The movement towards capitalistic tendencies in the global marketplace sounds like a good thing and most people tend to agree on this point. I for one am in that camp, I am also a believer in many related economic theories such as economies of scale and net gains for specialization when trade is relatively unrestricted. I find it hard to detect any inherent drawbacks in a global transition to a capitalalisc marketplace. In fact a more globally interconnected marketplace promotes peace by means of foreign investment and inclusion in multinational supply chains. But alas, I have stumbled across one and what a sucker punch it is. In this case it his limiting access to photovoltaic products (solar panels) in a way that is quite unconventional. Before I delve into this weird interaction between rationality, economics and the green energy movement let me start with a little useful information. The relatively modern "golden arches theory" postulated by author of The World is Flat, I cannot remember his name at the moment, states that no two countries with McDonald's in them ever went to war with each other. While this premise is no longer valid because of an increase in McDonald's risk tolerance a small adjustment for the modern age has been made, which is also stated in the latest version of the book. The adjustment is this; no two counties who apart of the same significant multinational supply chain have ever gone to war with each other, the sited example is dell, but there are many supply chains crossing many many boarders. The supply chain involved in creating a Toyota Prius is just simply, shocking long and looks more like a geography quiz cheat sheet than anything else. The informal alliance, which is the multinational supply chain is a major deterrence to military aggression and I think a more I interconnected world is a safer world.
The point of this inordinately long intro is to emphatically state that I think globalization is more than just a positive or net gain but a gain outright.
What I stumbled upon was something that got me thinking about globalization and capitalization which to my knowledge has not been analyzed or discussed up to the point. While I was working on a B2B strategy presentation for cmo-md.com (a very useful and insightful website focused on all aspects of the B2B space) I came across a section discussing ways to analyze and inform a company on the state of the market and how it reacts to pleasure from external pressure. The supply chains example provided in the presentation discusses one of G.E.'s p&ls which is in the pv (photovoltaic) market. The speakers talks about how the market shifted so drastically that GE got out of the market all together and sold the p&l off. The reason for this was a sudden influx of component parts production companies, one of the global segments of the supply chains, all running a price strategy. The combined pressure from US, Japanese, German and Chinese low cost providers made it impossible for GE to stay competitive in the market without making excessive sacrifices. These new companies all running price strategies proceeded to drive the price of products down to the point where profit margins where simply laughable. GE made the right call here, but that isn't the point of this whole thing.
What happens next however is, and it's astonishing. One would imagine that this dramatic drop in product costs would correlate to a drop in cost from the consumers standpoint. Doing us all good making the world a slightly greener place. This is supply and demand 101 stuff here, however this is exactly what did not happen. What proceeds to ensue is actually simple and understandable yet surprised and concerning. The project managers on the local side of the photovoltaic (solar panels) supply chain saw a drop in their expenses and thought hey, let's just keep the prices the same and we will make a killing. Because the project managers are the first part of the local supply chain with limited competition they have no need to price strategically in order to grow or maintain market share. Essentially this a natural economic bottleneck, which means the lower prices in production. Are only getting as far as the project managers and everyone after them sees the market as business as usually.
So what should have been a great day for globalization and the globe in general has now become a setback. The latest champions of greed, have created a situation where the manufactured parts and prices for photovoltaic technology is lower than it has ever been, but the manufactures are making less money than before nearly every part of the supply chain is constrained by stupidly small profit
margins, except these project managers who I shall hence forth refer to as sleazebags. In fact it is worse than that, the finished operational price to the consumer has actually gone up despite the decrease in cumulative overhead. The industry actually has a negative deliverable because of al this.
I am on the train. Heading into the office as I write out these thoughts and observations on my iphone which have been rolling around in my head for a while. A new thought just endeared my head as I watch 4 BofA employees drink coffee to the soundtrack of the pa announcer say "no eating or drinking on the train." With some semblance of hope of maintaining my love of globalization. The supply chain components acting irrationally are all on the domestic side of the supply chain. The global components as far as I know all acted rationally, maybe not strategically, and adhered to the general principles and laws of economics.
If this is true, that the domestic side of the supply chain is the cause of these issues I have to wonder why. My mind jumps right to an idea which does not initially sound like it applies. The law of large numbers, because the local instigators aka sleazebags have a much much smaller number of employees, where they are less likely to see this is inherently detrimental to their individual place in the market as well as unsustainable in the long term. Ironically enough, this ties yet again into the cmo-md presentation I am working on.
If only "globalization of the local" was a possibility here, eat your heart out author of "The World is Flat" wish I could remember the authors name right now. It is a great book where you will actually learn a lot and be entertained.
Alas my stop is here, the main thing I wish to convey here is my shock and awe that capitalistic forces actually reduced the growth of green energy and caused an increase in overall prices despite cheaper parts, to the point that the smart money is leaving the pv market all together.
What the hell capitalism and globalization!
Cheers, and I will leave you with.my favorite quote.
"whatever you do, do well and may success attend your efforts."
