Tech's Next Global Challenge - The Shift

Was there a particular event that signaled this shift or ignited the increased competition?

Sirkin: A group of us got together and talked about global trends. We started to see all these other companies appearing on the horizon, about to enter the world stage. It wasn’t a new phenomenon, but this one would be different.

If you go back to the late 1800s and early 1900s, U.S. companies were challenging European incumbents as we started to become much more of a manufacturing society with our lower-cost labor and materials. Those companies began to take their place on the world stage, which was primarily Europe.

In the late 1950s and early 1960s, the Japanese began to reindustrialize. Many people talked about Japanese imports as transistor radios or the little plastic umbrellas we put in our drinks. Japanese products were the definition of poor quality, which is quite the opposite today.

Then Japan shipped over its first car, the Toyota Crown car. They were not high-quality automobiles and were not designed for the U.S. market. We had our big muscle cars with fins that got four miles to the gallon, and Japanese cars were tiny. But it gave them the first taste of the U.S. market. That started a radical change. Soon enough, Japanese companies learned how to operate in the West. Now Toyota is the No. 1 car manufacturer, and everyone wants to buy Sony TVs.

We saw this with Mexico in the 1980s and Korea in the 1990s. It used to be that those countries were the places where companies outsourced.

So what makes this shift different?

Sirkin: In Japan’s case, we were talking about 140 million people. Now, we’re talking about 3.5 billion people. The wave can be 20 times bigger.

And there’s another reason why it’s going to be bigger this time. In the past, foreign companies had no way to find people to help them understand something like U.S. car design. When it came to a car, they had to build it themselves. Now, an automobile manufacturer in China can use the Internet to understand how U.S. distribution works and can understand customer needs through surveys. If it wants to do car design, the Chinese company can outsource to a car styling shop in Los Angeles to do the design. That’s now a realistic option—and a big change.

There’s also a fundamental hunger—capitalism unleashed—to control your own destiny and become a player on the world stage. Put those things together, and it’s going to be a very powerful shift.

How are incumbent companies from industrialized nations handling this?

Sirkin: A lot of companies are in denial about this. I’ve had CEOs tell me they have four or five years to figure it out, that it’ll take that long for this to happen. But it will happen far faster than Japan did. They were in denial about Japan when they shipped over their transistor radios and cars. There are many in Michigan who are still in denial about that.