Globalization Services
The Globalization Handbook
Globalization
A Key Part of Your Business Plan
by Tom Epply
The Purpose of this Booklet
This booklet was written to explain how globalization can and should be a part
of all your business decisions.
This booklet will d why, if you write your business plan also cover some dos and don'ts
when writing your business plan anfor one year at a time, you may never reach your desired
future state.
Definition of Globalization
The essence of globalization is matching the best technical strengths in the world with
the lowest cost.
Before we can apply globalization to your business plan, you must avoid a major pitfall
many people make in their planning. This may require a paradigm shift in your thinking.
If you make your business plan by writing down where you want to be the next year, followed
by where you want to be the following year and so forth, I am suggesting that you will
probably never reach your ideal state. The reason for this is that the decisions you make
are too short sighted and may be counter-productive to your long term goals.
Let me suggest another method: It is a simple three-step approach to business planning.
Step 1: Write down everything you know about your company and
its current state.
- Your Customers
- Your Products
- Your Competition
- Your Manufacturing Sites
- Your P&L
- Your ESG&A Expenses
- and so on
Step 2: Develop your desired future state with a fixed time frame
(usually 3-5 years).
Spend as much time as required to capture your desired future state with input from
all stakeholders until they develop ownership in the plan.
Step 3: Make ALL your business decisions (any place you spend
or commit money) to only support the desired future state.
This is the most important and probably the hardest to do. Be so strong in this belief
that you are willing to rewrite the future state before you make a business decision that
violates your future state.
Applying Globalization to your business plan
Once you have developed your business plan using the three-step method, you are now
ready to apply globalization to your business plan. For example:
Suppose that your current state for labor cost is $23/hr (all in). Given inflation,
your current labor will increase to $25/hr in 3-5 years (by the desired future state time
period). In Step 2 you have determined that in order to be competitive in 3-5 years, your
future state cost per hour must be $13.25/hr. In Step 2 you also have done research and
recognize that your business forecast includes a 20% growth during this time period.
The labor cost section of your business plan will look like this:
If you change nothing, your labor costs increase to $25.00
You know that you must cut labor costs to $13.25 to stay competitive.
And … on top of these two facts, you know that your labor requirements will grow
by 20%.
So you know your labor costs must be reduced by nearly 40% during the next 3-5 years,
and that your labor needs will increase by 20% during the same time.
How can you solve this problem?
The answer: With a Composite Wage.
Definition: Composite Wage: An average of labor wages in different locations.
To illustrate this concept we can examine an example where you expand your workforce
in China. If this were to occur, your new composite wage might be:
| |
300 Employees (Current Facility) |
x $25.00/hr = |
$7500/hr |
| |
300 Employees (China) |
x $1.50/hr = |
$450/hr |
| Total: |
600 Employees |
|
$7940/hr |
Composite Labor Rate: $7950 / 600 = $13.25/hr
If you decide that this plan of action is workable for your business plan, then every
business decision you make in the future regarding your workforce must lead toward this
plan of action. To do other things that do not lead in this direction will not permit you
to achieve a competitive situation, and your desired future state with a composite labor
cost of $13.25/hr.
Your choices at this point in time can be daunting -- life or death for your company.
If, for example, you must cut 300 jobs out of a total labor force in North America of 600
employees, and replace them with 300 new employees in China, the decision can be justified
in terms of business survival vs bankruptcy.
Your current employees, whether union or non-union, must be made aware that retaining
300 jobs in North America in a healthy, growing company is better than losing ALL 600 jobs
in a closed company.
While China is not the only option for cutting costs (Continental offers comprehensive
Lean Manufacturing and outsourcing options), using China to reduce the cost of purchase
parts and/or components can also play a major role in meeting your desired future state.
Let us examine a second globalization option.
- The Globalization Handbook
- Globalization: A Second Option
- Globalization Glossary
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