Globalization and the Death of the Mid-sized Company

Globalization and the Death of the Mid-sized Company

If you own or work in a mid-sized company then you probably know of a global competitor in your back yard. If globalization hasn’t come to your part of the world yet, then you had better brace yourself. It’s coming!

As recently as a few years ago, domestic mid-sized companies played by the same rules. They enjoyed similar access to markets, comparable cost structures and common political pressures. In fact, many mid- sized companies dominated domestic markets only because global competitors couldn’t get here. Now, there is nowhere to hide.

The internet, email, overnight delivery and the opening of domestic markets has changed the game. Today, even the smallest company can face global competition. The formerly inaccessible mid-market represents the soft underbelly of American business and a great opportunity for offshore mid-size companies to grow. And, as they grow mid-sized companies will either adapt or die.

In fact, global companies are already competing in a number of areas that you might not expect. For example, offshore tax preparers are competing in the domestic accounting industry. In retail, big box retailers are partnering with international consumer goods manufacturers and redefining the mid-market retail industry.

As this trend continues on the heels of the next wave, Knowledge Process Outsourcing, we will see the least effective and efficient mid-size companies disappear. We will see global competitors deliver high quality and low cost products to our front door, and we will see more services being sent offshore.

If you are planning for your company to succeed as global competitors raise the stakes, then there are some Cold Hard Facts you will need to accept:

Cold Hard Fact #1 - the playing field is no longer level. Global competitors play by different rules set in their own geographical regions so not only do many of them have lower labor costs, but they also have fewer government controls giving them an additional cost advantage.

Cold Hard Fact #2 – in the future you will have less time to react to your competitors. Geographic distribution makes it harder to keep your eye on the global competitor. If they are test marketing a new product, then you may never know until it shows up in your back yard.

Cold Hard Fact #3 – they know more about you than you know about them. Generally, American mid- size businesses are far less familiar with international markets and cultures than international mid-size companies are with the US.

Cold Hard Fact #4 – global competition will turn up the heat domestically. As domestic companies in the mid-market adapt to global competitors the domestic companies will become increasingly more competitive in their local markets.

So, what can you do?

1. Develop a global view of your company and industry:

Broaden your competitive horizon – the world really is your oyster

Learn how global competition is impacting your industry – see what’s going on over there wherever over there is

2. Compete as you would with any other competitor:

Understand what drives your customers

Look for opportunities and innovate wherever you can

Compete head-to-head or create alliances where it makes sense

An experience with a former client (we’ll call him Jim) in the contract manufacturing industry illustrates the point. About ten years ago he began to notice that small international manufactures were showing up more frequently as competitors.

Seven years ago he decided to take a trip to China and toured several regions noted for manufacturing. He was shocked to find state of the art facilities and equipment – much better than his own. What was more astonishing was that the facilities were sitting with 40 – 50% unused capacity. He noticed that the labor rates were 25% of what the standard US rates were at the time, and that the government imposed few regulations on local business.

For Jim, the handwriting was on the wall. Since that trip to China, he has radically repositioned his business. He did three things:

Improved his business processes and removed all excess cost

Developed an offshore relationship with a Chinese manufacturer

Identified where he could not compete on price and sent that business offshore for a small profit margin

Today he sends 50% of his business offshore at a more than acceptable margin for merely managing the relationship, and now his shop only works on higher end, time sensitive jobs that can’t be sent off shore.

In fact, some business that is initially targeted to go offshore gets referred to Jim’s shop because of last minute changes or convenience. As a result, his business has flourished while many of his domestic competitors have disappeared. The company is more profitable today than it ever has been and Jim has become a key player in providing companies with quality offshore contract manufacturing options.

Remember, the very nature of business is competitive, and the key to competing well both globally and domestically is to simply see what’s coming your way and adapt. This simple principle works whether your competitor is another mid-sized company from across the globe or a local competitor that is moving into your city. Embrace this principle...and your business will flourish in the new competitive environment.

Strategic Growth Advisors can help. By using our approach to address your specific competitive issue we can position your company to successfully address any developing competitive threat. We begin with a Strategy Day, continue with a Performance Tune-up and conclude with a Strategic Plan that positions you to flourish.

Respectfully Yours,

Leamon A. Crooms III