Shift Happens!

by Dave Biggs

Is the structure of the Global Economy shifting again? Looks like the answer is "yes." Fundamental changes in Asia's economic structure, called the Asian flu by some, and radically new business paradigms are changing business around the world.

That Japan does everything right and the USA doesn't do anything right is old news. Japanese bank financing, leveraged on increases in land values and other assets, was used to expand Japan's economy. With their money machine broken, Japan is in their worst recession in recent memory, and the flu had spread to other countries. For countries that already had pneumonia, like Russia, the Asian flu has made a difficult situation nearly terminal.

During the middle of the 1980's, the industrial giant, North America, stirred to life. The downsizing, rightsizing, and re-engineering was a gut-wrenching experience, but it was effective. Only the smartest or luckiest companies enjoyed an increase in business that allowed them to reorganize without massive layoffs.

During the same period, quality became the ante for playing the business game. The quality of North American goods rose up to standards established by the Japanese, leaving price as the competitive difference. A full shift from "cost driving price" to "price driving cost" occurred. Business volumes were good, but the margins were thinner, and reduction of costs was foremost in people's minds. For the first time in memorable history, a full employment economy was not causing wage inflation.

During that same time period, seeds of radically new business methods were planted. New information tools, primarily software and the internet, allowed small, low capital startups to challenge existing giants. Names like Dell Computer and Amazon.com became household words. While Amazon.com has yet to make a profit, an astounding marketshare growth has made an impression on the established booksellers like Barnes and Noble.

It's not just a case of performing the old procedures more efficiently with a computer. Entirely new methods threaten existing practices. Sale of music CD's on the internet is being enhanced by the practice of letting you hear a small snippet of a CD before you buy it. Consider the possibility of buying just your favorite songs and creating your own, customized CD.

The CD example is just the tip of the iceberg. Consider having your car motor diagnosed across the internet any time, day or night, while you're driving down the freeway. Videos, where you can see the previews of coming attractions before you order, being delivered within minutes. Running a business inventory free as you use a new service from someone like Federal Express to drop ship products. You take the order and email the Federal Express label to your supplier, who places the label on their goods and ships the same day. The consumer, unless they read the bar code, can't tell that it didn't ship from your facility because your company's name and address is printed as the sender. Self-service internet sites already exist where customers with even high technology products can get service 24 hours a day. The new minded are accomplishing what has been impossible to do with the older business practices.

It does look like another shift is happening. It's clear that Japan's money machine is broken, or at least badly damaged. Asian currencies are under assault and are devaluing daily. The business of exporting to Asia has already significantly slowed, and some countries are considering protectionist trade policies. With devalued currencies, Asian labor is cheap again. Asia will want to, need to, increase their exports to dig out of the financial hole. Adding insult to injury, Eastern Europe, Central and South America's underemployed labor pool is envious of North America's standard of living and wants a chance to play the game. Barring unwise government intervention, the net result will be more choices of supply for consumers.

Working smarter will be a necessity, not "catch phrase of the moment." Working harder will be necessary, but many people are already working hard. The magnitude of change required will call for implementation from the ground up as new products are developed. This time, the business process is going to be as important as the product, maybe more important. Planning and developing new products and business processes at the same time and quickly getting to market by avoiding the "committee effect" will be a necessity.

Those with a plan and the will to implement new practices can still prosper. Those who see the change as opportunity have a chance to prosper. Those who see the change as a threat and decide to resist are standing on the railroad tracks ... and the train is in sight!