How we do business internationally has been evolving rapidly for decades. As economies have globalised and technology has improved, businesses all over the world have become better able to access each other’s resources and labour. This led, most notably, to the rapid outsourcing of the past several decades. Even though this is certainly a part of globalisation, businesses remained relatively centralised around one or a few locations.
Truly massive businesses might build several major nerve centers in multiple countries, but now we’re finally beginning to see the emergence of a new, much less centralised system on a global scale.
Decentralised production
In the past, businesses gathered resources from abroad, and produced goods in a central location near the target market. This changed in the late 20th century when outsourcing took hold, and it’s changing again now. Paying to ship resources to low-cost production centres for processing, and then shipping goods around the world to their target market is inherently inefficient. Less money may be spent, but more labour is required to get the finished product to consumers because of all of the extra logistical maneuvers and costs.
The global financial crisis led to stagnating wages in wealthier countries, even as traditional producer countries continued to grow rapidly. This equalizing effect negated some of the advantage of producing abroad, driving production toward their target markets to keep costs down. However, that doesn’t necessarily mean that jobs are returning back to where they came from, which would be the big 20th century manufacturing powers of the West. That’s because, most importantly…
Markets are decentralising
Just a few decades ago, consumer goods largely flowed toward the West. This can be looked at as a sort of colonial hangover, which many countries are only now recovering from. Middle classes emerging (or re-emerging) as a result of rapid economic growth in Asia, South America, and Africa are creating hundreds of millions of new consumers. These emerging markets represent enormous opportunities for businesses, who are now rushing to accommodate their needs.
Many of these markets are located in countries that already produced goods for Western businesses. Those businesses can sell their goods to those local markets, even though personal incomes still don’t rival those in wealthier countries, because they can offer more affordable prices when they don’t have to cover the relatively enormous shipping and retail costs that they would have to deal with selling back home.
Decentralised labour
Labour decentralisation is not a new thing, but until recently it has mainly targeted relatively low-skill manufacturing oriented jobs in the form of mass outsourcing. This was primarily just a game for big businesses in the past, but a new twist is changing the game for all businesses. Today, any business can easily hire workers to fill a role remotely.
The combination of cheap, stable, and easy global Internet access, and increasingly simple and affordable international payment and exchange options, is what has finally made this possible. Businesses don’t need to ship resources back and forth to and from their workforce, because this new global labour pool provides intellectual services that can be transmitted electronically, unlike traditional hard goods.
Workers from all over the world can easily collaborate in real time, and that means that businesses are no longer reliant on the skills of the labour pool that’s locally available to them. If a small business operating in a small city in Australia needs a C++ developer and can’t find one locally, they can easily bring on someone in Adelaide, New Delhi, Hong Kong, or San Francisco.
As a less direct result, businesses also don’t experience the same pressure to move their headquarters to large and expensive urban centres as they might have in the past.
It’s not just for big business
SMEs in particular are taking notice of and capitalising on these developments. It’s often cheaper and easier to bring on and manage a decentralised group of workers all over the globe than it is to find and acquire great talent from a much more limited labour pool. Furthermore, decentralised businesses don’t need the same kind of massive infrastructure and resources that traditional big businesses do to set up a global presence, so they are better able to compete with more established rivals. Since they don’t need to invest as heavily they can choose from more favourable financing options, and can apply any remaining finance facilities flexibly as needed.
Smaller businesses also don’t need to go out of their way to restructure their existing business models, because they can naturally grow into this more decentralised way of doing business. They can open new locations in their target markets and develop logistical models that minimise their production and shipping costs for those new markets, while also adapting those products to local preferences.
Globalisation, the primary driver behind decentralisation, ultimately makes resources more universally available across borders and distances. As this process continues, we can expect industries to become even less centralised and generally more efficient and competitive.
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