Thought Leadership

Embracing the Local Customer and Market: “De-coupling” is the new reality of global business

In the ever-evolving landscape of 21st century international business, the era of traditional globalization, as we once knew it, is over! Provocative you say?  Yes, I understand the process of increasing interconnectedness and interdependence among countries, economies, cultures, and societies has indeed transformed the world. It’s raised the world’s overall living standard and brought millions of its citizens out of poverty[1]. This is a beautiful thing!

What’s called the 2nd globalization era beginning in the 1940’s enabled many companies for the first time to go beyond their land borders and reach an entirely new customer base for their products and services. This trend only accelerated at the start of the 2000’s by the creation of the internet which opened access to a rapidly growing worldwide consumer class while bolstering the bottom line of corporations who best leveraged this new distribution channel.

However, there are new and emerging challenges to the current state of play. We now stand at the threshold of a new age, an age where all companies are being tasked with reorienting their strategies for addressing customers, partners and governments as well as how supply chains are organized within the major global markets.

The days of resting on the laurels of past practices and assuming the unfettered flow of goods and technology are dimming. In 2023 the landscape has evolved, and formidable new challenges have emerged which are creating what can only be described as a de-coupling of global commerce as we have been used to. 

In response, companies are recalibrating their strategic approaches to international markets, driven by recent seismic shifts, such as the global pandemic, the rapid evolution of technology, and the heightened geopolitical volatility (think US-China, war in Ukraine etc..) that sets today’s stage apart from just five years ago[1].

These transformative dynamics are compelling companies to embark on a two-fold journey. On one front, they are initiating a de-risking process of proactively bringing strategic operations closer to their home regions, and in some cases, even within the confines of their own borders. This is visible today in the United States being driven by immense Government funded “re-shoring” programs such as the CHIPS Act[2] and Inflation Reduction Act which looks to secure key industrial resources like computer chips and EV batteries firmly under US control. 

In the Semiconductor sector, Intel is investing $45.3 billion in new manufacturing investments across US states Arizona, New Mexico and Ohio to bolster US chip-making capacity and R&D leadership. As semiconductors become the new “oil” of the Data Economy[1], both the US government and domestic companies are investing in strategic projects so they no longer remain dependent on overseas companies for their supply of critical components and materials while striving to enable development of a domestic base of supply.

Simultaneously, companies are adopting a somewhat counter yet complementary strategy of establishing a more direct and on-the-ground presence in foreign markets that are strategically important, now and in the future. This move allows them to be in close proximity to their customers while having access to cutting-edge technologies and governmental authorities that will shape the global economy. 

Within the United States it’s the establishment by overseas companies of independent subsidiaries with regional management, bypassing low value intermediaries. This ensures foreign companies don’t miss out on large growth opportunities due to protectionist policies and acts as a way to mitigate nationalist tendencies by attempting to be accepted as part of the local community. 

The example of Tik Tok (parent company ByteDance Ltd is headquartered in China) is well known and thus far their US business has escaped from being overly scrutinized. It’s also clear TSMC (Taiwan Semiconductor Manufacturing Corp.), the leading semiconductor foundry, understands potential risks from the current geopolitical tensions between the US and China. This was no doubt the main driver of their decision in 2022 to plan building of multi-billion-dollar, leading edge semiconductor fabrication facilities or fabs in the US.       

A lesser-known example is United Imaging, a top Chinese medical imaging company. United founded its US subsidiary in 2013 and continues to invest in its US footprint, including manufacturing and R&D capabilities, from funds raised in a $500M Series A financing round. United Imaging was early to understand the importance of a regional strategy for the US market and in recent years has competed quite successfully with other leading medical equipment companies at US hospitals. In recognizing the impact on their business from challenging US-China relations as being highly uncertain, United is establishing itself as a “local” player and is committing resources to its US strategy and image with its customers.            

We’re only at the beginning of a new era to be defined as a de-coupling from the trade norms of the past decades. Although complete de-globalization is highly unlikely, all companies valuing their market positions and seeking sustainable growth on the global playing field should be paying close attention.

The Unravelling of Traditional Globalization

For decades, traditional globalization was seen as the ultimate goal for businesses. It promised a world of borderless markets, where economies of scale and standardized products ruled. Global companies focused on mass production, global supply chains, and economies of scale to cater to an imagined universal customer.

