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The Flevy Blog covers Business Strategies, Business Theories, & Business Stories.
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Editor's Note: Take a look at our featured best practice, Key Account Management (KAM): Large Global Accounts (24-slide PowerPoint presentation). Key accounts represent a major chunk of revenue and margin for most suppliers. Therefore, losing an important customer can have negative repercussions on organizational growth. The significance of key accounts is urging top B2B companies to revisit their Key Account Management (KAM) [read more]
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Early 2000s saw a change of mind regarding the Globalization of commerce by members of the political and economic arenas. This change of mind was instigated by myths perpetuated against commerce Globalization because of the dichotomy that appeared between existing Operating Models of companies and needs of the emerging markets.
These perceived trade-offs that were myths included ideas like choosing between centrally-controlled Operating Model and local responsiveness model.
Proponents of the central model had the view that intellectual power and Innovation capability had to be centralized, all products and services brought in line everywhere, foregoing catering to diverse needs and demands of customers in every emerging market.
The converse view was that in order to have locally applicable distribution systems, proactive Supply Chains, and reduced costs of emerging-market management, it was necessary to devolve the company and operation as a loose federation.
This trade-off incompatibility was addressed by the Hub Strategy where, in place of a single center, companies set up principal office “hubs” in as many of the 20 gateway countries of the world as required—a global corporate structure with no headquarters.
These 20 gateway countries represent 70% of the world population and generate 80% of the world income. The gateway countries include Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, the United Kingdom, and the United States from the developed economies. Rest of the 10 are emerging markets of Brazil, China, India, Indonesia, Mexico, Russia, South Africa, South Korea, Thailand, and Turkey.
This new Business Model covers both the recognized advantages of developed markets and the possibilities of emerging economies. A model that handles decentralization, centralization, existing practices, and possible disruptions not as trade-offs, but as complements.
It is, however, important to understand that for the model to have its full impact, 3 core pillars have to be integrated and pursued simultaneously. The 3 Pillars of Globalization are:
Only business leadership that has taught itself and its teams to be very careful about where to customize, how to develop capabilities, and what to arbitrage are the ones reaping benefits from this model.
Let us delve a little deeper into the details of the 3-pillar Business Model.
Variation in needs, wants, and cultures of consumers makes it impossible to customize centrally. Providing products and services in a locally competitive manner is therefore central to become a global enterprise.
Customization entails fulfilling the requirements and wants of varied consumers, in areas such as product or service features, affordability, and cultural alignment. Hub Strategy provides the leverage to fulfill this demand by enabling companies to customize only in the 20 gateway countries.
Unity entails worldwide alignment of the company with, a unified central purpose, a body of exclusive first-rate knowledge, and capabilities that differentiate the company from all others.
Core purpose must be understood in the same manner by all functions of the company, in every geographical location.
Arbitrage is a methodical initiative that consists of increasing effectiveness and Cost Reduction by discovering materials, manufacturing methods, logistics practices, funds sourcing, or infrastructure that are less expensive.
Interested in learning more about the 3 Pillars of Globalization and its Case examples? You can download an editable PowerPoint on 3 Pillars of Globalization here on the Flevy documents marketplace.
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