IV Global Competitiveness

IV Global Competitiveness

All institutions have to make global competitiveness a strategic goal. No institution, whether a business, a university or a hospital, can hope to survive, let alone to succeed, unless it measures up to the standards set by the leaders in its field, anyplace in the world.

One implication: It is no longer possible to base a business or

a country’s economic development on cheap labor. However low its wages, a business—except for the smallest and most purely local one, for example, a local restaurant—is unlikely to survive, let alone to prosper, unless its workforce rapidly attains the pro- ductivity of the leaders of the industry anyplace in the world. This is true particularly in manufacturing. For in most manufacturing industries of the developed world the cost of manual labor is rapidly becoming a smaller and smaller factor—one-eighth of total costs or less. Low labor productivity endangers a company’s survival. But low labor costs no longer give enough of a cost advantage to offset low labor productivity.

This (as already said in Chapter One) also means that the economic development model of the 20th century—the model first developed by Japan after 1955 and then suc- cessfully copied by South Korea and Thailand—no longer works. Despite their enormous surplus of young people qualified only for unskilled manual work, emerging coun- tries from now on will have to base growth either on tech-

62 Management Challenges for the 21st Century

nological leadership (as did the United States and Germany in the second half of the 19th century), or on pro- ductivity equal to that of the world leaders in a given industry, if not on themselves becoming the world’s pro- ductivity leaders.

The same is true for all areas: Design, Marketing, Finance, Innovation—that is, for management altogether. Performance below the world’s highest standards stunts, even if the costs are very low and even if government subsidies are very high. And “Protection” no longer protects, no matter how high the custom duties or how low the import quotas.

Still, in all likelihood, we face a protectionist wave through- out the world in the next few decades. For the first reaction to a period of turbulence is to try to build a wall that shields one’s own garden from the cold winds outside. But such walls no longer protect institutions—and especially businesses—that do not per- form up to world standards. It will only make them more vulner- able.

The best example is Mexico, which for fifty years from 1929 on had a deliberate policy of building its domestic economy independent of the outside world. It did this not only by building high walls of protectionism to keep for- eign competition out. It did it—and this was uniquely Mexican in the 20th-century world—by practically forbid- ding its own companies to export. This attempt to create a modern but purely Mexican economy failed dismally. Mexico actually became increasingly dependent on imports, both of food and of manufactured products, from the outside world. It was finally forced to open itself to the outside world, since it simply could no longer pay for the needed imports. And then Mexico found that a good deal of its industry could not survive.

Similarly, the Japanese tried to protect the bulk of their business and industry by keeping the foreigners out while creating a small but exceedingly competitive num- ber of export industries—and then providing these indus-

Strategy—The New Certainties 63

tries with capital at very low or no cost, thus giving them

a tremendous competitive advantage. That policy too has failed. The present (1999) crisis in Japan is in large part the result of the failure to make the bulk of Japanese business and industry (and especially its financial industries) glob- ally competitive.

Strategy, therefore, has to accept a new fundamental. Any institution—and not just businesses—has to measure itself against the standards set by each industry’s leaders anyplace in the world.

V The Growing Incongruence Between Economic