On globalization being self-limiting

posted 11 January 2005

I went on a bit of an excursion to the oft-ignored eastern end of the island today with my dad. I have a bunch of photos, but I've done rather a lot of them recently and I have a lot of good blogging material stored up. So tomorrow it will be shots of coconuts, flowers, sun and a spider, and in the meantime it will be globalization. Those with no interest in economics, tune out now.

This whole idea arose from a conversation with my dad. A bit about my dad: he was, until he retired, the head of a large local branch of a big multinational corporation (which shall remain nameless, but you'd have heard of it). As such, although his influence was relatively small, he was privy to all the same meetings and the type of information you'd expect the CEO of a big multinational to know about. He's the kind of person whose very existence makes leftists angry; the kind of guy who says "what's wrong with a monopoly anyway?". If there are any people who can be viewed as being "on the inside" of the much-maligned globalization process, my dad is certainly among them. And he told me some interesting things about globalization from the perspective of a multinational company.

Thirty years ago, when he started in the business, the majority of multinational companies were European, and were organized along lines known as the "European model". The essence of this model was that a central company in Europe could not possibly know enough about a local market to manage factories effectively in Asia from there. Thus, they maintained a lightweight head office and concentrated on hiring very good people: they gave these people a lot of power in their local markets, and told them to get on with running the company.

This was a very successful model, and had an important side-effect. It meant that the multinational wasn't really very multinational, it was more like a federation of national companies. The big, open secret amongst global brands in the 70s and 80s was that they were global brands, not global products. Coca-cola (to pick an unrelated example) in the USA is very similar to Coca-cola in the UK, but Coca-cola in Trinidad is a very different animal, and Coca-cola in Africa is a different recipe again, despite all the fuss about the recipe being a closely-guarded secret. My dad's example was soap: the same brand of soap in Europe was a small bar with a mild scent. In the Caribbean, exactly the same brand of soap was a different size, colour and perfume. Different markets have different tastes, and so each branch of the company manufactured its own variation on the theme.

Through the 80s and 90s, however, McDonald's was in the ascendancy worldwide and with it came a new model of company: the American model, which existed before McDonalds, but which came to be known as the International model afterwards. This model, as practiced at McDonalds, was opposite to the European model: they had a very large central office where staff kept very tight control of what was going on in all the parts of the company around the world, and dictated policy and direction worldwide.

The International model was the product of two things: cheaper communications, and lower trade barriers and tariffs. As telecoms became cheaper and richer (faxes vs. telegraphs, emailed spreadsheets vs. mailed letters), it became more practical to centrally manage a widely-dispersed company. And as trade barriers went down, it became more and more economical to abandon local manufacturing in favour of regional and international manufacturing centres. Instead of 40 factories producing the product for 40 countries, 3 large factories could do the same job, and the extra shipping costs would be absorbed by the economies of scale from larger manufacturing operations. Cheaper communications also made it easier to tighten the "supply chain", a concept which multinational manufacturers like Dell obsess over constantly because so much of their money is tied up in inventory that removing the need for it, or reducing it, saves them enormous sums.

However, there was a hidden consequence of globalized manufacturing: the loss of the unacknowledged "local variations". So suddenly Coke was the same everywhere, and so was the soap and the paper and the butter and the shampoo and a thousand other products you use every day which are manufactured thousands of miles away. And as a result, global brands lose market share the more global they get. This is not speculation: this is from the horse's mouth. People in Africa don't want to drink exactly what people in Norway drink: the climate and the culture are different. Multinationals in the 90s lost market share to local brands better tuned to the needs of the local market. Globalization produced more local brands, not fewer.

Multinationals are not stupid. They are aware that this loss of variation meant a loss of market share. However, they rationalized it by noting that their savings from economies of scale and better supply chain management meant that even with lower market share, their profits were still higher, and they decided they could improve in future by spending more on marketing to convince people that what they really wanted was what everybody else wanted, not some local variation. (This is the current strategy of several multinationals, according to my dad, and it is not, so far, working very well).

Which brings me to my interesting (to me, at least) conclusion: globalization suffers a law of diminishing returns. Past a certain point, the more global and uniform your product, the less well it does because it can't take local variations into account. Therefore, globalization will not inevitably destroy local companies and local culture, simply because culture is inherently local, and so local companies will be preferred a certain amount of the time. So globalization will stabilize at a certain level and then cease its expansion.

