Ever since Goldman Sachs published its famous BRIC report, the conventional way of viewing the future of global competition has been to track what Brazil, Russia, India and China are doing. This notion seems to fit in well with Thomas Friedman’s popular book The World Is Flat that made the narrow point that global dominance is no longer the prerogative of the West.
This book from three Boston Consulting Group (BCG) consultants suggests that the future of competition is far more complicated and unpredictable. Companies in the BRIC countries may certainly be emerging strong contenders to the hegemony of western multinationals, but they’re not the only ones. Whether it’s Mexico, Chile, Egypt, Hungary or Chile, potential world-beating corporations, their research shows that the spread of globalisation has meant that competition can emerge from pretty much anywhere. This is what the authors call “globality”.
“Globality is not a new and different term for globalization,” the authors write, “it’s the name for a new and different global reality in which we’ll be competing with everyone, from everywhere, for everything.”
These “challenger” corporations, as the authors call them, are in a wide variety of industries, from the conventional (steel, textiles, mining, telecom, consumer electronics) to the less common (pianos, baby strollers, cosmetics, paper packaging).
As importantly, these companies are not, as commonly believed, only cost warriors cashing in on the China model of offering enormous economies of scale. They are also essentially learning corporations, innovating and experimenting at a breakneck pace — and they are not afraid to fail. This means that they have learnt to leverage their advantages — of which cost is indubitably a part — innovatively and with devastating effectiveness.
A case in point is the story of BYD, now one of the world’s largest — and cheapest — producers of lithium batteries. But when its promoter Wang Chuanfu, a former researcher in a Chinese government lab, first considered setting up a plant to serve China’s booming mobile telephony market, he discovered that the robotised plant and equipment from Japan was prohibitively expensive.
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So Wang studied the mobile phone battery by taking it apart and discovered that it was, essentially, “a sandwich of several sheets of lithium cobalt oxide stacked along with sheets of carbon, separated by still more thin sheets of plastic placed in between”. He concluded that there was no reason people couldn’t do the job of a robot just as well.
Wang then designed an assembly line with a single robot and 600 people — which cost less than 4 per cent the automated line from Japan. This allowed him to launch his batteries 40 per cent cheaper than the giants in the business — Sanyo, Toshiba, Matsushita and Sony.
As importantly, as the authors point out, the labour-based factory allowed him the flexibility to move quickly from prototype to commercial scale production, which gave BYD the edge in the pace of innovation it could offer customers.
This kind of congruence between labour cost and innovation provides a unique challenge to western corporations because, unlike the earlier contract manufacturing operations that made millionaires out of local entrepreneurs, these challenger companies are building their own intellectual capital (as opposed to simply pinching it).
India and Brazil, for instance, are patently emerging as strong bases for value engineering. US household goods major Whirlpool developed an affordable washing machine for developing markets from its units in Brazil. This was not a stripped-down version of a US product but a machine designed from scratch with a smaller payload capacity and other specs suited to the developing country consumer. In doing so, Whirlpool ended up creating a market for low-payload washing machines.
The authors also write about the Logan, jointly produced by French car-maker Renault and Mahindra & Mahindra. Though the product has not yet moved the market significantly, the authors describe how Renault by teaming up with M&M was able to develop the model at 15 per cent less than the project cost. Indeed, M&M has already established its reputation as a value engineer having achieved this feat earlier with the Scorpio.
The book is an absorbing read because the authors have taken the trouble to work the shop-floors and provide real-life stories that back up their contention. Their overall message, though, is an uncomfortable one. For incumbents and challengers alike, the business world is going to be far more insecure and tougher to manage than ever before.
GLOBALITY
COMPETING WITH EVERYONE FROM EVERYWHERE FOR EVERYTHING
Harold L Sirkin, James W Hemerling, and Arindam K Bhattacharya
Business Plus
292 pages; Rs 595
