It’s no revelation that course corrections in business strategy need to take place for a company to remain competitive and grow. When considered on a global scale, the complexity of various strategic issues which need to be monitored and evaluated is significantly magnified.
The challenge facing companies serving the global marketplace is to make strategic adjustments that keep their business plan on track while managing risk as much as possible. These adjustments may be based on geographic issues, market conditions, product demand shifts, or manufacturing costs, as examples. Market leaders, market challengers and niche players, in particular, need to adapt to protect their business to such changes in order to grow-share and retain a competitive position long-term.
Today, global companies face three major disrupters impacting their long-term business strategies (Figure 1). These disrupters over-shadow, but do not replace, much of what has traditionally comprised the elements of concern in development of a company’s global business plan. Currently, each of these disrupters are very fluid in nature and have an uncertain outcome. As a consequence, they introduce a significant amount of additional risk in long-term strategic planning for many companies.
The focus of the article is to look a little closer at these three disruptive issues and the associated risks that each of them bring to global companies faced with trying to adjust their long-term business strategies.
The Environment, Regulatory Activity, Sustainability
For more than 50 years environmental issues have directly and indirectly impacted the business strategies of coatings manufacturers and their suppliers. These issues have spawned regulatory actions by governments intended to address VOCs and air pollution problems by setting compliance limits. The intent was to force change in product or systems design as well as alter manufacturing practices.
For example, in the 1960s, Rule 66 in California was implemented to reduce vehicle exhaust emission to address the smog problem. In 1970 the U.S. EPA began regulating VOCs (volatile hydrocarbons and other organic molecules released into the atmosphere) at the federal level through the Clean Air Act.
In the coating industry, a major objective for the next 20+ years was to bring water-based or high solids/100% solids coatings (including powder and UV coatings) forward into the marketplace as an alternative too or as a replacement for existing solvent-based products.
Government agencies clearly played a key role in pushing the coatings industry to incorporate environmental compliance in their business strategies by establishing a regulatory road map. In turn, this began pushing end-users to increase their use of more environmentally friendly or “green” coatings.
Up until recently these traditional environmentally related initiative by coating manufacturers were mainly defensive and driven, in a large part, by regulatory compliance.
In last 10 years or so, however, the environmental business dynamic has undergone significant change. It has transitioned into a pro-active effort driven by the realities of global warming and waste recyclability. Sustainability has become the pro-active banner that guides environmentally related business strategies for many companies in our industry today.
Sustainability represents the umbrella under which companies are challenged with taking meaningful actions that “move the needle” toward reducing carbon footprint, impacting climate change, and addressing waste recycling. Globally, this is supported by the goals of the Paris Accords set forth in December 2015.
In particular, the replacement or partial substitution of petroleum-based products with renewable sources (primarily polymer/resins) has become a high-priority going forward. Sustainability initiatives today, targeting a reduction in carbon footprint, go far beyond what occurred in the past when the main focus was on water-based or high/100% solids coatings formulations that targeted a reduction in VOCs.
Sustainability, as a business strategy, represents a long-term, pro-active commitment by companies to take the initiative and make the investments necessary to be a leader within the markets they serve.
Strengthening brand image in the eyes of both direct and downstream customers through sustainability initiatives has become a necessary addition to the business strategy for many companies. In today’s marketplace, being a market leader or a strong market challenger goes far beyond providing compliant products that address current environmental regulations.
Globalization, Emerging Economies, and the Evolving Geopolitical Business Climate
Globalization has been an important component of the business growth strategies for many companies in our industry. While there is no particular starting point for when this trend “began,” global expansion initiatives accelerated through the 1980s and 1990s. In particular, the entry of China into the global economy during this period provided a benchmark after which globalization efforts accelerated.
Key strategic drivers behind globalization include:
• Revenue growth by expanding geographic reach within existing strategic markets.
• Cost reduction through offshore manufacturing and/or raw material sourcing in low wage-earning, emerging economies.
• Competitive market positioning and share gain on a worldwide scale.
Globalization became a necessary part of the long-term business strategy for many companies. For an extended period of time the risks associated with pursuing this path, along with the challenges of successfully navigation global expansion, were considered tolerable. For many companies, the downside risks of global expansion were largely ignored.
As globalization proceeded into the 21st century, however,, a growing number of issues began to emerge with trade practices, tariffs, etc. This was particularly true in the case of China. By around the year 2000, China had become the largest trading partner with the US. It also became the major supply chain hub for many manufacturers worldwide.