That's not a view I've heard from any other source. Have you? And do you reckon the theory holds water?

P.S. This is my Technorati Profile, added so they'll know it's really my blog.

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Mac Mini and iPod shuffle

posted 11 January 2005

Now, don't go ignoring my ever so thoughtful post of globalization below, but I really felt I needed to blog about Apple's two latest products, both of which are masterpieces. I'm in awe.

Mac Mini

It's a Mac desktop. Only it's 6 inches wide, 2 inches high, and doesn't have a keyboard, monitor or a mouse. It's a Mac basic. And this is a genius idea. Suddenly cheap-ass PC users can swap their $500 commodity box for a shiny new iBox without needing to fork out on a new Mac-everything at the same time. Then they can slowly upgrade to an Apple mouse, keyboard, monitor, iBook, G5. It's the upgrade path from PC to Mac, and it's going to be a hit as such. It's also going to get a lot of use out of the kind of people who buy computers that don't need a keyboard and a mouse -- or at least, not most of the time. The people who need a computer-as-appliance, and the fact that it's tiny means that it's ideal for making it your living room media server, your kitchen browser, your in-car jukebox, etc.. But enough from me. Look at what del.icio.us has to say about it, which is a pretty good snapshot of what the public will be thinking:

  • So bright... so beautiful... so precious.
  • A homerun. The perfect home server.
  • okay, that's drool-worthy. (I adored the visuals of the cube.)
  • oh yes, you will be mine. On the quick fast.
  • Just 6.5 inches wide and 2 inches tall, Mac mini provides what you need
  • PC users, Its time to switch.
  • Me likey mini, me linkey mini (Props to Family Guy).
  • I like the idea of hooking it up via KVM to my existing Linux PC for the ultra-workstation.
  • Ooooooh. Want one.
  • Yes please, I'll have a dozen.
  • Searching for a reason - any reason, no matter how tenous, to buy my 5th Mac in 7 years. Stuff it, no reason, but I'm still getting one of these.
  • I have never wanted a Mac. Until Now.
  • I'm not even a Mac user, but this is very cool.
  • bring your own Display, Keyboard, Mouse
  • Now that.. is pretty goodamn sexy.
  • Just 6.5 inches wide and 2 inches tall, Mac mini provides what you need to have more fun with your music, photos and movies - right out of the box
  • Crazy
  • wow
  • hello, perfect computer for my future self on the go.
  • Maybe my parents will finally own a Mac!
  • apple's amazing new, tiny, computer
  • Finally, a Mac I can actually afford
  • So not the iHome but the Mac mini. Cute little computer, might work it's way around I reckon.
  • Looks pretty swaggy to me.
  • One for every room!
  • Wow again. That is cheap. Shame wifi isn't in it - v odd - and there's not enough RAM as ever. But generally, wow.
  • Apple is the shizzle. Seriously.
  • Small yet perfectly formed.
  • I want one. Bad. And almost cheap enough I don't need to justify why ...
  • Dammit! Stop taking away my reasons not to buy a Mac!
  • 'Tis Tiny! I can see these springing up in cars as back-seat entertainment thingies
  • MacMini for $500 - gotta have it!
  • yum yum
  • mmmmmmmmm
  • mmmm Someone just needs to make a mac media centre and then this will defo find a place under my telly
  • Sweet, sweet mini.
  • I'm very impressed with this thing. Mac mini + iPod shuffle = $600.
  • The return of the cube!
  • Very interesting...
  • More cute computing from Apple

Yes, I think it will be popular. I know I'm buying one... I guess I'll be able to afford it by around June sometime...

iPod shuffle

Now this one is... different. This is Apple's entry into the cheap-as-chips flash player market, and it's a clever move. But this isn't a product for me. This is a product for chavs.

Don't believe me? Think about it. It's a big, well-known brand with a lot of cred. Those white headphones are da shizznit. But iPods are expensive! Even the Mini will set you back £250. But the shuffle is only 99 -- and, in a chav-friendly move, hangs around their neck like their over-expensive phones do, making it not just possible but necessary to advertise your purchase to the world.

This is the bling-bling of consumer electronics: cheap and flashy and expensive-looking. And like bling, it will sell and sell and sell. Apple, my congratulations to you. Two products well executed.

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