Decreasing Global Business Integration for Profit Maximization
By Aaron Tod
How deglobalization as a business strategy may decrease overall revenue but could benefit local economies.
A business strategy that has managed to gain prominence in the past few years is this idea of decreasing global business integration. In essence, businesses that once strategically opened in foreign corridors are now downsizing for the common reason of focusing on markets that they excel in. The phrase can be summed up in one word, deglobalization.
General Motors and the Bank of Hawaii are two good case studies of deglobalization. A spark of curiosity pushed me to look into the future and analyze what implications this business strategy may have in store for local and global economies.
According to The Economist, General Motors, a multinational car corporation based out of Detroit has decided to withdraw its businesses out of Russian, European, Indonesian, Indian, and South African markets. This is primarily because its stock has hardly gone up since its initial IPO, they have changed their strategy to focus on select markets rather than global expansion.
The select markets in their case are the United States and China. Another example is The Bank of Hawaii, whose “Planned sale is part of Bank of Hawaii's strategy of selling off businesses outside its core market.” Over the past few years, they sold off their operations in Australia, Europe, and Asia in order to focus on their core Hawaiian market. By selling all businesses outside of their core market, they may be able to direct all their resources toward making the best experience for their customers on the islands.
If these two companies really are the start of a trend, it is important to take a more critical look at the effect this would have on the local economy. With any decrease in the area a business has to sell in, comes a greater ability to specialize. For instance, instead of spending overhead on expanding markets, they can use the funds for research and development.
The research may pertain to a deeper understanding of the consumers within the area, the development of the product which is being marketed or the streamlining of processes for an internal function. That may boost confidence in the local economy and further business success.
We can argue that the market value of GM may increase from $166.3 billion revenue in 2016 as they are hoping. Pulling out of a number of different markets will decrease revenues, however, with the right strategy and use of increased budget, GM will have the ability to redirect those resources to generate higher sales with fewer expenses. This may result in higher profits and business value on the market.
As for the global economy, there is going to be a huge adjustment which will, in the end, be positive. Especially for the United States, it is clear that President Donald Trump is pushing for nationalist economic policies. Some business leaders argue that the current administration is making trade and importing challenging. Something which may change the way businesses in the U.S. get their resources. If resources must come from our own country and products are created in house, costs may increase but with regards to the rest of the world, we would continue to remain a competent and more responsible place to do business.