The Opportunities for Communities in globalization

If you are in the manufacturing business, there has been catastrophic impact on your business from globalization. I know of no manufacturing sector of the economy, or perhaps any sector, that has survived the meta-nationalization of markets.

If we stand back and look at this as simply another round of rapid change caused by the explosion of the information age, then a reasonable person would think that when one door closes another one opens...And a good business person should damn well be looking for the open door. Well here in America, I think we have forgotten how to look for the open door. So we sit around and whine a lot about how Congress has given away manufacturing and are content to see the lowest cost producer get the marketshare and Wal-Mart get the distribution rights. This type of activity is not going to get us much of anywhere.

So let's stretch this analogy a bit. If we remember our natural history, it is surmised that around the peak time of the dinosaurs, some big comet hit the earth and created a catastrophic change. The big organisms at the top of the food chain, i.e., the dinosaurs, being cold blooded, could not adapt to the colder temperatures and rapidly changing environment. They, from all accounts, died out. During this time however, small furry mammals found niches where they could survive and even thrive. They learned to get away from the cold, find food and water, and even went to sleep off the coldest times of the year. They adapted and grew until man evolved to sit atop the food chain.

If we apply this analogy to the current business environment, there might be something to learn. Let's assume that globalization is similar to the comet hitting the earth. Certainly for the manufacturing workers in the country, a similar percentage of manufacturing companies have died in the change. There was an immediate scurrying about to find jobs in the "service sector" which was to be the savior niche, but lo and behold, those companies moved globally as well to chase the lowest possible wages. The jobs that are left are working for the "big box" distribution companies, food service, health care or infrastructure maintenance.

Underneath the radar however, is the beginning of a micro economy, even in the manufacturing sector, for specialized goods and services with companies that are producing unique things. Sometimes these unique things get "found" and they become global themselves and get sucked into the black hole of commodity-ism (their value declines as sales volumes increase with a loss of uniqueness). Other times, the value remains constant because the market niches are limited and customers like the quality or regional nature of the product or service.

Here are a couple of analogies. Fresh fish at the coast. There are always a few fish mongers at the coast who sell locally caught fish. There is no opportunity for commodity-ism because the source is limited and the further the fish goes from the coast, the less flavor, etc, it has. When one goes to the coast, one buys the fish there, pays more, and even gets some to take home to cook the next day. Wal Mart is not going to get that business. It is safe and people are not looking for the commodity experience here.

Another analogy comes from the book "Creative Destruction" by Cowen. Special music is created in Jamaica. Because it is an island, before global communications, it never got off the rock. If you were to hear it, you went to Jamaica. Because of globalization, this music has expanded and grown beyond anyone's imagination. It was a niche that was discovered, and because the value of music increase with the number of people that experience it, the niche become global.

These are two very different value propositions. One, the fish, is driven by geographic and logistic concerns based on scarcity. The music is based on a niche that can be expanded because the value proposition is based on abundance.

So rather than whining about globalization, the American businessman needs to understand the value proposition of his perceived enterprise. Is it based on scarcity or abundance? Is it of more value locally rather than globally. If it has a huge local following, why...And can it be expanded or will expansion "devalue" the product or service. Instead of globalization increasing the sameness of civilization perhaps it can be the foundation of a new creation of unique goods and services that in turn promote unique communities.

I am sure there will be more on this later..

Travels in Mexico

Spent last week in Monterey Mexico at a conference about integrating sustainable development into university operations and curricula. It was a good experience with a good group of people.

It seems clear that the Mexican and European universities see the need to act on getting SD into the mainstream to improve their prospects for a better life. While US universities are working, it is not as broadbased an initiative, because there are different driving factors for us.

