It’s the global market more than digital to which companies must adjust

Getting in shape for a digital world is only partly about consumers. It’s also about producers. At both ends, a coadjuvancy of digital technology and globalising trade often goes unnoticed in the headline-grabbing achievements of the Googles and Baidus of the world. In many ways, it’s the global market we have to adjust to more than digital innovation itself.

Without the trade freedoms we have had since the Cold War dissolved, much of what is essential to today’s experience would not exist. And the big names of digital engagement would be much more limited, as this US-based data illustrates:

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(Source: Mary Meeker, State of the Internet, slide 131)

Behind the traffic story are dollars, which is where the real story of globalisation hides. Again, as the US data shows, the big bucks in ecommerce are not in retail, like Amazon, but in manufacturing. As we look inside this picture, the revealed image is of a big yellow sitting duck.

Traditional manufacturing tended towards vertical integration. So at one point we had companies, even airlines (Ansett!), that made their own furniture. Really. Global markets have eroded those fortifications over many years, but it’s the digital world that supplied the means for truly contestable markets that might be closely integrated. Today’s products are made everywhere. Or anywhere.

As this research by the Swedish Board of Trade demonstrates, the production of something as complete as a Texas Instruments telecom chip is a multicultural event. And roughly two-thirds of the value in a typical US car is sourced outside that country.

It is abundantly clear that successful contestants in global markets will need clear definitions of their core value and their strategy — which is where the sitting ducks will need to stretch their wings.

To take a recent example in Australia, the long-established Pacific Brands business is clearly struggling with its strategy. An experienced, highly-regarded CEO came to the business with a plan based on brands and supply chains — hoping to sustain the business by invigorating well-known brands and driving hard on unique design. But the board — advised by an investment bank — appears to have decided instead to sell one of its strongest brands. The CEO left.

We don’t know the detail of PacBrands’ dilemma, but the outline is familiar enough. The big question is whether boards are up for fundamental change in the face of profound disruption, or whether they will prefer the path of least resistance.

It’s a very difficult question, but a fundamental one in this environment: do you really know where the value is in your business?

About the Author

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Michael Gill is Principal Advisor with ChangePond Technologies and Counsellor with global business advisory firm Dragoman.
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