With all the talk about globalization, as well as what is working and what isn’t about it, it’s time to drill down and find out what businesses are global by nature, and what businesses are local by nature.
For companies who are entering China, or are planning to go from China into international markets, this is a very important issue. There are some businesses which by their nature are global and others which are more local.
There are several businesses which by their nature are global. They are:
- Raw materials and commodities
- Transport, logisitics and distribution
- Commoditized services such as back-office operations and software outsourcing
- Finance, especially wholesale banking
- New technology development and research
Then there are other businesses which are more local/national in nature:
- Retail and brand marketing
- Most legal services
- Internet services
- Accounting services
- Foods and food-related services
My experience is that the businesses which are more wholesale in nature tend to cross national borders and become more global in nature, while those which are closer to end consumers tend to be more local and national.
If there is an irony, it is that the least sexy businesses are the most global in nature, while the more sexy brands and Internet businesses are in fact, local. I believe that there are several reasons for this:
Some of you may be surprised to note that I include Internet services in local businesses. If fact, they are. The struggle between Baidu and Google is largely a struggle over who has the larger local language search advertising market, Google, which gets most of its revenue from its home US market in English, or Baidu, whose services are almost entirely in Chinese. Even though China has four times the population of the US, the time when Baidu will overtake Google in terms of advertising revenue is still far far away.
One of my pet peeves is the amount of hype first-time visitors to China swallow, thinking that they can plan their retirement on a “China strategy” without in fact coming and living in China and making an effort to understand the people and culture and building relationships on the ground. More often than not, the people who have dollar (or yuan) signs in their eyes come from the services sectors, which are in fact, more local in nature. The ones who are making the money in China are the big wholesalers, but they have enough presence of mind to keep their mouths shut.
Lately, Dan Harris of China Law Blog has been talking about the opportunities opening up in the Chinese services sector because of policy changes. Most likely these changes will be led by another wave of service entrepreneurs coming into the country, or as is more likely, a new batch of local Chinese entrepreneurs offering services to China’s urban middle class. After all, they know the language, have the opportunities and can make the fast move.
For businesses which are local by nature, and are mostly in retail, the challenges come in several forms. The costs of crossing national boundaries to establish a name presence are always huge. This is an area global ad agencies are designed to address, even though their market has undergone huge changes.
The other huge challenge is human talent. How do you find the human talent who understand the needs of the parent company, and at the same time, can build relationships in a new market and understand what consumers want?
This is the real challenge of globalization.