Archives October 2023

Redesigned Global Networks Must Pay Attention to Previously Ignored Regions, Countries

More than 75% of respondents to my recent globalization survey thought that the world – and the U.S. economy – benefited as economies, cultures and populations grew more interdependent over the decades.

But as we know, globalization’s image has suffered over the last few years. That probably has something to do with why 23% thought globalization was somewhat unbeneficial or not beneficial.

That 23% probably are thinking about areas that have not benefited from decades of globalization. But truthfully, those areas have suffered because countries have pursued policies that undercut the benefits of globalization – tariffs, quotas, taxes, subsidies. Such barriers distort comparative advantage, incentivize inefficient resource allocation and leave entire regions and countries behind.

While executive leadership cannot do much about the global context of politics, wars, they can respond to the ongoing VUCA (volatility, uncertainty, complexity, ambiguity). The best way for us to level the playing field is to redesign our global network, examine the entire world as our supply depot and try to make sure that other regions benefit from comparative advantage.

Globalization/Deglobalization – Survey Says …

But first, let’s take a closer look at the survey results. I asked, “Is globalization a net benefit to global living standards and the U.S. economy?”

• 52% of respondents said “extremely beneficial.”
• 25% of respondents said “somewhat beneficial.”
• 6% of respondents said “somewhat unbeneficial.”
• 17% of respondents said “not beneficial.”

The Benefits of Globalization

The benefits of globalization have been profound.

Globalization has increased economic growth, opened up new markets and promoted trade. Companies operating in global markets create jobs and economic diversification. Globalization promoted cultural exchange, which fosters tolerance and understanding. It also promoted technological advancement, innovation and improved living standards as comparative advantage (more on that in a bit) made goods more affordable.

In fact, according to The World Bank, the global poverty rate plunged from 36% to 9% between 1990 and 2017, lifting 1 billion people out of poverty. The World Bank uses national poverty lines to measure poverty worldwide. A United Nations report puts the number of people lifted out of extreme poverty at 2 billion. (The U.N. defines “extreme poverty” as living on less than $2.15 a day at 2017 purchasing power.)

A lot of that benefit comes from comparative advantage.

Comparative Advantage

I recently analyzed the path global supply chain leaders must follow to respond to today’s world of constant VUCA.

Comparative advantage plays a key role. Comparative advantage or specialization goes back to the beginning of civilization. Each family did not try to do it all – instead, people who specialized in farming farmed, hunters hunted, blacksmiths blacksmithed, etc.

Trading the surplus allowed people to increase their standard of living. As the world evolved, such trade went beyond the village, beyond the community, beyond the region and beyond the nation.

When comparative advantage is allowed to play out, the world is flat (apologies to Thomas Friedman, author of the book The World is Flat). Unfortunately, politics and VUCA keep getting in the way.

That 23%? They Have A Point

Despite the unmitigated benefits of globalization, those negative views are not wrong.

They simply have a different perspective. They see how China has accrued many of the benefits of globalization. They see how leadership in the West is responding to decades of Chinese anti-competitive practices with our own subsidies, tariffs and quotas. They see areas of the world that did not benefit as much from – large swaths of Southeast Asia, India, Africa and South and Central America, even parts of the United States.

Executive leaders cannot repeal trade laws, tariffs or export controls. We cannot eliminate VUCA.

We can, however, examine our entire global network. The only way we can deal with whatever VUCA comes around the next corner – and there will be more in a world of perpetual disruption – is to continuously redesign our supply chains in an attempt to flatten the playing field.

As we flatten the playing field, we need to reflect on the 23% who view globalization in a negative light. Beyond regions of the world that have not benefited, I am sure they are thinking of the jobs that disappeared in areas like the U.S. Midwest and the South – manufacturing, textiles and more. Many have been hurt by an uneven playing field, and we need to make sure that free and fair trade mandates the winners and losers, not the political gamesmanship that has hurt so many communities.

I would love to discuss what your organization is seeing as you examine your global network with an eye toward the future.

The Antitrust Paradox that Really Isn’t

I began researching Lina Khan in 2017. The current Federal Trade Commission Chair had published “Amazon’s Antitrust Paradox” in the prestigious Yale Law Journal.

