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The Future of Retail in a Globalization 2.0 World: The Four New Roads to Growth and Profit

Posted By Administration, Thursday, June 11, 2015
Updated: Wednesday, June 10, 2015

by Dr. James A. Tompkins, Tompkins International


Globalization 1.0 was born in the 80's, matured in the 90's and peaked in the early 2000's. The era was marked by "made in Asia," the growth of the BRIC economies, wealth residing in the West, the birth of the Internet and the maturation of local, regional and global supply chains.

More importantly the era gave birth to three MEGATRENDS, the rise of China first as a manufacturing hub and then as a market, the exponential growth of e-commerce and the development of the advanced globally integrated supply chains.

Retail has experienced major disruptions over the last five years. These megatrends have melded together to form a single new MEGATREND -- Globalization 2.0 – and this has completely changed how retailers and brands must operate and how they must approach making, moving and selling consumer products.

Globalization 2.0 has largely shattered close to 100 years of retail and consumer product manufacturing, operations, sales, marketing and supply chain structures, closing down the old routes to growth and profit while opening new ones.

If you are a retailer or consumer product brand Globalization 2.0 means you not only CAN but MUST be able to "make/buy it" anywhere, "move it" anywhere, and "sell it" anywhere.

Globalization 2.0 has found its purest expression in the birth of global disruption twins, Amazon and Alibaba. Amazon and Alibaba are changing the face of global retail.

They are the poster children for a 2.0 world. Jeff Bezos and Jack Ma both run companies that are supply chain focused, that have cool tech interfaces and who rely on China as a factory and market.

Both companies have used the 2.0 foundation to influence every aspect of global retail, branding and merchandising. Changing how all brands need to operate.

In this 2.0 environment U.S. and European retailers and brands must deploy four new strategies in order to grow and be profitable.

STRATEGY I – Reframe Your Business for a 2.0 World
This means asking three questions:

  1. Where should I make it?
  2. Where and how should I sell it?
  3. How should I deliver it?


Retailers and brands must ask themselves, how do we reset our "make it, sell it, move it" strategies in a 2.0 world?

While the answer will be different for every retailer and brand it will usually involve shifting to a model that accounts for:

  1. A mix of Asia, Latin America and the U.S. for production and sourcing
  2. A mix of Asia, Latin America and the U.S. as growth markets
  3. A new mix of hyper-localized supply chains integrated with an omni-channel and e-commerce focus on regional and global networks


STRATEGY II – International Expansion
The middle class is shrinking and less affluent, the retailers and brands serving that middle class are disappearing. The toll taken by a "race to the bottom" on pricing, influenced by e-commerce, means that, with the exception of luxury and mass market products, the old economic rules no longer apply and profit margins are narrow or non-existent. The first road to take for retail and brand growth is expansion into developing markets, in particular China. China is now home to the fastest growing and largest consumer class in the world.

STRATEGY III – Omni-channel + Borderless E-Commerce + Alibaba
Retailers and brands must expand domestically and internationally in order to grow. Growth domestically and internationally lies in transitioning into omni-channel sales. Omni-channel is the ability to present a brand, a product, an experience and to facilitate frictionless sales and returns across all channels.

Growth will also come from embracing the future that is borderless e-commerce. The recent news that Amazon has opened a store on Alibaba's B2C e-commerce platform T-Mall marks the moment that borderless e-commerce went from a "want" to a "must" for retailers and brands. The two companies are creating a world where any consumer from any country can buy from any brand or retailer from any country.

China is the largest e-commerce market in the world. Roughly 500 million Chinese shop online and that number is growing by the quarter. Alibaba is the largest and most profitable e-commerce company in the world having a touch on close to 75% of all e-commerce transactions in China. Alibaba generated $250 billion, Amazon generated $100 billion and eBay generated $76 billion in revenue, making Alibaba, Amazon and eBay the top three revenue generators in 2014.

Alibaba will soon become a major e-commerce platform, technology provider, retail facilitator and brand showcase on a global basis. Selling on Alibaba now will give companies entry and advantages in the US, Europe, India, Brazil, Russia and Africa eventually.

To fully understand Alibaba, what it has accomplished and where it is going, you need to watch "The Alibaba Effect," our extremely popular video that covers all things Alibaba.2

STRATEGY IV – Profits Through Supply Chain
During Globalization 1.0 the supply chain was simply understood as making, moving and storing products: a necessary, if little understood, business function. Globalization 2.0 now mastering the six mega-processes of the supply chain (PLAN-BUY-MAKE- MOVE-STORE-SELL) is essential. Understanding the supply chain often makes the difference for retailers and brands between profits or losses and between thriving or dying.

In a world where your customers are global, where your product sourcing is global and where omni-channel sales and e-commerce excellence are a must have, your supply chain network is a central business strategy and profit driver.

Retailers and brands need to be able to sell anywhere and at anytime, deliver anywhere at any time and be able to see and move product anywhere at any time.

SUMMARY
Retailers and brands are no longer operating in a world where the old rules, old structures, old relationships and old production and channel models work.

The companies that will survive in Globalization 2.0 will embrace a new framework for operations and strategy, expand internationally and shift to an omni-channel/borderless e-commerce channel strategy.

[1] http://www.tompkinsinc.com/alibaba-effect/


Dr. James A. Tompkins is an international authority on supply chain strategy, focusing on implementation of end-to-end supply chains that are demand driven. Jim is the founder and CEO of Tompkins International. His 35-plus years as CEO of a consulting/integration firm and his focus on helping companies achieve profitable growth give him an insider’s view into what makes great companies even better.

He has written or contributed to more than 30 books, including Caught Between the Tiger and the Dragon, Bold Leadership, Logistics and Manufacturing Outsourcing, The Supply Chain Handbook, No Boundaries and Facilities Planning. He has also fulfilled over 1,500 speaking engagement requests.

Jim has served as President of the Institute of Industrial Engineers, the Materials Management Society, and the College-Industry Council on Material Handling Education, and Purdue has named him a Distinguished Engineering Alum. Jim received his Bachelor of Science in Industrial Engineering, his Master of Science in Industrial Engineering and his Ph.D., all from Purdue University.

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Tags:  Alibaba  Amazon  Globalization 

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