Global Perspective

8 August 2013

Globalization — participation in the global economy — is, like it or not, a fact of life for manufacturers today. My own recognition of the extent of the importance of globalization on manufacturing seems to expand every day.

A post from last year is reproduced below. While I still like the post, I now think it necessary to add an even more zoomed out perspective that includes the entire global financial system.

I also think it necessary to be aware that the global financial system is a hodge-podge of pieces from the Bretton Woods accords [1], post World War II experiments with the welfare state, remnants of the soviet-era planned economies, neo-mercantilist ideas and much more. As a result, the entire system isn’t very stable. Take, as examples, Europe’s persisting problems with the Euro (and the resultant return to recession in several European countries) and the effects of China’s declining economic growth rate on demand for commodities.  Global economic conditions are certainly a factor in anemic growth rate of the U.S. economy, never mind that the Federal Reserve continues to boost the economy by injecting lots of money. — C.H.

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Globalization and Sustainable Development

From: 7 June 2012

The Zoom Out [2] View

Later this month, about 50,000 people from over 100 nations will gather in Brazil for Rio +20: The United Nations Conference on Sustainable Development [3]. “Sustainable Development”, as used here, considers how the global economy can continue to develop, within the constraints of the natural world, to the betterment of humanity. The Rio +20 Conference will reflect on events since original UN Conference on Sustainable Development convened in Rio 20 years ago. The Conference aspires to produce a viable plan for “The Future We Want”; a plan intended to be acceptable and actionable by the world’s governments.

Globalization Word CloudThe fact that the United Nations is conducting a Conference on Sustainable Development confirms a strong linkage between Sustainable Development and Globalization. Globalization is not the same thing as Sustainable Development. Rather, Globalization is a context in which Sustainability is pursued [4]. And Globalization — participation in the global economy — is, to some extent or another, a present reality for almost all manufacturers, whether they like it or not.

The Zoom In View

Now, zoom in to look at how Globalization — participation in the global economy — affects the smaller manufacturer. I can think of five ways off the top of my head. I’m sure there are many more.

>> Supply Chain: Start with your raw materials supply chain. Begin with extraction from nature and follow through to your receiving dock. If commodities (such as iron ore or crude oil) are involved, those are produced, traded and priced globally. Availability may be constrained by natural disasters, by transportation constraints, or by political actions. Many intermediates, such as polymers, refined metals or petroleum derivatives are similarly constrained. In many cases, components of your raw materials supply chain may be priced very differently, depending on where they are sourced. In the global economy, supply chain is a major source of competitive advantage. Or disadvantage.

>> Competition: It may seem as though everybody in the world already wants your U.S. domestic customers and markets. Enough said.

>> Customers: If everybody in the world wants you’re a piece of your home market, maybe you should be seeking some of theirs. Most of your potential customers are likely not in your backyard. Nor is most of the global economic growth. If you intend to “thrive in perpetuity”, [5] you need to be prepared to compete within the global economy. A recent post to this blog [6] discusses some practical steps smaller manufacturers can take to start — or extend — an export program.

>> Technology: Innovative manufacturing equipment and manufacturing processes often originate abroad. European plastics processing equipment and the Toyota Production Process come quickly to mind. When manufacturing equipment, processes or practices improve substantially anywhere in the world, you can either cover the innovation, or you can compete with it.

>> Regulation: Governments often act to regulate manufactured products in international trade. The European Union offers several examples, such as (1) REACH regulations that fixes responsibility on manufacturers to document the safety of chemical products prior to introduction into the E.U., (2) a “carbon tax” on jet fuel levied on international carriers that serve the E.U., (3) regulations that impose end of product life disposal costs on the original manufacturer.

Whether these regulations are good or bad isn’t at issue here. The point is that such regulations come to affect almost all manufacturers, somewhere in their value chain, now or in the future. And regulation is contagious. The State of California, for example, has introduced regulations modeled after E.U. regulations. Outcomes from the Rio +20 Conference can be expected to include regulations of some sort or another. Otherwise, how can agreed international objectives be achieved?

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Note: The Rio +20 Conference accomplished very little. However, the issues confronting Sustainable Development persist.

Chuck - Blue SweaterYour thoughtful comments and experience reports are always appreciated.


…  Chuck Harrington
(Chuck@JeraSustainableDevelopment.com)


P.S
: Contact me when your organization is serious about pursuing Sustainability … CH


This blog and associated website (
www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.

Graphic: www.dreamstime.com


 

[1] See the Wikipedia wiki for background on the Bretton Woods accords: http://en.wikipedia.org/wiki/Bretton_Woods_system

[3] Learn more about Rio +20 at the Conference’s official website, http://www.uncsd2012.org/rio20/index.php?menu=62

[4] Thomas Friedman, a columnist for the New York Times, has written several very popular books on Globalization. The Lexus and the Olive Tree, The World is Flat and Hot, Flat and Crowded. Are all interesting and informative reads.

[5] Werbach, Adam, Strategy for Sustainability, Harvard Business Press, Boston (2009), page 9