The other parts of the world see SD as a way to create a better life, but the realities for us in the US, is that SD is viewed as an additional encumbrance or a cost center to be added to an already burdensome group of regulations constraints. What most people in the US are beginning to feel in their gut, is that globalization and the increase in the prospects for the poorer regions of the world are going to impact negatively their future earnings. The data backs this up. The average family income in China in 2002 was $750 USD, in India $450 USD, in Germany $27,000 USD and in the USA, $43,000 USD. Guess what? For development to occur in these less developed regions, we have to pay for it. Within a closed system, the books must balance. If theirs goes up, ours must go down.

This gives us in the USA an interesting opportunity to straighten out some of our societal problems, such as looking at people as something other than consumers, working again within local economies and embracing the uniqueness of each community and building value in that, trying to become locally more independent rather than dependent, making the best use of our natural capital. The list can go on and on.

So we have to give up some income to give to make the world more peaceful and less hungry, but we will have to change our consumerism. If we were to do this, and get something done on sustainable energy, mass transit, and some universal health care, our quality of life would go up, even if we bought less stuff.

The trick is going to be to educate the university student to this consequence. Like it or not, this generation will not have the same opportunities of my generation because this generation will not have the natural capital to freely exploit. This is not to say that they cannot be wildly successful pockets within the local and international markets, but they it will take a new kind of inventiveness and this is what we must teach our students.

One additional note...Sitting on the student union at Monterey TEC and observing... The student's listen to American music, dress like American Students and are studying highly technical and diverse topics with great instructors...At this one university there are 150,000 students. It is not to be underestimated. These folks may out compete us because they are moving up not down.

Small Business in America

I have just read an interesting book as part of my reading for my PhD. "A History of Small Business in America", by Mansel G. Blackford has provided me the perspective to gauge the rate and type of change currently experience by Small to Medium Sized Enterprises(SME). Everyone tends to think that their experiences and situations are unique in history. What Blackford has provided is proof that what is old is new again.

It is very clear from his research that SMEs are successful if they have a profitable niche to work in and can stay specialized enough to be invisible to large companies, and I would also have to add as a result of my research...Invisible to regulators.

As globalization continues with the formation of mega-enterprises, I think we will also see a resurgence in formation of SMEs due to outsourcing of services that the megas do not want to do and markets where they cannot compete with smaller, more nimble and specialized SME. This makes finding the reasons for an SME to act in a socially responsible manner, imperative.

Think about it in this way. Say the owner of a small manufacturing company is approach by a meta-national firm to provide cleaning chemicals for its stores. The chemicals will be used by another SME, who provides the cleaning contract services to the meta-national. The meta-national sets the price they will pay for the cleaning chemicals and says that they want them to be safe. The service company uses the chemicals and finds a problem with the toxicity of a chemical. This is reported to the regulators, who cite the meta-national...but guess what...the meta-national is not involved in the manufacturing, selling, or purchasing of the chemicals...that is an arrangement between the two SMEs.

The importance of this scenario is that the use of SME, which is like a small mouse in the food chain invisible to most predators(regulations), to do the "dirty work" of the meta-nationals does not enhance progress towards social responsibility or sustainability. Thus creation of SMEs to do these jobs is similar to "sweat shop ethics". It therefore becomes important to educate the entrepreneurs that run SMEs not to be used in such a fashion...to allow meta-nationals to be as bad as the law allows through sub-contracts of services where the only competitive advantage the SME has is regulatory invisibility.

In Blackford's book, he does not mention that this has been an historical benefit of being small. This may be a new competitive advantage that is ancillary to meta-national enterprises and globalization. For this reason, the ethics training of business people to help insure behavior that supports the rights of future generations to exist is crucial. How do we get small business owners to buy into such ethical behavior. The hook needs to come from success. If the successful SME behave ethically and this is a benefit rather than a liability, then the behavior will spread. If less-ethical behavior promotes success, then this type of behavior will be reinforced.

Historically, Blackford is able to show that SMEs will respond to positive stimulus and change to enhance economic performance...and it can happen quite rapidly. He is also clear on what happens if SMEs do not change to increase profits and efficiency. They go the way of buggywhip makers...and become footnotes in history books.