The disparity in trade practices and tariffs between China and its trading partners, however, became increasingly apparent and unacceptable to many countries including the US. As a result, governments began to react and implement their own tariffs and other trade restrictions directed at China to try and level the playing field. The honeymoon was over.
Then came COVID, which brought with it severe supply chain disruptions and material shortages. It also revealed the vulnerability of many companies that had established a high degree of offshore supply dependence, especially in the case of China. As a result, government intervention in the supply chain occurred. This included allocations and other government-imposed restrictions on trade. It forced companies to begin revising their long-term business strategies to reduce risk and vulnerability to interruptions in the supply of products to their customers.
As the global effects of the pandemic began to normalize in 2021, the die was already cast for most companies in restructuring their global strategies for offshore manufacturing and supply.
Unfortunately, following the COVID crisis, things did not normalize; they got more complicated. The Ukraine war with Russia began early in 2021. This event not only engaged the United States but the entire NATO alliance into a still evolving confrontation with Russia in support of Ukraine.
Separately, the Chinese significantly stepped up their aggressive territorial actions against most Asia Pacific countries aligned with the West. This includes direct threats to invade Taiwan, which they consider as part of Mainland China.
Most recently the Israeli invasion of Gaza in response to the Palestinian Sunni Islamist group Hamas’ attack on Israel along with support from Iran has been added to the list.
Collectively, the geopolitical climate today is both frightening and clouded with uncertainty. No matter where you choose to expand or what business strategies you consider implementing, there is heightened level of risk directly related to today’s confrontational geopolitical climate.
Repositioning a company’s long-term global growth strategies to reduce risk now points to shifting emphasis toward countries who have governments that are regionally aligned politically. It also includes consideration for reshoring where it makes sense.
Automation, Analytics, AI and Autonomous Systems
The benefits of automating are well known. It is a way to improve process efficiency, minimize errors, increase productivity, and reduce overall costs in the manufacturing process. The decision to automate is driven by the necessity to remain competitive in the marketplace.
Automation requires the contribution and inputs from various people. They define the need, set forth specific goals for product improvement, design the equipment and manage its implementation.
Once automation is introduced to the manufacturing process, the results are monitored by individuals responsible for making adjustments or changes if needed. Any changes in the process are based on relevant data and actual production results. There is personal accountability for the results and any changes that need to be made to the process.
Analytics and the use of “Big Data” from external sources is a tool that is frequently employed by large retail corporations, financial institutions, and pharmaceutical companies to better understand the market(s) they now serve, customer preferences, regional trends, facility location needs, supply chain demand patterns, etc.
The actual value of analytics is tied to the quality of the data sources being accessed and their representation of the purchasing patterns being studied. When the design of the “Data Lake” and the software used to analyze the result are flawed, the output will lead to false conclusions. Analytics, as a business tool, is dependent on the individuals that design, implement, and (if necessary) modify the process to deliver relevant data. These individual are accountable for providing information to management that supports good decision making.
The rapidly expanding field of artificial intelligence (AI) is finding its way into many markets and new applications. For example, AI is used in finance, providing information for investors on industry trends that can guide investment decisions. In the retail market, AI is being used to gather information from a variety of sources outside of a well-defined analytics “Data Lake” to obtain more customer related information
In automotive and transportation markets, AI is being integrated into next generation autonomous vehicles. The same can be said for military applications and the expanding use of drone technology in both military and commercial markets.
With that said, the adoption and even reliance on AI going forward to guide business strategies and decision making brings with it significant risks. AI, by definition, learns and evolves on its own. It has the ability to gather information from various sources independent of human oversight, or judgment.
The selection and prioritization of potential data sources can drift away from what the original mission or objective had been. Without human oversight and the ability to monitor the shifts that are occurring through autonomous learning, the possibilities for sourcing errors of even exclusions of certain key information increase over time.
In today’s business climate, reliance on autonomous learning introduces an additional risk through the intentional inputting of false data by hackers, foreign governments, or special interest groups. AI, without an organizational plan that provides checks and balances, carries with it risk and the potential for unwanted problems and even false information.
Summary
Currently, each of these disrupters is very fluid in nature and has an uncertain outcome. As a consequence, they introduce a significant challenge and additional risk to the long-term strategic planning for many companies.