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Globalization and the world of contracts

November 6, 2012

Two recent articles on globalization highlight important issues for contracting and commercial management.

One ( continues the assault on Thomas Friedman’s influential book, “The World is Flat”. IACCM challenged the Friedman vision from the outset, suggesting that the emerging world for business was in fact ‘spiky’. By this we meant that there was great unevenness in the process of globalization and that increased openness would also result in growing tensions between countries, trading blocs, political elites and social or religious groupings. We went on to suggest that far from creating uniformity, businesses would be forced to become more sensitive to diversity and that this would demand new forms of market segmentation.

This ‘spiky’ vision is indeed proving true and this has significant implications for how we approach commercial management and contracting. For example, it has become essential to develop a portfolio of contract models that are sensitive to different relationship needs and types. Without this, businesses are forced into long cycle times, contentious negotiations and a level of non-standard terms that generate heightened risk of non-performance and heavy cost burdens. Contract and offering design must today be multi-dimensional – global, regional, local and trans-national, to cover not only trade blocs, but also customer segments that traverse traditional boundaries.

In the early days of globalization, companies believed that they could standardize terms and processes, developing universal templates and imposing rigid compliance policies. In many ways, this was necessary to overcome the uncontrolled diversity of previous multi-national operations; but today, it has become an impediment to doing business and to remaining competitive in the face of new competition. Hence we are seeing a new and more inclusive ‘center-led’ model that ensures oversight rather than rigid control and which collects data rather than suppressing it.

These changes are reflected in an upsurge of interest in international contracting. Whether it involves dealing with local subsidiaries, agents or distributors, or direct with overseas suppliers or customers, there is a new appreciation of the need for sensitivity to local norms and customs, as well as legal requirements.  As a result, there is rapid growth in the number of members using IACCM’s global resources, networks and learning materials. Once again, it confirms that contracting skills are increasingly about knowledge, judgment and the management of change, rather than the creation and imposition of inflexible rules or inefficient case-by-case negotiation.

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