• Strike Halts Honda’s Production in China
• Honda Offers Pay Raise to Chinese Strikers
• Honda’s Chinese Parts Plant Resumes Full Operations
• Honda Resumes Car Production at Two Assembly Plants in China
• Japan’s Brother Says Hit by China Strike
• Foxconn Gives China Workers Dramatic Wage Hike
• Microsoft Opens Probe after China Factory Report

Foxconn, Honda, Brother have all been the target of labor disruptions driving higher labor costs.   Foxconn and Microsoft are both mired in reports of poor working conditions.  While China’s communist government doesn’t officially allow unions, they seem to turn their head at labor protests – so long as the protest doesn’t appear to be critical of government policies.  

Is it any wonder that this is happening?  Prices for electronics have been pressured downwards continuously over the past several years.  Just look at the cost of a laptop today compared to a few years ago.  Almost a 1/3 the cost.  While some of these reductions are due to economies of scale and improved manufacturing techniques, much of the savings is because of the low cost of labor.  Even still, factory wages are significantly more than a typical Chinese worker could make farming or as a laborer in the rural parts of the country, and so workers flocked to the factory towns.  As a result, China’s workers started having a disposable income.  Money for televisions, cell phones, bicycles and automobiles.  The same desire that drives consumption in the West, is starting to permeate life in China.  The Chinese worker wants the same things that you and I want.   Can you blame them?

So what do these changes mean for us?  To a certain extent, we will need to accept that things will get more expensive (in the case of electronics, the downward price trend will slow and perhaps even reverse).  Chinese workers will continue to demand fair wages and better working conditions (as they should!). But these changes can continue only to a certain point.  At some point (as it did in North America, Europe and Japan), the wage pressures are going to increase to the point that the advantages of doing manufacturing in China will start to disappear and China will transition from being a low cost supplier of goods to a net consumer of goods.   At this point work will be moved to the next hub of low cost labour (India?  Africa?). 

My advice for companies with manufacturing in China?  First and foremost, take notice of the working conditions in the factories.   It doesn’t matter that the contract manufacturer is a separate company with their own policies, it is your company name and brand that is attached to the product. Have a plan in place in case your manufacturing source (or their supplier) goes on strike.   Also, (and I’m sure this is something that you are doing already),  closely monitor the costs from your manufacturing operations.  At some point, costs will rise to the point where you will need to start looking at other sources. The sooner you recognize that point, the better off your company will be.  

Before looking for another low cost offshore location to manufacture your goods, consider bringing your manufacturing back to North America.  While labor costs would be undeniably higher, these additional costs might just be offset by reduced lead time, reduced transportation costs, improved quality, reduced risk and improved goodwill.   Just a thought.

• There is a huge consumer market in the rapidly developing economies (these being principally the BRIC countries) largely untapped by companies in the developed economies.
• To reach the consumers in these markets will require a different type of innovation, exemplified by the Nirma case study, focused on product simplicity (and price) and distribution effectiveness.

In their April 15th, 2010 edition, the Economist ran a special report called “The new master’s of management” (subscription may be required) in which the authors state

“Emerging countries are no longer content to be sources of cheap hands and low-cost brains. Instead they too are becoming hotbeds of innovation, producing breakthroughs in everything from telecoms to carmaking to health care. They are redesigning products to reduce costs not just by 10%, but by up to 90%. They are redesigning entire business processes to do things better and faster than their rivals in the West. Forget about flat—the world of business is turning upside down.”  They go on to say “the rich world is losing its leadership in the sort of breakthrough ideas that transform industries.”

In a supplemental report “The world turned upside down”, the Economist states that

“They (the BRIC countries) are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models. All the elements of modern business, from supply-chain management to recruitment and retention, are being rejigged or reinvented in one emerging market or another.”