The article contended that Amazon used predatory pricing (selling products below cost to drive out competition). Her view was that Amazon aimed to create a monopoly and take unfair advantage of consumers.

My research file on Khan between 2017 and 2021 includes a few articles. Most of them discuss how Khan continued touting this same anti-Amazon theme for the House Judiciary Committee’s Subcommittee on Antitrust, Commerce and Administrative Law.

A Bizarre Line of Thought on Antitrust Law

I found Khan’s whole line of thought between 2017 and 2021 bizarre. I, unlike Khan, am not a lawyer. But my understanding is that antitrust law protects American consumers from deceptive or unfair business practices. The law’s goal is to promote a free and competitive marketplace by challenging anti-competitive mergers and business practices.

The facts in 2017 were that Amazon’s business model was widely embraced. Customers received great service, chose from a great selection of products and paid great prices.

The Amazon model was not new in 2017. It simply expanded Jeff Bezos’ 1994 business model. As a matter of fact, those are the goals of every business: provide great service, selection and prices.

A New FTC Chief – A New Line of Attack

Imagine my shock in 2021 when Khan was named the youngest ever chair of the Federal Trade Commission (FTC).

Clearly, she took this position not to uphold antitrust law but to change it. In her words, the United States needs “a different set of rules.” Not surprisingly, Khan drove the FTC against merger and acquisitions involving “Big Tech.”

Not surprisingly, she lost. Microsoft won the fight to buy Activision Blizzard. The FTC withdrew a case against Meta after negative court rulings.

Now, Khan’s FTC has targeted Amazon with a major antitrust action. Surprise, surprise.

But, wait a minute, it looks like she has changed her tune. She now claims that Amazon’s practices result in higher prices for lower quality products.

So, what exactly is the problem? Is Amazon charging too much (2023) or too little (2017)? Again, it’s bizarre.

Digging deeper into the FTC’s lawsuit against Amazon begets more confusion. At a high level, I categorize the FTC’s concepts into three categories: Don’t all retailers do this? Isn’t this good for the consumer? Don’t customers have a choice?

1. Don’t all retailers do this?

• Amazon uses an algorithm to price items.
• Amazon charges clients to advertise on their site.

If you think other retailers don’t use algorithmic pricing, you have not talked to many retailers. And in general, most business entities charge for advertising. Take a look at your next grocery store receipt. Kroger likely did not print the coupon for the Mexican restaurant next door for free.

2. Isn’t this good for the consumer?

• Amazon highlights low prices.
• Amazon’s prices are routinely lower than prices elsewhere.

This kind of goes back to point No. 1. From time immemorial, many retailers have advertised lower prices. Yes, some upscale retailers advertise that “premium” pricing is worth the extra value and service. But most consumers goods aren’t advertised like BMWs and Porsches.

And whether Amazon’s prices truly are lower depends upon the product. “Free shipping” is not free, and I know examples where the drug store around the corner has lower prices on some goods.

U.S. consumers know how to do price comparisons.

3. Don’t customers have a choice?

• According to the FTC, customers have no choice Amazon is in a business category all be itself – the “online retailer.”

In my view, “online retailer” is a made-up term:

1. First, Amazon has a retail footprint through Whole Foods.
2. Second, Amazon has dipped into the physical store market and, frankly, has not been able to compete.
3. Third, all sales these days are omnichannel.

Yes, Amazon dominates online sales to the tune of a 38% market share. But Amazon has a lot of omnichannel competition. Think Walmart, Costco, The Home Depot, Dicks, etc.

In fact, Walmart generated more revenue in retail sales last year than Amazon. Although that could change in the future – and then change again.

Shoppers are not exclusively online or exclusively in retail stores. They might see something online. Go visit the store. Try it on. Like it and buy it – or not. They’ll try something on in the store. Wait until the next paycheck – and then buy it online.

That point seems to elude every thinker behind the FTC’s lawsuit against Amazon.

If you define the category narrowly enough, like the FTC did, nobody has any competition. What happens if I define the retail landscape as companies whose founder, Jeff, has a shaved head?

It’s only Amazon. No competition.

If You Break Up Amazon, Who’s Next?

