Does understanding globalization require a business lobotomy?

When in business school in the 1970’s I learned many of the new business buzz words, that of course went with concepts – management by objective, asset based lending, alternate energies, and stagflation. 

 Entering the business world in the 80’s I learned of synergism, deindustrialization, ROI, strategic planning, mission statements and of course leveraged buyouts.  I was told if I did not understand these concepts and embrace them I would be left behind, I would be on the outs.  I did understand and I remember Continental Illinois Bank & Trust and all the savings and loans.

 In the 90’s the buzz was vertical integration, cyberspace, ERP, dotcom, e-commerce, benchmarking, entrepreneurship, interest rate swaps, derivatives and of course securitization.  These were the new concepts – get on board or be left behind – don’t let the naysayers win.  Be innovative and forward thinking – and then I think of boo.com, Washington Mutual, Fannie Mae and Freddie Mac.

 A new decade and a whole bunch more business buzz and new concepts to “embrace”.  Branding, downsizing, outsourcing, emerging markets, chinamerica and the latest…globalization.  Not all the results are in on these “new business concepts”, but in some ways I fear the WAY they are embraced by both those who should know better and by those who don’t know as much as they think they do.  Each is equally dangerous – not unlike the abuses of key business concepts of yesteryear.

 Were all the new found business concepts of the past 30-40 years a disaster?  Did they all fail?  Of course not!  Some were very successful and my notation of some of the failings should not be misconstrued as sign I thought otherwise.  But when they are a failure, they are usually big and usually hurt quite a few people.

 What are the keys that made all these new concepts fail in some way or another?  They were all hailed as new and worthy business ideas, and for the most part they were.  So what goes wrong?  There are usually four main reasons for such failings: greed, failure to use business fundamentals (including due diligence), the upside potential/downside risk issues not accounted for and lastly ignorance (applying concepts one truly does not understand).  The ones that could have prevented disasters and are most basic are business fundamentals.  Looking back on the failures we say to ourselves, “they knew better, so why”?  It’s as if they had a business lobotomy – forgetting all the basics and fundamentals of business.

There is a mad rush in the U.S. these days to jump on the globalization band wagon, to secure international investment before the next guy takes your place.  “If not here then somewhere else so I better do the deal”, without much regard to long term consequences or downside risk potential.  This is not more evident than with China and to some extent India – the prime rising world economies.  Many an American city and state is in dire straits financially and those with cash, these international investors; well they can be seen as knights in shining armor, ready to save us from our own demise.

 But how do we define investment?  This is critical to moving forward with globalization successfully and on common ground.  Some would say everybody knows what investment means; yet when politicians use the word, a concept completely different than the common understanding comes into play.  When economic development “experts” use it, it has a variety of meanings.  And then there are the exacting definitions of what direct foreign investment (DFI) is and the variety of differences as outlined by the International Monetary Fund (IMF).  How many practitioners or economic developers either understand or use these terms when discussing actual deals in their respective community, state, or region?  And are these the same understandings the international investor is using?  Misunderstandings here spell disaster – for both parties.

 I would say the ideal investment in one where the investor and the recipient of the investment benefit in a mutual way achieving the greatest success without placing either at a fundamental disadvantage.  All satisfying investments are long term in nature, therefore require not only due diligence, but a healthy respect for each and an understanding of decision making.  This is the basis what was once called a relationship (before bankers ruined the word).  A true relationship has equal footing and equal risk and equal reward.  Participants in any investment share in upward potential and downside risk.

 So my advice to those mid-flight to China?  Better get a good understanding of what you think investment is so when you discuss this with your counterpart you are on level ground.  Most important – stay with the fundamentals, especially due diligence.  Check out your future partners as much as they are checking out you; that’s just good business.  No politics, no nationalism, no fear, just business.  Approaching it this way, excepting for the greed factor that crops up in every business cycle, will result in not only a successful business buzz, but a successful business relationship.  Anything else is simply a garage sale, the result of a business lobotomy.

Reprinted from www.toledo.bizfinancejournal.com

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