On the issue of reaching the broad consumer market the Economist goes on to state that

“It is not enough to concentrate on the Gucci and Mercedes crowd; they have to learn how to appeal to the billions of people who live outside Shanghai and Bangalore, from the rising middle classes in second-tier cities to the farmers in isolated villages. That means rethinking everything from products to distribution systems.” (My emphasis.)

And then there is Apple, with record sales into the BRIC countries confusing the issue.  A Wall Street Journal article in September 2009 titled “Apple Rides Recent Growth in Asia to Earn Top Honors” states that “Apple held just a 1.6% share of the personal-computer market in Asia in the second quarter of this year, and a 0.6% sliver of the region’s mobile-phone market, according to technology market-research firm IDC.”  It is Apple’s latest results that are startling.  Shipment of iPhone units grew 474% in Asia Pacific, 183% in Japan, and 133% in Europe. Total revenue from iPhones was $5.45 billion, and China accounted for $1.3 billion, up 200% following the iPhone’s launch at China Unicom.  I am not sure what this means in terms of market share growth, but the unit growth is impressive.

I must say I consider Apple’s results to be the exception rather than the norm.  I think Nokia’s approach is a safer bet for most Western companies that do not have the “trendiness” of Apple, even though Nokia’s stock price has plummeted on the back of Apple’s gains.  Focus on bringing innovation to large populations, not the elites in the BRIC countries.  Work out how to get your products to the “last mile” in countries that do not have the most sophisticated infrastructure.  On the other hand, perhaps Apple’s approach is correct because of the huge increase in disposable income in the BRIC countries.

Whatever your approach, I think it is absolutely necessary for Western companies to place a lot of emphasis on their growth in the BRIC countries.  Many of the large companies are doing this already.  What about the mid-sized companies that employ the bulk of the people in the Western countries?  What are they doing in terms of supply chain innovation to reduce costs?  I’d really like to hear your stories and opinions.

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Great article, Dan.

I liked your identification of the drivers, and wished that there had been more prediction of what the consequences would be.  For example, how will companies reconfigure their supply chain?  In this particular case, I think we only have to look at Apple and Cisco to see some direction.  Both of them outsource virtually all their production. And of course Apple, as you state in your article, is at the forefront of the “digitization” of the supply chain.

What really fascinates me is the rise of the brand owners in China and India.  I saw an article today in McKinsey Quarterly that China’s economy grew 8.9% in Q3 this year.  Even in the boom period before 2000, growth rates in the US fell short of this number.  Of course, this is even more startling when comparing the growth rate in China over a similar period.

I think we are missing the effect this will have on the Western brand owners such as Apple.  It might seem counter-intuitive given Apple’s record quarter and I have no idea of the product strategy, but I wonder how much they are designing products for the Western world and how much they are assuming the Eastern consumer needs are the same.

As you correctly point out, there will be huge impacts on “product design, pricing, logistics and much more.” I am fascinated by the growth of Eastern brand owners such as Acer, Lenovo, and Huawei.  We have weathered the storm of the Japanese companies in the 1980’s – Sony, Toshiba, Toyota, Matsushita, … but those were different economic times when those companies were designing products for a western market.

I am not yet convinced that Western brand owners are paying sufficient attention to the needs of Eastern markets.  These have been very Western focused, but I suspect as the pride in their countries economic performance grows, so will their confidence and demand for products to meet their specific needs.

We have a number of customers who are the forefront of the blurring of operational supply chain planning and execution.  Of the 10 things you identify, I think this is a consequence of many of the others. And you are correct, this blurring is reaching up into tactical planning too with more and more companies running S&OP on an as-needed basis.

The factors you identify, specifically reduced inventory levels and pervasive visibility, are driving this blurring.  We all know that inventory has been used as a buffer between the demand and supply chains.  Reduced inventory levels require a much more agile supply chain that is very responsive to change.  And of course the supply chains need to be reconfigured to be more responsive.

