The benefits and challenges of globalization

- The German company Aldi Sud, and the British company Marks and Spencer are two of Europe's well-known large retailers. While both have been extremely successful in their home markets, their global trajectories have been dramatically different. With 1,600 stores in the US alone, Aldi has become the largest foreign retailer in the country and plans to double its US stores by 2020. In contrast, Marks and Spencer was never able to master the global game. It pulled out of Canada in 2000, the US in 2006 and the remaining 10 countries in 2016. Now it's back to operating just in the UK. The different parts of Aldi and Marks and Spencer illustrate a fundamental truth about globalization. It is a double-edged sword. There are benefits but there also are costs and challenges. Who succeeds and who fails and in anticipation, who moves ahead and who stays back depends on whether the benefits from global expansion might outweigh the costs. Let's talk about some possible benefits from globalization. First is faster growth. The US makes up only about 23% of the world's GDP, about the same for Europe, so the most large companies, global expansion provides an opportunity to grow faster than by sticking only to their corner of the world. Second, economies of scale and a host of factors including research and development, sourcing, manufacturing, IT systems and so on. This can reduce a company's cost structure and boost its competitive advantage across the globe. Next is by leveraging the specific advantages of different countries. For instance, most iPhones are assembled in China because of lower labor costs and Google has one of its largest R and D centers in India due to the availability of a large pool of well-trained computer scientists. And last is foster innovation. Because markets are rarely alike, the company's forced to do at least some things differently in each market. Now, let's looks at the costs and challenges associated with globalization. To start, there's a greater risk of unforced errors because foreign countries differ from the home market and from each other in terms of languages, cultures, per capita incomes, and political systems. Corporate leaders often don't know them as well as they know their own country. This semi-blindness can lead to many wrong decisions. Second, running a global company can be complex for a myriad of reasons, the biggest factors being geographic distance separating various operations as well as language and culture differences. This complexity can slow down decision making. If a local market is moving faster, then how rapidly the company can make decisions, the global firm will find itself playing catch up vis a vis local competitors. Third, there are no quick payoffs. Exceptions aside, it takes time and money to set up operations, establish a brand's image and battle with the competition. This time lag between upfront costs and longer-term payoffs becomes a serious challenge if the company's investors become impatient. Remember, leaders of any global company must always ask how can we maximize the potential rewards while minimizing the potential costs and risks associated with being global in order to increase the odds of success?