Published April 8, 2015
Globalization 1.0 was born in the 80’s, matured in the 90’s and peaked in the early 2000’s. The era was marked by “made in Asia,” the growth of the BRIC economies, wealth residing in the West, the birth of the Internet and the maturation of local, regional and global supply chains.
More importantly the era gave birth to three MEGATRENDS, the rise of China first as a manufacturing hub and then as a market, the exponential growth of e-commerce and the development of the advanced globally integrated supply chains.
It was a great time to be a retailer as cheap goods from Asia, hyper-consumption in the US and the new markets opening = rapid expansion and big profits.
All of that is over now. Retail has experienced major disruptions over the last five years. These mega-trends have melded together to form a single new MEGATREND — Globalization 2.0 – and this has completely changed how retailers and brands must operate and how they must approach making, moving and selling consumer products.
Globalization 2.0 has largely shattered close to 100 years of retail and consumer product manufacturing, operations, sales, marketing and supply chain structures, closing down the old routes to growth and profit while opening new ones. Not everyone understands or has accepted that the rules of the road have changed.
If you are a retailer or consumer product brand Globalization 2.0 means you not only CAN but MUST be able to “make/buy it” anywhere, “move it” anywhere, and “sell it” anywhere.
Globalization 2.0 has found its purest expression in the birth of global disruption twins, Amazon and Alibaba. They look the same but have different personalities. Amazon and Alibaba are changing the face of global retail.
They are the poster children for a 2.0 world. Jeff Bezos and Jack Ma both run companies that are supply chain focused, that have cool tech interfaces and who rely on China as a factory and market. In their own ways they have blown up the old rules of retailing and branding as much as big box retailers and warehouse stores did a generation before them.
Both companies have used the 2.0 foundation to influence every aspect of global retail, branding and merchandising. Changing how all brands need to operate. In fact, their older brother, Wal-Mart finds itself suddenly having to learn some new tricks from their little brothers.
In this 2.0 environment US and European retailers and brands have four new roads they must follow in order to grow and be profitable.
ROAD I – Reframe Your Business for a 2.0 World
This means asking three big questions:
- Where should I make it?
- Where and how should I sell it?
- How should I deliver it?
Wealth has shifted to the East. Emerging markets have become linchpins of consumer culture. Advantages and disadvantages of low cost country manufacturing are shifting faster than they used to. Supply chain strategy, product agility and visibility have become critical to success.
Retailers and brands must ask themselves, how do we reset our “make it, sell it, move it” strategies in a 2.0 world?
While the answer will be different for every retailer and brand it will usually involve shifting to a model that accounts for:
- A mix of Asia, Latin America and the US for production and sourcing
- A mix of Asia, Latin America and the US as growth markets
- A new mix of hyper-localized supply chains integrated with an Omnichannel and e-commerce focus on regional and global networks
The US economy has largely recovered from the near depression that began in 2008. Nevertheless, long term trends are worrisome. The middle class is shrinking and less affluent, the retailers and brands serving that middle class are disappearing. The toll taken by a “race to the bottom” on pricing, influenced by e-commerce, means that, with the exception of luxury and mass market products, the old economic rules no longer apply and profit margins are narrow or non-existent. Europe is in bad shape and getting worse causing US and global companies to retreat. The first road to take for retail and brand growth is expansion into developing markets, in particular China. China is now home to the fastest growing and largest consumer class in the world as outlined in, “China’s Super Consumers.”
Omnichannel + Borderless E-Commerce + Alibaba
Retailers and brands must expand domestically and internationally in order to grow. In the case of domestic growth opening massive numbers of doors is no longer an option for most brand retailers or the brands themselves. Growth domestically and internationally lies in transitioning into Omnichannel sales. Omnichannel is the ability to present a brand, a product, an experience and to facilitate frictionless sales and returns across all channels.
Growth will also come from embracing the future that is borderless e-commerce. The recent news that Amazon has opened a store on Alibaba’s B2C e-commerce platform T-Mall marks the moment that borderless e-commerce went from a “want” to a “must” for retailers and brands. The two companies are creating a world where any consumer from any country can buy from any brand or retailer from any country.
It remains to be seen if Amazon and Alibaba will fully cooperate. Will they be mortal enemies or perhaps frenemies? No matter the future relationship, Amazon and Alibaba along with the companies who support them, compete with them and sell through them are shaping the borderless e-commerce world.
China is the largest e-commerce market in the world. Roughly 500 million Chinese shop online and that number is growing by the quarter. Alibaba is the largest and most profitable e-commerce company in the world having a touch on close to 75% of all e-commerce transactions in China. Alibaba generated $250 billion, Amazon generated $100 billion and eBay generated $76 billion in revenue, making Alibaba, Amazon and eBay the top three revenue generators in 2014.
Alibaba will soon become a major e-commerce platform, technology provider, retail facilitator and brand showcase on a global basis. Selling on Alibaba now will give companies entry and advantages in the US, India, Brazil, Russia and Africa eventually.
To fully understand Alibaba, what it has accomplished and where it is going you need to watch “The Alibaba Effect” our extremely popular video that covers all things Alibaba.
Profits Through Supply Chain
During Globalization 1.0 the supply chain was simply understood as making, moving and storing products: a necessary if little understood business function. Globalization 2.0 now mastering the six mega-processes of the supply chain (MAKE-BUY-MOVE-DISTRIBUTE-STORE-SELL) is essential. Understanding the supply chain often makes the difference for retailers and brands between profits or losses and between thriving or dying.
In a world where your customers are global, where your product sourcing is global and where Omnichannel sales and e-commerce excellence are a must have, your supply chain network is a central business strategy and profit driver.
Retailers and brands need to be able to sell anywhere and at anytime, deliver anywhere at anytime and be able to see and move product anywhere at anytime.
In this environment companies that are using legacy 1.0 world supply chain networks will not be able to keep up with competitors who have shifted to a 2.0 world supply chain network.
Retailers and brands are no longer operating in a world where the old rules, old structures, old relationships and old production and channel models work.
The companies that will survive in Globalization 2.0 will embrace a new framework for operations and strategy, expand internationally and shift to an Omnichannel/borderless e-commerce channel strategy.