However, this vision of a uniform global market is now giving way to a more nuanced reality. Although globalization elements remain in place and will be for the foreseeable future[1] (volume of goods traded increased by 10% over pre-pandemic levels in 2022), several key factors have contributed to the unravelling of traditional globalization. Moreover, impacts will be felt over the next decades at what could be a more rapid pace than macro changes in trade flows have typically occurred:

Diverse Customer Needs: Customers in North America, Asia, and Europe have diverse preferences, cultures, and regulations. A one-size-fits-all approach has never sufficed, and this is only becoming more apparent as the consumer class increases globally. 

Resurgence of Protectionism: One of the most noticeable signs is the resurgence of protectionist policies in various countries including US and China. Trade wars, tariffs, and the desire for self-sufficiency are causing nations to turn inward, placing their own interests above global cooperation.

Supply Chain Vulnerabilities: The COVID-19 pandemic exposed the fragility of global supply chains. Companies are now seeking localized and diversified sourcing options to ensure resilience, future prosperity.

Technological Advances: Technological innovation has empowered smaller, local players to compete effectively on both a local and global scale, disrupting traditional market dynamics. The pace of technology will only increase at breakneck speed, underscoring the need for companies to have full access to advancements in order to maintain competitiveness. 

Rise of E-commerce: The growth of e-commerce has made it easier for businesses to reach customers directly, bypassing intermediaries and forging personal connections. Asset-light platforms will become more the norm for sales distribution which further drives the interest in direct customer relationships.

There are more recent factors relating to the proliferation of Artificial Intelligence (AI) systems and generative AI “agents” that will presumably take jobs away from humans as well as eliminate many others in the coming years. There are several opinions how this will ultimately play out and the changes to be brought about by AI are still difficult to predict. However, we do know AI will have an outsize effect on the global economy and how companies ultimately organize their operations while addressing core markets and customers.  

The Dawn of a (more) Regional-Centric “Go Local” Approach

In response to this shifting environment, global companies are charting a course that combines traditional approaches with the new realities. They are embracing a regional-centric approach[1] that involves establishing local “footprints” in major regions of commerce (eg. North America, Asia and Europe) to protect against risk of losing access to key materials and technologies, to leverage new (sales) growth opportunities while intimately understanding and engaging with customers in these distinct markets. 

Here’s why this shift is essential:

Direct Customer Engagement: Setting up local operations allows companies to interact directly with customers, partners and regulators helping gather insights and building relationships. This has always been beneficial and the greater commitment by foreign companies through a direct approach only powers this advantage today.

Localization: Businesses are adapting to local tastes, preferences, and regulations, tailoring their products and services to meet the specific demands of customers in the region. 

Economic Clusters: Regional business ecosystems are forming, where companies collaborate closely, sharing resources, knowledge, and expertise to gain a competitive edge in a customer-centric environment.

Customization: The age of mass production is giving way to customized and niche market offerings, as businesses find success in catering to the unique needs of customers worldwide. The growth of additive manufacturing supported by software tools will bring the economics of customized and tailored products to be in line with more traditional manufacturing, which only increases options of where products can be produced.    

Market Sensitivity: Connected to the above, understanding local nuances and preferences enables tailored offerings that resonate with customers in each region.

Resilient Supply Chains: Local presence provides agility and resilience in the face of disruptions, ensuring a continuous supply of products and services.

Cultural Relevance: Companies can adapt their messaging, branding, and strategies to align with the cultural contexts of their target regions.

How companies will succeed in this new environment

In order to be well aligned with today’s circumstances and address de-coupling of our traditional commerce system that drives the need for a more regional centric approach, today’s companies are deploying the following tactics and tools to carry out their strategies:  

Market Entry Strategy:

  • Market Research: Conduct thorough market research to understand the target market landscape, including consumer preferences, competition, and regulatory requirements.
  • Market Segmentation: Identify target customer segments and regions within markets where the company’s products or services have the highest/most potential.
  • Entry Mode: Recommend the most suitable entry mode, whether it’s through acquisitions, partnerships, joint ventures, or establishing a new subsidiary.
  • Create a Go-to Market Plan and forming of an industry advisory board comprised of industry-credible advisors to foster a more effective and efficient pathway to connect to the desired industry stakeholders.