Dashboards are of course a necessary precursor to understanding whether or not one is on-track to meet future objectives and any deviations need to be addressed before they become “actuals” and appear in a scorecard.

Once again, thanks you for a great article.

As economies in low cost regions improve, labor costs will increase and work may have to shift elsewhere. Whether the latest trend will lead companies to continue outsourcing their operations to foreign countries or bring them back home, these decisions seem to be cyclical (almost like in fashion, these trends come and go). The truth of the matter is that independent of where your suppliers (and customers) are, no company is self-sufficient, but rather they depend on a complex chain of value added operations that need to be well synchronized to optimize the flow of products and services.

With the recent discussions involving global warming and the need for ‘green’ operations, we’ve been forced to learn and think more about total systemic cost. With that, there is more interest about what happens in the operation before or after ours in the chain. I think that the new way of doing business to satisfy green requirements will help approximate companies and enhance relationships.

This is because in order to improve efficiencies and supply chain coordination, companies will have to start seeing themselves as part of a complex chain of value added activities, and spend time studying the appropriate management of complicated networks of companies and markets. The fact is that leading companies don’t act as standalone firms.

Flexibility and agility don’t come solely from well designed and implemented supply chains – as the paper mentions, they are highly influenced by the quality of the collaboration process. The technology to collaborate and manage information and transactions is available. What needs improvement is the ‘soft’ side of the relationship: built based on trust and integrity so that companies can follow those leading enterprises which strive to ‘define mutually beneficial strategy and cross-enterprise processes’.

During my 2-week visit to China last May, I got a sense of how the economic downturn is impacting the ‘awakened dragon’. After talking with several entrepreneurs, market experts, government representatives, University professors and multinational senior managers there, I realized that their hunger to grow hasn’t diminished and they are looking around to find alternatives to pick up the slack of a weaker export sector.

At the same time, Chinese citizens are becoming more educated and the consumer market is growing, with more consumers and higher incomes. Here are my thoughts on some particular changes:

Diversifying alliances: Tiananmen Square decorated with the national flags of China and Brazil to receive the Brazilian president.

• There is a high level of unmet domestic needs, especially given the internal mobility (people moving from country side to larger cities), so Chinese companies are turning internally to support growth. The economic crisis is only accelerating this process.
• China is also looking to expand partnerships and trading agreements with countries in Latin America and making inroads with other developing countries worldwide.
• The government wants to transform the country from a manufacturing hub to one of more value-added activities, like services and alternative energy (they are the #2 wind energy producer today).
• Chinese are giving more importance to development of their own brands rather than manufacturing goods for multinationals. See examples of Lenovo (“Global Company with Chinese heritage”, wants to be #1 international brand for computers) and Huawei.
• The market is demanding that Chinese manufacturers meet environmental, health, and safety standards (better quality and control from products made in China). American corporations that have supply chain ties to China want to keep and attract consumers with green awareness. For example, Wal Mart has announced that the top suppliers in China will need to become 20% more energy-efficient by 2012 (“Wal-Mart: Making Its Suppliers Go Green”, Business Week 14 May 2009). More educated Chinese citizens that are beginning to protest against pollution and environmentally unfriendly practices, which is also another factor to increase pressure in pro of the green mandate movement.

All of these changes will have some impact on Supply Chain practices, including plenty of opportunities, whether you are operating in China or not:

• Multinationals have the opportunity to review their strategy to serve the Chinese market, but they need to understand its complex environment first
• Incentives for manufacturing might not be as attractive as in the past, unless it is in an industry in which China lacks knowledge and that the government is targeting for development (like energy and services)
• It’s becoming expensive to establish manufacturing in the more developed provinces; some companies are looking to relocate to more remote areas in the country
• Increasing competition will require Chinese companies to improve quality and productivity. In general, software systems are still not well developed and there are a lot of opportunities for software firms to sell to local companies (inventory control, manufacturing execution, supply chain management systems to name a few categories)
• In the short term, the “green mandate” may increase cost and force some companies to look for sourcing alternatives. Companies interested primarily in competitive prices may have to look for new suppliers. Could this benefit other countries, like Vietnam?

