Globalization and Terrorism with Porter's 5 forces

How to get the most out of this article.

  1. Read the article below.
  2. See this Flash movie on "Jobs and Globalization". It shows the human face of Globalization.
  3. Study the NaviMap (see link in the article)
  4. Buy the book from Amazon. The best way to understand and own Porter's powerful ideas.
 

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Michael Porter’s 5 forces determining the nature of competition in an industry are

  1. Barriers of entry for new competitors.
  2. Threat of substitute products or services.
  3. Declining bargaining power of suppliers.
  4. Rivalry among existing competitors.
  5. Bargaining power of buyers.

These five forces are extremely helpful to understanding the key dynamics in Globalization. It help us to appreciate in a neat conceptual and functional framework why Globalization accelerates and is always at risk of meeting speed bumps and even powerful forces attempting to roll it back completely E.g., Global Terrorism of the kind Al Qaeda promotes is a potent enemy of Globalization. The fact that so many terrorists are also converts to Islam rather than born Muslims suggest that the speed we are globalizing has showed that we have failed to carry with us a class of people and they want to oppose it. The ovewhelming forces of Globalization caused them to resort to previously unheard of and unthinkable measures.

Globalization follows from a trend of governments liberalization by removing the barriers to competition (Force 1, see Porter's list above). This opens the way for substitute products and services (Force 2) which drastically increase the supply, and naturally leads to weakening the bargaining position of suppliers (Force 3). Competition among suppliers destroys their pricing power (Force 4) and increase the relative buying power of consumers (Force 5). This is a very neat and simple framework but what does it tells us about the dynamics, especially the speed and energy in Globalization and the violent opposition it has received?

NaviMapTM analysis is used to represent the logic of Globalization in the form of a knowledge map. It is a powerful way to see the situation more clearly. My suggestion is to go through the "How to read maps" section first. It wouldn't take more than a minute to complete.

1. How to read maps
2. This story as a map (pdf file 70K)

NaviMapTM analysis can show that Porter's Forces 3, 4 and 5 sets up a virtuous cycle for consumers and a vicious ones for some suppliers. Suppliers compete with each other aggressively to support lower prices by improving productivity and/or suffering declining margins to sell to increasingly well-informed buyers that pick the best value money in an OVERSUPPLIED situation resulting in endless cycles of contests among suppliers to adapt and out perform each other to please the consumer. This is a "fast spinning cycle" because it is a situation created by Force 1: Sudden lowering of entry barriers leading to overwhelming over-supply of goods and serivces from competition and trade liberalization.

 

This type of virtuous cum vicious cycle is a powerful feedback loop that clearly cannot continue indefinitely. A backlash is inevitable and is often as powerful as the forward forces to check its

growth. Such braking forces will keep appearing to slow Globalization until it succeeds. These are the "limits of growth" that is built into all reinforcing loops. In nature as well as man-made systems, nothing can grow forever.

"Limits of growth" come in many guises. It could be working longer hours, job insecurity and layoffs, mass labor protests, rising protectionism, which have not succeeded at slowing Globalization down, and finally global terrorism. The costs and delays in implementing adequate security has been the most powerful brakes against Globalization thus far.

What we must realize is that although we should not roll back on globalization, we cannot go much faster. It is time to slow down and get more people on board before we can accelerate again. E.g., we have to successfully disprove the erroneous beliefs of perverted Islam.

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