Business Development:

  • Strategic Partnerships: Identify and facilitate strategic partnerships with local businesses, distributors, or suppliers to enhance market penetration and efficiency.
  • Sales and Distribution: How companies establish effective sales and distribution networks, including setting up of local sales and business development teams or leveraging e-commerce platforms.
  • Client Acquisition / Marketing strategy: Developing a client acquisition strategy, including lead generation, sales funnels, and customer relationship management, to grow their customer base.

Innovation:

  • Product Adaptation: Assist in adapting products or services to meet the specific needs and preferences of target consumers, considering regional variations.
  • Technology Integration: Help integrate cutting-edge technologies, such as IoT, AI, or automation, into their operations to increase efficiency and competitiveness.
  • R&D Collaboration: Facilitate collaborations with local research institutions, universities, startups, or innovation hubs to foster technological advancements.

Organizational Leadership:

  • Leadership Development: Provide leadership coaching and training programs to equip company’s leadership team with the skills and mindset required to lead in the target market.
  • Cultural Sensitivity: Address cultural differences and promote a culture of inclusivity and diversity within the organization to facilitate effective cross-cultural collaboration.
  • Change Management: Guide company through organizational changes necessary for market entry, ensuring a smooth transition and alignment with strategic goals.

Regulatory Compliance:

  • Regulatory Guidance: Navigate market regulations, standards, and certifications to ensure compliance in areas such as safety, environmental regulations, and industry-specific requirements.
  • Quality Assurance: Implement quality control measures to meet market standards and enhance product or service quality.

Risk Management:

  • Risk Assessment: Identify and assess potential risks, including legal, financial, and operational, associated with entering the market. As example, be aware of local tax laws which can be quite different between regions/countries and may offer opportunities for R&D tax subsidies/credits. 
  • Risk Mitigation: Develop risk mitigation strategies and contingency plans to minimize potential disruptions to business operations.

Networking and Government Relations:

  • Networking: Leverage industry contacts and networks to connect with relevant stakeholders, including government agencies, industry associations, and potential partners.
  • Government Relations: Assist with understanding and navigating government policies, incentives, and support programs that can benefit company’s operations.

Performance Monitoring:

  • KPIs and Metrics: Define key performance indicators (KPIs) and metrics to track the success and effectiveness of the company’s operations.
  • Continuous Improvement: Encourage a culture of continuous improvement by analyzing data and feedback to make informed adjustments to strategies and operations.

Sustainability and Corporate Social Responsibility (CSR):

  • Sustainability Strategies: Develop and implement sustainability initiatives and CSR programs, aligning with market expectations for ethical and environmentally responsible business practices.

In conclusion, those companies utilizing the above tools to support a strategy that combines operational strength at home with the proper organizational approach abroad to navigate strategic relationships with their key customers, technology partners and government regulators will have a size-able competitive advantage in the new global commerce playing field of the 2020’s.  

Global Kinetics is a partner to both start-ups and established corporations alike to support and align their regional centric business strategies with the overall Vision and Mission for the enterprise.  

By offering comprehensive advisory services that encompasses market research, business development, innovation, organizational leadership, risk assessment and compliance, we guide international industrial companies to successfully establish their presence and thrive in the fast changing, highly competitive market regions of the 21stcentury.

For more information about how we can become a partner in supporting your growth ambitions, please feel free to contact Jeremy Simon: jeremy.simon@globalkinetics.com

[1] T.Fairness (2023), “Trade slump re-shuffles cards in favor of US”, Wall Street Journal

[1] S.Altman, C. Bastian (2023), “The State of Globalization in 2023”, Harvard Business Review

[1]A.Fitch, G.IP (2023), “Chips are the new oil and America is spending Billions to safeguard it supply, Wall Street Journal

[1]C.McCaffrey, O.Jones (2022), “How to shift strategy in a Geo-Strategie era in 2023”, Ernst & Young   

[2] USA Facts (2022), “What’s in the recently passed CHIPS Act”, USA Facts website

[1] J.Norberg (2018), “Globalization’s Greatest Triumph: The Death of Extreme Poverty”, Cato Institute