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GP29Sep04: Globe Trotters 2004 and Reinheitsgebot 1516

Certainly, Uncertainty.  We just put “The Uncertain Club vs. the Globe Trotters,” our  Annual Report on Annual Reports 2004, up on The Global Province.  We conclude here that today’s leading companies are skyhawks with global perspective, and the losers are ostriches, their heads buried deeply in the sand.  That is, the winners—such as Dell, Wal-Mart, GE, maybe BMW, Microsoft—are globally engaged, while the laggards are mental captives of the nations where they reside.  The captives, who feel they are falling by the wayside, are plagued by doubt and uncertainty—the prevailing theme of the 2003 reports. 

Globacity.  What, we ask ourselves, are the dimensions of the truly global corporation?  We study our own clients through this very prism and have had to establish our own criteria for “globalness.”  Many, many worldbeaters have built unique distribution systems, something that sometimes establishes their global credentials.  A Dell or a Wal-Mart has a supply chain that is long, fast, and relatively brainy.  With its huge onsite buying office in China, Wal-Mart alone accounts for a goodly percentage of that nation’s exports.  Southwest, though hardly global, has eschewed the “hub and spoke” system favored by America’s airlines and achieved fast turnarounds and ample market share with its point-to-point B-737 service.  It’s the only profitable major airline.  Of course, a cost driven, finely tuned distribution structure is only one global criterion, and many other factors go into globacity.   

Quality Qualified.  In the future, the intrinsic quality of the finished good or service will become as important  as the delivery process for the survival of the corporation.  One should understand that many of the global giants have acute quality problems which constitute their Achilles’ heel and provide an opening for the nimble.  The general decline in quality induced by today’s giants is not much remarked upon.  It is subtly undermining our standard of living.

Dell’s notebooks, secured offshore, are known to crash with some abandon, as are most of the other well-known brands that are built in Greater China.  Its service is reputed to be atrocious, such that one retired CEO in the South vows he will never do business with Dell again.  That said, we are still buying desktops from Austin’s most important company. 

Wal-Mart often has spotty merchandising policies (you cannot plan on consistency from store to store), something we will later review in a field report about its warehouse operation.  Net, net, companies with superior supply chains frequently botch things up with the customer, since their real focus is on the supplier, not the customer. 

Global Mediocrity.  But some of the problems we are encountering with product and service quality are not driven by shabby merchandising and low-cost-at-any-cost.  Meddlesome, remote central governments are also undermining the finest and the best.

They try to impose national or universal least-common-denominator standards that water down the excellence found in a region or a village. 

We are told that Germany’s beer purity law, or Reinheitsgebot, originally put forward in 1516, is the world’s oldest consumer protection legislation (see Best of Class).  Based on Bavarian custom (modified in 1952 and 1980), it basically ordained that beer was to made from water, hops, and barley (yeast later became part of the mix), ruling out cheap cereal substitutes and additives.  Arguably this helped Germany produce the world’s finest beers, though we personally favor the English, and others plump for Belgium.  Lately we have been taking up Stella Artois (www.stella-artois.com) as our on-tap favorite.   

But the courts of the European Union struck down the German laws in 1987, holding its articles to be anti-competitive and restrictive of intra-European trade.  Other, lesser stuff (we don’t know how much) now comes into Germany, whose population drinks 3 billion liters annually—the highest per capita consumption in the world.  It just takes a small leak in the dike to create erosion in quality.   

A similar downgrading in product standards has occurred amongst foodstuffs in several categories, particularly in the EEU.  We would claim that localities and regions which are really the source of better quality have lost standing in their battle with distant courts and legislators who have enabled the passage of mediocre goods in the name of “free trade.”  We will argue in an upcoming essay that the cheapening of product quality, which is greased by current global trading economics, does not even make economic sense in a world of burgeoning population and dwindling resources.  We need things built to last that won’t harm the human condition as the cost structure of the planet changes.  Moreover high, local standards can create local jobs, with the final 20% of a product being added where it is consumed in order to take a commodity product or service and make it more consumer-friendly.  The decline in quality is largely a function of poor international and national governance, linked to an arrogant disdain at the highest levels for the wisdom of local government and for the prerogatives of the craftsmen who generate the best.

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