The recent FTC lawsuit asks for “structural relief,” a phrase that often translates into a breakup.

Now, don’t get me wrong, I have professionally had some disagreements on some Amazon practices. But just because I disagree does not mean they are illegal.

In fact, I recently warned retailers against relying on Amazon as their one-stop supply chain solution. Better to look for optionality in your warehousing and transportation.

Anyone who thinks that breaking up Amazon is in the best interest of the consumer needs to look at Walmart. Doesn’t the megaretailer’s “Everyday Low Prices” give them an unfair advantage?

And then who’s next? Costco, Kroger, Home Depot and Target?

Bottom line, the FTC needs to focus on enforcing the laws of the land, not trying to rewrite them.

What do you think?

Why a 19^th Century German Philosopher is Still Right

In the ever-evolving landscape of technology, the words of 19th-century philosopher Georg Wilhelm Friedrich Hegel ring truer than ever: “The only thing we learn from history is that we learn nothing from history.” We find ourselves in the midst of another industrial revolution, driven by artificial intelligence, the Internet of Things, machine learning, robotics and more.

Leaders are figuring out how to use these transformative technologies to reshape the way we live, work and play.

Change and Fear

Often in this space, I have stressed that the future will be a departure from the past, not a continuation. That is true.

But sometimes history repeats itself. And that’s happening here. But for business leaders and entrepreneurs, this repeat will be a good thing.

Historically, rapid technological progress has often elicited fear and resistance. People worry that their skills will become obsolete, wages will decline and jobs will vanish. These concerns have surfaced time and time again. Artificial intelligence, particularly generative AI models like ChatGPT, Google Bard and the like, are triggering those same warnings of doom again.

Yet history has consistently demonstrated that these fears are largely unfounded.

Even this time, doomsayers have been light on detailing exactly how artificial intelligence will destroy us., as this New York Times articles points out.

Let’s take the previous Industrial Revolutions one at a time:

The First Industrial Revolution

The First Industrial Revolution, spanning from 1760 to 1840, introduced innovations like the steam engine and textile machines. While these changes raised concerns about job displacement, they ultimately created new employment opportunities and increased productivity.

The Second Industrial Revolution

The Second Industrial Revolution, roughly from 1850 to 1914, saw the mass production of steel and the spread of electricity. Once again, there was resistance to these advancements, but they led to economic growth and the emergence of new industries.

The Third Industrial Revolution

Computers, the internet and mobile phones marked the Third Industrial Revolution. Despite initial resistance, these innovations gave rise to entirely new job categories and significantly improved the quality of life for billions worldwide.

The Fourth Industrial Revolution and AI

Today, as we stand at the cusp of the Fourth Industrial Revolution, fears about artificial intelligence persist. However, if history serves as a guide, these concerns are likely to be proven wrong once more. This revolution will create new opportunities and industries, just as previous ones have.

Recognize the Pattern of Doomsayers and Luddites

Throughout history, the fear of technological advancements replacing workers has recurred.

Yet, these technologies have consistently created more jobs, increased productivity and enhanced the overall standard of living. Acknowledging this pattern is essential when addressing present-day anxieties.

The Luddite movement during the First Industrial Revolution serves as a notable example of resistance to change. They went around destroying looms, fearing that the new technology would destroy their chances at future employment.

While their concerns were valid, technological progress continued, and society adapted.

In contemporary times, a new generation of skeptics has emerged in the face of the Fourth Industrial Revolution. While some advocate for caution, we must recognize the immense promise that AI and automation hold in addressing society’s challenges. These neo-Luddites will be proven wrong – again.

Embrace Change

While concerns about AI safety and ethics are valid, we should not allow fear to hinder progress. The Fourth Industrial Revolution will usher in new job opportunities, enhance productivity and stimulate economic growth.

As we embark on this new era, heed Hegel’s words and learn from history. The weaving loom, electricity and mobile phones ultimately improved our lives and expanded employment opportunities.

I mean, do you really want to go back to sewing all your clothes from scratch? I didn’t think so.

Generative AI promises to improve lives, businesses and the world. Let us approach it with an open mind, diligence and thoughtfulness.

If you’re interested in exploring how progress and technology can benefit leadership in your organization, I would love to talk.