Run To The Revenue - Part I
May 27, 2008
It is difficult to hide from the news these days regarding the threats posed by Asia’s growing economies, specifically China, India and Vietnam (the CIV factor). The reactions of many Americans lie in a range of emotions from fear to panic, and even down right loathing. Regardless of where you are on this spectrum, it will not change the course of economic development. Let’s take a look at some facts and options.
Top 25 Global Companies
The following chart shows the shift in the top 25 global companies with respect to market value in billions of dollars from 1998 to 2007.
The market value of these top 25 global companies went from $4.3 trillion to $5.9 trillion. The US based companies reduced from 21 to 10. The non-US based companies increased from 4 to 15. At the same time, the US based companies decreased in value from $3.6 trillion to $2.4 trillion, where the non-US based companies increased from $0.63 trillion to $3.5 trillion. In addition, the revenue generated by the US based companies outside of North America has increased by over 40% within that time span.
Top 50 Competitiveness Countries
The statistics from Business Weekly on the list of the most competitive countries shows the US in the number one position. It has been there since 1994! The top 50 are listed below by competitive ranking.
Although, the US has enjoyed this position for the past 14 years, the “little brothers” in Asia and Europe are growing up. In fact, Singapore is in second place with a differential of 0.7points. It is not an issue of America losing jobs, manufacturing capabilities, sales/marketing channels or innovation. Rather, it is an issue of American companies learning to stay competitive on the global rather than domestic scale.
Foreign Direct Investments
As we all know, many of the MNCs (Multi National Companies) have gone to Asia in the past 20 years to stay competitive, gain access to key markets, and form strategic alliances with Asian companies. As the MNCs invest in Asia manufacturing, supply chain management, and sales/market access, so too have many of their suppliers. One of the most recognized metrics used to measure movement of companies to other countries is FDI (Foreign Direct Investments) or how much money are companies investing in other countries to take advantage of their labor and/or markets. The global flow of FDI in 2006 was $1.2 trillion. FDI flows to Asia maintained their upward trend, reaching a new high of $230 billion, up 15% from 2005. Thus, the share of this region in total FDI to developing countries rose from 59% to 63%. China and Hong Kong (China) remain the leading destinations, followed closely by Singapore with $32 billion of inflows.
The following table shows the outflows and inflows of FDI over a ten-year period from 1996 to 2006. Clearly, America is the place to invest and America is a country that is investing outside its own borders.
What does all this mean? Economic shifts happen. The number one and two economic powers in the 1600s were China and India, respectively. By the 1800s that shift changed to Great Britain. Since the “Industrial Revolution” the economic powers moved to America. The difference now is the advancement of technology, the increase in the middle class, and the speed at which people can travel that has allowed the world and the way we behave to be more “global.”
As you review this data and think about how your customers have invested in the Asia market, you must ask yourself the following questions.
- How successful have the FDI companies been in transitioning the sales revenue from the US to Asia?
- What strategy did they implement to seamlessly keep the revenue as it moved?
- What have they done to increase their market share and account base within the Asian countries?
- What have they done to gain new business from Asian based companies as they invest in America?
- What sales and marketing channels have they developed to take care of the clients, direct employees, representative agents, and strategic alliances with similar companies?
A specific way in addressing these questions is to segment your business with respect to suppliers and customers.
From here a strategy needs to be developed that answers the following to support current clients, expand the account base in both Asia and back home.
- How much revenue and margin have we lost as our client base has moved to Asia?
- What have we done to ensure we continue to support these customers?
- Have we increased our account base in Asia with indigenous customers?
- Are we successful in supporting the Asia customers that have invested in the US?
- What partners, companies, agencies can we use to get this done or are we going to try a “go at it alone strategy?”
The energy required to gain new customers is exponentially greater than trying to keep the ones you have, regardless of where they move. You should run to where your money has gone.
In our next segment on this subject, we will define five specific strategies for success.