There are certainly many changes happening in China and although we don’t know what will happen given the number of variables, one thing is for sure: everyone has an opportunity to succeed. Others have already blogged here about the fact that outsourcing to China is not as easy decision as it used to be due to the rising costs over there, so I did not even include this other important change in this discussion. It’s important to be aware and reflect about how the local and macro changes are impacting China and your business – how are you reacting? What’s your bet?

Richard states:

1. Teams Must Be Real
   People need to know who’s on the team, who’s not, and who has what responsibilities. A virtual team or vague team concept won’t get the job done.
2. Teams Need a Compelling Direction
   Members need to know what they’re supposed to be doing together. Without a clear direction, there is a real risk that different members will pursue different agendas.
3. Teams Need Enabling Structures
   Teams with poorly designed tasks, the wrong mix of members, and un-enforced norms gravitate towards trouble.
4. Teams Need a Supportive Organization
   The organizational context must facilitate teamwork in a manner that is conducive to the team and its members.
5. Teams Need Expert Coaching
   A focus on individual performance does not necessarily improve the team. Teams need to be coached as a group in team processes.

The purpose of a team is to provide a better and faster result that individual contribution. Teamwork is a concept that all organizations say that they value, but as Richard states, their approaches are varied and often flawed. I agree that a clear set of objectives, structure, and support are all important to the success of a team.

While many organizations are not as effective at teamwork as they could be, the effort to improve team collaboration is worthwhile. Having the input from multiple stakeholders will improve your outcome if all the right success factors are in place.

Teams imply collaboration of information and ideas. Let’s address a few questions. What do teams look like? How do they make decisions? How often are teams required?

What do teams look like?  Today the reality is that teams are not always physically together. This represents a whole new risk because you can’t physically gather the team together to focus on making decisions. You need to rely on business processes and tools. You may not even know all of the team members but you require their input.

How do they make decisions?  Collaborative decision making may be synchronous or asynchronous. Synchronous processes require that you capture everyone’s input and allow everyone to view and analyze individual contributions. Many organizations use Excel to capture collaborative input. However, it is very difficult to ensure that everyone is working from the ‘same page’ so to speak, leading to delays, confusion and ineffective teamwork.  Organizations need to look for new ways to solve the ‘Excel dilemma’. Excel was never designed for organizational collaboration. It is a personal productivity tool.

Asynchronous collaboration relies on processes and tools that support sequential decision making steps. One needs to be alerted when others have provided input or others input may have affected their contribution. Collecting input and having the ability to compare your starting point or baseline with new input is also very important. 

How often are teams required? Teamwork and collaboration is an ongoing activity. Daily decisions are made with teams. Very fundamental business processes such as Sales and Operations Planning are team based processes. If organizations are going to embrace teamwork the process cannot impede effective decision making. People need to engage quickly, provide input quickly, solve problems and come to decisions quickly and then disband. As Richard states, the teams need to clearly understand their responsibilities  and the goal of their collective input. Individuals often have conflicting objectives. Therefore visibility to their impact on the team goals is key to success.

What caught my eye though was the title of his blog. I agree with the opinion expressed by Kevin that the developing world, particularly the so-called BRIC countries, will be the engines of recovery. This is a topic I wrote about in a previous posting titled “Recession or reset?”.

Kevin’s blog addresses some of the strategic issues with which companies in the western world will need to grapple, a key phrase being that “The conundrum goes like this: we all know higher value work is based on intellectual value add and we all hope there will be profits in building IP empires. Unfortunately, today’s pricing and IP protection models are so weak that pure IP players like media and entertainment are getting killed.” I think that companies should focus on products that people can see and touch.

