Harvard Business School defines globalization as the “flow of goods, services, capital, people, and ideas across international boundaries.” Though transnational trade has existed since the age of the Silk Road and sail-powered merchant ships, the current era, dubbed the Tech Age, has helped speed up business processes and streamline supply chains like never before.
Globalization brings new benefits and challenges to industrial operations. Companies can source cheaper materials and establish manufacturing or processing operations in countries with cheaper labor costs. They can also rely on technology to access talent, form partnerships, access more data for analysis, and take advantage of innovations outside their host country’s borders.
These cost-saving and quality improvement factors allow producers to bring consumers better and cheaper goods and services. On the other hand, companies experience increased pressure due to borderless competition. They must find ways to cut costs, reduce workforces, and deal with geopolitical factors and complex tax arrangements.
Here is a closer look at the impacts tech-enabled globalization has on industrial operations.
According to McKinsey and Company, a supply chain is the “interconnected journey that raw materials, components, and goods take before their assembly and sale to customers.” Globalization has made supply chains increasingly complex. On one hand, companies have increased access to low-priced materials. On the other, complex supply chains, increased traffic, fuel prices, and other factors can disrupt normal operations. These challenges are inevitable, with disruptions of one or more taking place every 3.7 years on average.
Globalization offers opportunities to create agile and resilient supply chains. For instance, companies can diversify their sources and quickly move to alternatives if their primary supplier is unable to fill orders. Meanwhile, the wealth of worldwide data available on global supply chains, commodities trends, and other variables allows companies to make forecasts, predict disruptions, and plan for the future.
Increased international activity exposes companies to regulations in different countries. Other countries have different labor rules and licensing requirements for businesses. Companies may need to meet these requirements if conducting operations within the country, even if they do not have headquarters or offices there.
Manufacturers may have to meet specific requirements, such as obtaining an export license before shipping products and paying tariffs. These obstacles can cause delays and problems and make calculating operational costs difficult.
Multinational companies have the resources to establish operations in foreign countries and the recognition to recruit top overseas talent. Smaller firms may not have the resources, especially when operating inside countries with complex regulatory environments.
Smaller firms can rely on outsourcing and third-party services rather than trying to establish operations directly within another country. This strategy allows them to get the benefits of lower labor prices without having to deal with the complexities of taxes and foreign labor laws.
As more business operations become digitized, companies can gain access to vast amounts of data on every subject affecting their operation. These insights allow a global picture of an industry, trends, and opportunities. As technology improves, data becomes even easier to find, store, and transmit.
Companies can then use this information to make informed strategic decisions and make accurate forecasts.
International businesses can share information to improve operations. However, doing so requires following best practices for data collection, management, and analysis. Companies can establish key performance indicators (KPIs) and create models that all analysts can use regardless of location.
The biggest challenge for companies is securing data. In Q1 of 2023, hackers exposed 6.41 million data records. Companies may be liable if the personal information in their possession gets stolen. A robust cybersecurity system is essential for any company using data analysis to inform operations.
With input from diverse sources, companies can test and select the processes and policies that work the best and apply them in operations all around the globe. This strategy may require significant changes for partners lagging in efficiency or performance.
Best practices can cover any aspect of company operations, including workflow management, budgeting, automation, and workplace safety.
Globalization can bring new expenses. For instance, companies need to invest in new technology, such as automation software or robotics. Those that do not purchase these upgrades may fall behind their competitors.
Firms also need specialists to operate these new systems. They either invest in training for current employees or seek new workers on the job market. At the same time, they may also have to lower the prices of products or services to compete with other firms using globalized workforces to diminish costs.
Companies can take a long-term view of these investments. Eventually, new technology will lower operating expenses, saving money and increasing profit margins.
The shared data and resulting analysis, regulatory documents, performance statistics, and KPIs create a wealth of information, and organizing these insights can prove challenging.
First, the company needs a reliable, globally accessible platform to record information. Second, it needs to be organized to allow anyone to search for and retrieve relevant data when needed. Third, the databases need to balance accessibility with security.
Cloud-based databases and software provide access to employees and partners, regardless of their location. With proper administration and login credentials, these systems are secure. These systems are in the cloud instead of onsite servers, so downtime and hardware malfunctions are not a problem.
For example, a multinational construction project could rely on cloud-based estimating software. Onsite estimators can use takeoff software to provide accurate measurements and quantity estimates. Designers, drafting specialists, accountants, and procurement professionals can access this information online and use it to perform their tasks, even if they are in another state or country.
Globalization allows for cross-border communication and collaboration. Professionals can communicate and use project management platforms and cloud-based tools to work on innovations and discuss and test ideas without traveling to one location.
With insights from global communities, companies can adopt innovations. For instance, they can move from manual to digital processes, improving accuracy and efficiency, reducing human error, and providing a base for further innovations, such as the use of AI and algorithms for automation.
Globalization opens the door to new markets. Worldwide production and supply chain networks and borderless marketing via the internet can lead to help companies establish services or reach consumers in other places.
The same dynamic can bring new opportunities to existing markets, as well. Companies can take advantage of global sources and workforces to lower their prices or bring new services or products to consumers.
Globalization expands the talent pool for companies. Remote work opportunities and companies with multinational reach can hire the most qualified individuals regardless of where they live. Teams may not be in the same location, but they can collaborate using cloud-based tools and digital communication systems.
Companies may be more segmented, with manufacturing operations in one place, and administrative and marketing teams in another. However, these different components can be centralized by a well-organized platform and management software.
Globalization brings advantages in terms of data, collaboration, and innovation. However, a company’s competitors have access to the same advantages. As firms evolve and adopt the benefits of globalization, their competitors are doing the same. Competition is about finding and taking advantage of opportunities.
In this environment, accuracy and attention to detail are important. For example, in construction, cost estimators can rely on AI-powered software to ensure accuracy. Contactors can use a similar tool specialized for their specific needs. Hyper-specialized tools can help companies capture the nuanced details of their job. For instance, subcontractors working with steel estimates can use software tailored to their specialty to get details competitors might not have access to.
With the right tools and strategies, companies take manage processes while taking advantage of innovations and talent globalization provides and avoiding potential pitfalls of worldwide operations.