Competing in the global marketplace: it's no longer a business strategy reserved solely for the Fortune 500.

Not a day goes by when business owners aren't commenting that the world is becoming a smaller place. However, the exact opposite may be a more accurate statement. The world is actually becoming a larger place in that businesses of all sizes and in most industries can no longer simply focus on the United States market and expect to remain competitive. Forward thinking business leaders understand that they need to compete in the global marketplace.

The effects of foreign lands and their markets, most notably China, are quickly changing the competitive landscape of the business world. The small and middle-market business sectors are finding that international sales, operations, exporting and sourcing are no longer business strategies reserved for the Fortune 500. As a result, business executives and managers are being forced to develop strategic and operational solutions to contend with globalization.

International trade has increased dramatically over the past 25 years, rising to over $7.9 trillion in 2003. The United States is still the major import/export engine, but almost every country in the world is now impacted as 30 percent of the world's gross domestic product crosses country borders. The steady increase in international trade is expected to continue because of the impact of technology (i.e., the Internet, mobile phone networks, etc.) and the development of efficient modes of transporting goods around the world.

Global trade is a dynamic phenomenon driven by competition and consumer behavior. More organizations around the world are competing in markets outside their country and consumers continue to buy low-cost, high-quality merchandise no matter where it is made--and more of it is being made in the People's Republic of China.

All countries are recognizing the growing importance of understanding China and its emerging impact on manufacturing and the world economy. There are many factors that contribute to China's increased status in the world economy. With low labor rates (averaging under 90 cents per hour) and a burgeoning middle class--now estimated at 100 million people--China is an important trade partner for most developed nations. It is known globally as the "Factory Floor of the World." The interest in this fast-growing country is confirmed by investment. Foreign investment in China has increased steadily over the past 10 years, and 2003 marked the first year that foreign investment in China ($53 billion) surpassed that of the U.S. ($40 billion).

What types of opportunities exist for U.S. companies in general--and those located in Southeast Michigan in particular--that are looking to expand outside the domestic marketplace? Most company CEOs immediately think of strategic outsourced manufacturing opportunities, which the low-cost manufacturing countries offer. Companies of all sizes and in most industries can develop relationships globally to subcontract manufacturing, enter into joint ventures or start their own in-country business ("WOFEs"--Wholly Owned Foreign Enterprises).

In addition to outsourcing, U.S. companies are looking to develop more revenue opportunities in global markets. Over 95 percent of the world's population lives outside the United States. Consequently, there are tremendous markets for our goods and services in other countries.

Earnings from foreign operations of U.S. companies have increased steadily from $60 billion in 1994 to an estimated record earnings of $200 billion in 2004. Although there is some anti-American sentiment in certain parts of the world, most people outside the United States are "Buying American" and U.S. companies continue to increase revenues and earnings.

In many cases U.S. firms with foreign operations have reinvested their overseas earnings abroad rather than repatriate the income and pay taxes in the U.S. at the corporate rate of 35 percent. This may change with the newly enacted law that gives companies a one-year incentive to repatriate foreign earnings to the United States at a greatly reduced rate.

While opportunities in the global marketplace are great, they are accompanied by challenges. Language barriers, cultural issues, government regulations and restrictions, local and other foreign competition, and, in some countries, underdeveloped distribution systems, all signal the need to proceed with caution in order to minimize risk and maximize growth potential in new markets. While U.S. companies can enter into joint venture relationships or set up representative offices in different countries around the world, it is usually recommended to partner with local country managers and companies in order to make the business transition as smooth as possible.

It's time to prepare for the obvious. Globalization is not just a passing trend. It's changing the economy and the way we do business. Today's business leaders must address the opportunities and issues at hand and make well-informed decisions that support our changing world and assist them in competing in the global marketplace.

RELATED ARTICLE: 7 key questions

Here are a few of the many questions small/middle-market companies should be asking themselves to determine if they should be considering a globalization plan:

1. Have our domestic sales or market share plateaued?

2. Are our current distribution channels sufficient?

3. Are our customers operating overseas?

4. Are our competitors operating overseas?

5. Are we having difficulty being price competitive?

6. Are our customers requesting price concessions while our labor and benefit costs continue rising?

7. Are transportation costs prohibiting us from competing?

Alan D. Whitman is partner in charge of the International Services Group at the Southfield office of Virchow Krause & Co. LLP, a member of the Detroit Regional Chamber.

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