Kevin brings up the concept of “lather, rinse, repeat” to describe how western companies can use existing IP to address the market needs in the developing countries. This is the strategy that all companies need to adopt, particularly in consumer electronics. The environmental movements catch phrase of “reduce, reuse, recycle” can also be repurposed to capture the concept of what companies in the western world need to do in terms of products and IP in order to capture markets in the developing world. I think Nokia has been leading the way with the manner in which it is transforming banking transactions in Africa by using cell phone technology that dates from the “early” days of wireless communication.

I am also fascinated in the rise of companies such as Acer, Huawei, and Lenovo. I came across Wockhardt, an Indian Pharma company, the other day that has revenues of USD833M. I am embarrassed to say I had not heard of them before last week. Combining these companies with Mittal, Tata, Vale, and many other companies I do not know, clearly indicates that a buck can be made in the BRIC countries. The challenge for western companies is the work out the strategies and operational structures required to participate in these new economies. Personally I do not think a pure IP play is the way to go. All of these companies still make stuff.

In a study just published by Boston Consulting Group (BCG) titled “Globally Advantaged Manufacturing – Winning in the Downturn and Beyond”, the authors point out that China, India and other rapidly developing economies (RDE’s) contributed only 25% of global GDP in 1990, compared with 51% for the G7 industrialized nations.  By 2007 the RDE’s share of global GDP grew to 42% and is projected to overtake that of the G7 by 2009, much of this driven by outsourcing and off-shoring by companies based in the G7. One caveat is that this analysis predates the current recession.  More importantly though is the surge in demand for goods and services in the RDE’s.  This is the tipping point.  As the BCG authors point out, “For many products, RDE demand already outstrips that of more developed markets in terms of volume”.  Perhaps the most telling remark in the article is that “Given the price sensitivity of RDE markets, products often must be designed and manufactured locally to meet the necessary price points.”  However, many brand owners in the West have outsourced manufacturing to RDE countries in order to reduce the cost of production of goods destined for markets in the West.  They don’t have the knowledge of local demand nor the manufacturing capabilities in RDE’s.

In another BCG study titled “The 2009 BCG 100 New Global Challengers” published in Jan 2009, the authors look at companies emerging from the RDE’s to not only take major market share in their countries of origin, but also in the Western economies.  Many of these are still in the “boiler room” and have not necessarily gained market presence in consumer markets, but this is only a matter of time.  We have only to look at the bankruptcy of Nortel and the emergence of Huawei in telecommunications equipment, and the purchase of the IBM PC division by Lenovo, a largely unknown PC manufacturer in the West with a dominant market presence in China.  Who in the West would have imagined in 2000 that Jaguar would be owned by an Indian company, or that Volvo’s car division might be bought by a Chinese company?  The authors point to some of the advantages these companies have, including “… privileged access to high-growth markets and resources, freedom from legacy assets in high-cost, slow growing countries, and access to low-cost labour pools”.  And of course the outsourcing of manufacturing to RDE’s by companies in the West has only served to develop a skilled labour pool in the RDE’s.  These companies are now looking for ways to expand into Western markets, and the recession has provided many ready opportunities for cash rich RDE companies.  Just as an aside, something very similar happened in the .com bust in 2000-2001 when much of the fiber-optic bandwidth was bought up by RDE companies, especially companies from India, when the likes of Worldcom filed for bankruptcy.

Looking closer at the US economy specifically, Steven Hansen, in his blog Seeking Alpha, wrote an article titled “This Recession Is a Reset to a New Normal” in which he states that “We will exit this Great Recession in the New Normal. It will be a world of overcapacity in many sectors of the economy, poor employment conditions, abandoning of innovation, and credit abuse.” The graphs in Steven’s article were particularly startling and revealing given the long period over which the data is plotted, although as a semi-skilled applied statistician I think some of the trend lines are suspect.  Nevertheless what is apparent from the graph is that growth in both capacity and output from US based manufacturing has dropped markedly since 1999.  Perhaps more importantly the gap between capacity and output has increased.  Clearly this is a result of the outsourcing and off-shoring of manufacturing to RDE’s, which in turn has led to the emergence of a middle class and hence a consumer market in the RDE’s, the very point that BCG is making.

