clear strategy,
\npassion for learning and the leadership to bring these factors
\ntogether.<\/p>\n
The problem for multinationals in places like Indonesia is
\nthat they typically enter global markets at the bottom of the
\nvalue curve and stay there. Managers either lack the confidence
\nor the courage to climb the curve to higher value-added and
\nhigher margin sectors so the immediate challenge is to break out
\nof this mind set. Once freed of this psychological burden,
\ncompanies must develop a culture of continuous cross-border
\nlearning and find a strategy in which being a late mover is a
\nsource of advantage.<\/p>\n
Late mover advantages are typically exploited in a couple of
\nways. One is to benchmark established global players and then
\nmaneuver around them, often by exploiting niches the larger
\ncompanies overlooked. A riskier way is to challenge the rules of
\nthe game as a newcomer and capitalize on the inflexibility in the
\nestablished player's business models.<\/p>\n
Companies who enjoy global success understand how to learn
\nfrom the constant flow of new demands, opportunities and
\nchallenges that international competition brings. The willingness
\nto learn is the central skill that allows companies to move up
\nthe value curve.<\/p>\n
Leaders of successful late mover companies shared two
\ncharacteristics. First, was a commitment to global
\nentrepreneurialism that was rooted in the belief that the company
\ncould succeed internationally. Second, they all exhibited a
\nremarkable openness to new ideas that would facilitate
\ninternationalism -- even when those ideas challenged established
\npractice and core capabilities.<\/p>\n
Globalization has created unprecedented opportunities for
\ncompanies from the periphery. Unfortunately, with trends such as
\nthe growing number of free-trade agreements, Indonesian companies
\nno longer have the luxury of deciding if and when to compete
\ninternationally. In today's global markets, you don't have to go
\nabroad to experience international competition. Sooner or later
\nthe world comes to you.<\/p>\n
Michael Nicholas (mnicholas@shaw.ca) is a business manager and
\nconsultant based in Canada who has spent several years in
\nIndonesia.<\/p>",
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