The challenge arising from converging markets

Francisco Navarro. Vice Dean. IE Business School

30 September 2014

Globalization has led to a convergence of markets where firms have to compete on a cost basis. The challenge lies in developing societies where we can all work in a decent and fair environment.

The world of the 21st century is shaping up to become a major challenge for countries, companies and people. We are seeing a new revolution driven by changes in technologies, communication and energies.

For some time there was talk of countries becoming service economies and that manufacturing would pass to other countries with low cost structures. Recently in the US, the government, MIT (Massachusetts Institute of Technology), and other key research centers have begun to work on enabling the country to recoup lost manufacturing capacity by demonstrating that it is only possible to innovate by manufacturing, given that the country that manufactures is the one that gets to keep its innovations.   

The MIT Production in the Innovation Economy (PIE) Commission has established that in order for the US to continue to reap the benefits of a solid innovation economy, it has to maintain a national manufacturing base that is just as solid. 

Over the last decade, America’s production ecosystem has been “emptied out”, and it is  now necessary to rebuild it to fuel its innovation engine. MIT’s PIE also underscores the fact that America’s industrial sector forms part of a world economy and should interact and be competitive on a world scale. 

As we can see the competitiveness world is changing at a vertiginous pace and what was true right up until this year is beginning to change in the face of the disruptive transformation of both the market and non-market forces in which companies are operating in this second decade of the 21st century. Countries like China are no longer as cheap and competitive when it comes to manufacturing and production is shifting to countries like Mexico or Vietnam. 

That is why it is extremely important to realize that what globalization really implies is a convergence of markets and of companies, and that as long as there is a similar level of mature technologies this will mean that competition will be on a cost basis.

Never have nations, economies, companies, and people been subjected to such big changes happening as fast as they are in these early years of the 21st century. It is very difficult to maintain competitive advantages, and the concept of their sustainability is increasingly difficult to maintain. Very few firms manage to set up strong barriers to entry that protect them from their competitors. 

We are entering a world where the majority of companies produce products or services, but only a handful are capable of developing technologies, and only very few elite organizations are able to set market standards.  The creation and maintenance of value hinges on intangible assets. There is no doubt that close behind lies the biggest strength a company can have - its human resources. The knowledge and expertise that people possess is the firm’s greatest intangible asset, without which it is impossible to compete in the 21st century.

These are just some of the problems brewing at the beginning of the 21st century. Another important factor that must be taken into account are the Geopolitical and Geostrategic effects of countries.

What lies ahead for Europe when it has not managed to establish its position in a world that is increasing dominated by new empires (China, India, Russia, Brazil and of course the US, which consistently maintains a leading position)?

Just how powerful and far-reaching are social networks when it comes to handling large numbers of people?

What happened in Tahrir Square (Cairo 2011) and Maidan Square in (Kiev, February 2014) shows that if information has always been important and used as a power tool by parts of today’s elites, thanks to social networks it is now more democratized and available to all. This is affecting political direction in certain countries, which in turn could be a death blow to stability in these countries if politicians do not know how to handle this limitless force. 

We are also seeing big changes on the Internet with the appearance in 2009 of the IOT (Internet of Things), as described in publications by The Cisco Internet Business Solutions Group (IBSG).

Human beings evolve because we communicate. For example, once fire was discovered and shared, it was no longer necessary to rediscover it, it just had to be communicated. Data are the raw material that is processed to get information.  Individual data is not very useful in itself, but in large volumes data can reveal trends and patterns. This and other sources of information merges to form knowledge. In the simplest sense of the world, knowledge is information of which a person is aware. 

According to IBSG the Internet of Things (IoT) consists of networks of sensors connected to objects and communication devices to provide data that can be analyzed and used to initiate automated actions. Data also generate vital information for planning, management, politics and decisionmaking.  IoT is the next level of internet evolution, and will bring enormous advances in the Internet’s capacity to gather, analyze and distribute data that can be converted into information, knowledge, and ultimately wisdom. 

The above points are just a few examples of what we have seen over the first few years of this century, but it is enough to know one thing for sure. Either countries and business organizations rise decisively to all the challenges in the knowledge that the biggest problem facing the human race now is the need to give everyone  the option of working in a fair and decent environment, which means they have to live in countries with inclusive frameworks and institutions that protect their citizens and dedicate a large part of their wealth to developing technologies that permit them to compete and differentiate themselves in challenging converging markets.

 

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