Yet there are quite a few voices that paint a different story.  In an article titled “The BRICs: An Analysis” in Nouriel Roubini’s blog on Forbes.com, he points out that “… India and China are net commodity importers, while Russia and, to a lesser extent, Brazil depend on commodity exports” .  Commenting on each of the BRIC countries, Nouriel makes the following observations:

• Brazil – “The expansion of the middle class and strength of the nascent housing sector require large investments in infrastructure and education and adequate micro-planning. The expansion of potential growth will only take place if this appropriate framework is built.”
• India – “Increasing the potential growth rate from the current level will therefore require raising infrastructure and energy investments, agriculture yields, government savings, education spending and implementing labor law reforms. But most of these reforms are politically challenging and will happen at a snail’s pace in the coming years.”
• China – “The real question: Can China pump up domestic demand soon enough? Chinese private consumption’s share of GDP fell steadily over the last decade to around 35%, meaning it may have a long way to go to pick up the slack of the export sector and export-oriented investment.”  

These are all true statements.  While the GDP of the RDE’s has grown rapidly, much of this has been through outsourcing by Western companies to satisfy Western demand. The consumer demand in the RDE’s has not begun to reach the levels required to sustain the growth rates experienced in the RDE’s over the past decade.  However, as pointed out by BCG, this is less of a problem for RDE based companies because of their lower cost base, and a major issue for Western companies used to designing products for affluent consumers.

In his blog, “Supply Chain Matters”, Bob Ferrari writes about US based auto suppliers struggling to find new markets, in which he refers to an article in the Wall Street Journal titled “Auto Suppliers Attempt Reinvention”.  The central point in Bob’s article is that addressing new markets is not a trivial matter, specifically that companies “… may well have the design and production capabilities related to product technology, but the other open question is whether you have the supply chain business process capabilities to compete with other existing players in your new industry venture.”  While much of Bob’s article is focussed on auto suppliers satisfying local demand from OEM’s, many of the points he makes can be readily applied to Western companies trying to address the needs of the consumers in the RDE’s.  In a separate article, Bob refers to a book “Poorly Made in China”, and analyses many of the issues that arise from outsourcing manufacturing to one of the RDE’s in which legislation and social norms are very different from those to which the which the Western based companies are accustomed.  The lessons to be learned on the supply side are only a precursor for the knowledge that needs to be gained to design, market, and sell products in the RDE’s.

The other day I came across a case study on Nirma that exemplifies for me the way in which Western manufacturers need to respond to the challengers of adapting to the new normal.  Many Western-based washing powder manufacturers have been marketing and selling their products in India for many years, largely to the more affluent city dwellers.  The manner in which the products where packaged and sold was very similar to that used to Western consumers: Large, half-empty boxes with at least 500g (1lb) of washing powder.  In many cases, even the formulation of the washing powder was the same, despite the fact that much of the washing is done by hand and not in washing machines.  The rural poor were not a target market for the Western based companies because the concepts of packaging and distribution and margins available were deemed not to be profitable.  An Indian company, with much greater knowledge of the local market, particularly the rural poor, started selling washing powder to the rural poor in small paper packets of about 25g through local merchants.  The financial outlay for each purchase was much lower and the packets were much easier to transport than the bulky boxes of other products.  In no time at all they had gained a large market share, not only amongst the rural poor, but also amongst the urban poor.  And the company was making a profit too.  Hindustan Lever, an Indian division of Lever Brothers, studied Nirma’s approach for some time, including studying ways to reduce their own cost base in order not only to sell to the poor in India, but to do so profitably. Hindustan Lever has been able to claw back market share from Nirma and now both have approximately 40% of the washing powder market.  I have heard the Procter & Gamble also studied Nirma and brought the practice of selling much smaller quantities in compact packaging back to the US to address the “seniors” and “empty nesters” markets more appropriately.

