In the final years of this century, the new global 'geo-economics' has become the driving force of international relations and commerce. Autocratic regimes and domestically focused businesses are more likely to fail, or grow less slowly, than those which recognise the reality of the globalised economy.

The days when the three largest economic forces - North America, Japan and Europe - could look to each for their political, financial and trading relationships have long gone: the creation of relationships with the emerging market economies of the Pacific, Latin America, southern Africa and eastern Europe is as important to the mature western economies as it is to developing countries.

Growth rates in the emerging market countries are expected to reach 6.2 per cent in 1997, against the mediocre 2.5 per cent growth in the West, according to the IMF's World Economic Outlook. This is sucking in capital, investment and expertise from the industrialised nations. Amid this sea of change in the global architecture, commerce has to think in global terms.

Take banking, where traditionally domestic organisations like Deutsche Bank and ABN-Amro are engaged in worldwide expansion which has left behind older style colonial institutions like Lloyds Bank in Latin America.

Specialist car companies like BMW have recognised the same trend and have learnt to grow closer to their markets. This does not mean sitting in Munich thinking up ever better models; it means taking the Munich kit into new markets from Korea to Japan and New Zealand, and being prepared to think globally on a 25-year basis. The engines for the next generations of BMW/Rover cars will be built in Latin America and the UK, not simply because costs are lower but because this is the best way of serving global markets.

The contrast between BMW and its Rover subsidiary is remarkable. Rover used to focus all its business attention on the very limited British market, and it lost the tremendous foothold it had in the former UK colonies and the Far East. Meanwhile, car firms which were willing to take on a global complexion, like BMW, were able to break into American and Pacific markets where they had no name recognition and experience: just the knowledge that globalisation of manufacturing, sales, service and distribution was the key to survival and success. Similar considerations apply to the aerospace business, where manufacturing takes place on a global stage.

Airlines also like to talk of globalisation. Indeed, readers of the annual Airline Business survey of airline alliances (369 in June 1996) might think that air carriers, representing the most mobile of all businesses, are well on the way to being part of the new geo-economics. But this remains far from reality. Many emerging market countries think nothing of allowing Citibank and JP Morgan to control the larger part of their banking assets, and their population is only too happy to be seen driving around in Nissans and VWs - symbols of financial and manufacturing globalisation respectively. Yet most governments continue to insist that locally based airlines have to be domestically owned entities, often with limited route structures and remit. Many major carriers like Air France and Iberia have been more concerned with protecting their own territory and bilateral routes than with building global structures. The breakup of the former Soviet Union has led to a fragmented system of airlines, with each new republic having at least one air carrier.

A few carriers, such as British Airways, have talked frequently about globalisation. But much of BA's expansion has been founded on its own strengths, based on the UK marketand routes built up in the colonial era. It has sought to build a global presence through acquiring stakes in other carriers in Europe and the US, rather than becoming truly global by developing, for instance, its own hubs in emerging market countries. However, BA (like some other majors) has recognised that some airline services, like ticketing and accounting, are now global businesses and has moved some such functions to the Indian subcontinent. But arguably, BA's most significant move towards global thinking lies in chief executive Robert Ayling's view that BA should be more like a McDonald's style franchise and less like a body which runs planes from London to rest of the world.

Airlines have contributed much to the development of global commerce, but compared to much of the business world they are still at the starting gate. Despite the pioneering role of US businesses in leading globalisation, US airlines have largely been domestically focused, although this is changing.

Part of the problem has been regulation. Whereas the US has deregulated its domestic routes, global route structures are still largely based on the bilateral system and air routes are still not part of the international trading negotiations as represented by the World Trade Organisation and Unctad. However, transport services will almost certainly work their way on to the agenda at the first new trade round of the next century, which was discussed in Singapore in December 1996. Furthermore, there is a multilateral, fully deregulated inter-European Union market and the first steps towards EU/US multilateral talks have been taken.

But it will need more than additional open trading rules to create globalisation among air carriers. There will have to be a recognition that inward looking domestic route structures and a focus on today's most busy routes will not bring commercial success into the next century. The realities of globalisation are that much of the growth in the next century will be in emerging markets. Business leaders will have to look at the world market as a whole, rather than as an extension of their own domestic markets.


Source: Airline Business