The Next Stage of Globalization

There is a battle emerging in the global marketplace.

On the one side you have the traditional developed countries, and on the other side you have the up-and comers, the emerging markets.

In the last 20 years it has been a one-way street where developed economies — the U.S., Europe and Japan — outsourced their product development and services to other countries. This worked well when we had low commodity prices and cheap labor.

But these circumstances have changed, and now firms from countries like China, Brazil and India are stepping up to the plate and challenging their Western partners... on their own turf.

Emerging markets are rising quickly, and taking advantage of the open-ended advantages available to them. As the authors say in their book, Globality, “It’s a different kind of environment in which business flows in every direction. Companies have no centers. The idea of foreignness is foreign.”

Let’s take a look at a few companies that epitomize this new face of globality. There are many examples in China, where they are crushing their competition and becoming global leaders.

Up and Coming Emerging Markets: Rapid-Fire Innovation

Wang Chuanfu was a researcher in a Chinese institute. He had an idea to set up a battery manufacturing plant in the 1970s and traveled to Japan to learn from them. At that time, Japan was the No. 1 battery maker, but he soon found that there were some problems. His goal was to import a battery manufacturing plant but quickly discovered this was too expensive. Apparently, the Japanese plant depended heavily on robots, which was a costly way of doing business.

Wang, having the drive, creative spark and entrepreneurial spirit, soon had an idea. He imported one robot, tore it open and investigated the workings. He realized he could reconstruct the way a plant was set up, replacing some functions that the robots performed with human labor.

Today, this company is BYD, oneof the largest makers of nickel-cadmium batteries. It can make batteries with the same quality at a price that is 40% cheaper than Japanese competitors.

Up and Coming Emerging Markets: This Baby Is Good

Another example is a company located close to Shanghai that produces 3 million baby strollers and children’s bicycles a year. The company, called Goodbaby, has over 4,000 retail and wholesale distribution customers strategically located all over China.

Goodbaby has established joint venture and co-operative partnerships with many internationally recognized companies, which has enabled its technology, manufacturing and quality to achieve world-class status. This has been accomplished through the implementation of modern management techniques and state-of-the-art equipment in its design and manufacturing process.

As the No. 1 manufacturer of baby strollers, its guiding principle is “Care About Children, Focus on the Family.” It produces a number of diverse products for children, including strollers, tricycles and bicycles, baby walkers, cribs, children’s clothing, highchairs, disposable diapers and toys.

Goodbaby is yet another example of a new global leader from an emerging economy that competes with every other company for everything.

This is the next stage in globalization where a shift from a one-way street of Western domination is leading the world toward a global playing field that is competitive. The emerging companies have learned this, and it is a new world with new rules.

Obstacles Make Emerging Markets Stronger

Over the years, a number of factors have served to force emerging market countries to become more innovative and competitive. Their challenges have made them strong — to the point where they are becoming unstoppable. In this article, we’ll consider the particular factors making this happen.

First off, whether it is China, India or Brazil, these countries have had to deal in a business climate where their populations do not have a lot of money. That has forced them to be price competitive, and has created a type of hardiness in the way they establish themselves.

So, when it comes to doing business in countries like the U.S., they are prepared to be tough, and it turns out to be much easier, as they are dealing with a more business-friendly environment.

A second factor making emerging markets unstoppable is their access to world markets. Many of the movers and shakers in these companies had access to knowledge, as they were educated in the U.S. They have used this knowledge to draw on other forms of intellectual capital by working directly with for-profit and not-for-profit research labs, scientists and patent bodies.

In essence, they’ve utilized their resources in a smart and efficient manner.

By contracting with suppliers that possess specialist knowledge, they then either license it from various types of owners or acquire companies with important intellectual assets.

A third factor compelling these business leaders to move ahead is their insatiable hunger for achievement and success. This hunger permeates the culture, creating an intense entrepreneurial spirit. Visiting these countries you get a sense of their obsession with hard work and being the best.

It is not unusual for workers to labor at their jobs all day and then sells products in the evening to add to their income. The authors tell a story about a clerk at a travel agency who, after hours, sells lollipops in the evenings after dinner to make an extra 500 yuan (about $65) a week.

When we start to look around and study what is going on in the world we see that this trend, this desire to use everything they have learned, is changing the industrial landscape.

We are witnessing the new “global challengers” — those international players that put more emphasis on people versus process and utilize multiple business models. Adaptability is their middle name, and they are in a big hurry to gain the advantage.

Up and Coming Emerging Markets: Moving Fast

What took the Western world decades to figure out and implement these global challengers are achieving in a few short years. Whether it is the world’s largest noodle maker in Indonesia, ophthalmological services in India, or car builders in Romania, this wave of emerging powerhouses is creating new rules.

As investors, we look at this trend as an opportunity, not a threat. Here at Taipan, our theme is to focus on these emerging trends and follow the money. It makes sense for us to venture out and visit these countries to see first hand who is winning and where to invest in the future. One thing is for sure: We will have a number of markets to invest in throughout the world.

Originally published September 24, 2008.

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Other Related Topics: Asia Investments , Emerging Markets , Global Markets , Global Trends , Sandy Franks