I believe it will be a long time before demand in the West returns to 2006 levels, so Western companies have little option to regain revenue other than to address the demand in RDE’s. Much has been written about how outsourcing and off-shoring of manufacturing by Western companies has made supply chains a lot more complex, but this body of work has focussed on getting products to Western markets, not on addressing global demand, much of it in RDE’s. The concept of the long-tail, focussed on providing a wide range of products specific to as many market segments as possible, exacerbates the issue of supply chain complexity even further, and adding geographical dispersion of demand across country and cultural boundaries adds even more complexity.  As pointed out by Bob Ferrari in the case of the auto suppliers, moving into new markets requires a lot of study and learning to be successful.

While there are many strategic issues to be addressed, companies will need many of the tools and capabilities being used to address the lack of visibility and coordination caused by outsourcing. Top on the list is visibility into their operations on a global basis, especially demand, to monitor their financial and operational performance, and the ability detect and respond to changes very rapidly.  This is especially true if the company is used shared manufacturing capacity in the RDE’s to satisfy both Westerns and RDE market demand.  Without the ability to balance demand and supply on a global basis, and to respond to changes in a rapid and effective manner, the risks of addressing RDE consumer demand are enormous.

The paper also outlines PRTM’s views on the top 10 major global supply chain trends for 2009.

I think the current economy is forcing everyone to rethink their globalization strategy.  Long-term thinkers are going to cut costs while positioning themselves for the renewed growth that will eventually come (I still believe it will come!).  Short-term thinkers will just look to cut costs.

I’ve been a long-term believer that out of every crises like we’re in right now there are critical lessons to be learned.  Our systems had gotten out of balance and markets have a way of breaking under such imbalances – which is what we’re seeing now.  The key is to fix the structural imbalances to make the system stronger coming out of this than it was before.

The same is true for a company’s supply chain.  Manufacturers are no doubt finding new weaknesses in their supply network that are cracking or outright failing under the pressure of this economy.  It might be in the way your company was forecasting demand based on historical data that is no irrelevant.  It might be in your suppliers that you thought were strong and able to meet your needs but no longer can.  Whatever the situation, there are lessons to be learned.  Long-term thinkers are not just cutting costs at random, they are cutting back while learning and repositioning for the future.

What is your company’s perspective – short-term or long-term?

I think the next couple of years are going to be interesting to see how they unfold.  The last several years have been characterized by substantial globalization and supply chain complexity.  Most large companies, and many smaller, have worked hard the last several years to take advantage of global cost advantages and high-growth opportunities in markets outside of North America.  This has been a win-win in that you gain cost savings while simultaneously opening new markets.

But the dynamics are changing.  The cost advantages are less (relatively speaking) and for many products/components they are virtually gone while transportation and other costs have gone up substantially.  Instead of articles and case studies about increasing globalization, I’m seeing more and more talk of rethinking these strategies as supply chain complexity, supply chain risk management, costs, slowing growth, etc. become greater concerns.

I do not anticipate a pendulum swing here away from globalization.  I think we’re going to see companies re-evaluate some of the conventional strategies that have become de facto over the last few years (like automatically moving manufacturing to China) and make some adjustments.  I think some adjustments are going to be necessary – some potentially major – to deal with some of the risks and challenges, but the fundamental benefits of globalization are just too positive to see a massive shift away from it.

What do you think?

By the way, if you’re in the electronics industry, you might want to check out what Charlie Barnhart & Associates has to say on these topics and the research they have to support their recommendations (disclaimer: we don’t have a formal relationship with them, but we’ve done some joint things in the past and I’ve been impressed with their deep insights on the industry).