Manufacturing megatrends that will change your world

Following is an article from GIL Community (the Global Community of Growth, Innovation and Leadership), subscribe to the community at: www.gilcommunity.com to read more articles like this - written by Paul Tate.

A quick snapshot of the companies listed in the Fortune 500 ten years ago is a sobering exercise. Over half of those organizations have now either disappeared off the list, or no longer exist, at least in their original form, notes Frost and Sullivan vice president and Megatrends analyst Richard Sear.

So how do you avoid becoming one of the world’s lost companies over the next ten years?

The most critical role any business leader must perform is to identify and plan a successful path forward for the future of the enterprise. That means identifying and understanding the trends that are going to transform your business in the years ahead.

The problem is that anticipating the future in today’s world, where the speed of change is so rapid and sudden, innovative disruptions are so common, may seem like an impossible task.

There are essentially two approaches to grappling with this difficult task. The first is simply to sit back and allow new technology and business models to converge into your business and then react as best as you can. The second is a proactive stance to understand and embrace change, and therefore be in a position to capture growth opportunities faster and more fully. What’s your risk profile?

Frost and Sullivan’s Sear has identified a series of global megatrends that he believes are set to fundamentally transform the world we live in over the next decade or so -- and which will have a major impact on the future of manufacturing and its growth prospects.

They are:

• The City as a Customer: The emergence of new megacities around the world, especially in Asia and Latin America, linked by highly urbanized corridors of development. These will become the world’s key centers of economic growth, creating new and different markets for manufactured products and creating significant logistics challenges for delivery to customers.
• Social Change: The combination of an aging workforce in many western economies, with the growth of demanding, impatient and tech-savvy Generation Y consumers who expect higher degrees of personalisation in both products and services.
• Technology: The increasing development of virtual worlds, augmented realities, big data, and pervasive robotics will change the way both manufacturing companies and consumer markets operate and develop new ideas.
• Smart: Extensive embedded intelligence in physical assets and products – often call The Internet of Everything – will see a significant shift towards smarter, more connected products with vast supporting networks and real-time applications.
• New Business Models: These fundamental global shifts will require companies to re-assess how they do business, and how they deliver value in the future – resulting in more collaborative operating models with a greater emphasis on delivering ‘Value for Many’ and frugal engineering approaches.
• Infrastructure: How will you be affected by a greater focus on how the world harnesses its energy resources, and creates new, more sustainable and lower cost ways to store and ultilize future energy?
• Beyond BRIC: The rapid rise in new markets and fast-growing emerging economies around the world in the decade ahead will create new markets, new global competitors, and new manufacturing opportunities that will force companies to re-asses their global production strategies and footprints. 

Where will the hot spots be and how will they change your future plans?

Manufacturing seems destined to play a key role in both reshaping existing industries and enabling others to emerge as these megatrends push the world beyond the end of this decade.

The companies that make the effort to understand and plan effectively for this future, change the way they make decisions, redefine the value they create, and restructure how they deliver that value, are likely to be the ones that will survive and thrive.

So how are you now seeking to better understand the disruptive long-term trends that could determine the future of your business?

Are you adopting internal strategies that will make your enterprise more adaptable to the fundamental economic, social, technological and industrial changes ahead?

The evolution of (new) manufacturing

There is much conjecture about the future sustainability of the manufacturing industry, especially in industry news out of the US. Previously, some economists predicted the need for a more service-based economy as, they argue, manufacturing is now the primary domain of the lower-cost BRIC nations. Contrarily, stories are now emerging where large manufacturers are 'reshoring' or coming back to the west - up to a third of manufacturers are looking at reshoring according to a recent Boston Consulting Group Survey.

There's no doubt the industry is at a watershed in its global relevance. To date, the focus has been on an emerging China and the low-cost production and vast consumer market it offers. The balance is due to shift, as outlined in a previous post on MIMOC. Manufacturing In Markets Of Consumption is where production is determined by proximity to markets and is expected to be felt in large consumer markets such as Europe, US and China. Some will say it is jobs coming back to their rightful place and well... let them say that.

In consuming various facts and opinion, I've reached a number of conclusions that both resonated with and challenged my previous beliefs:

The business case for manufacturing
The business case for manufacturing must be compelling enough to convince economic rationalists and those in positions of power as to its worth. These stakeholders will be supportive of the industry if they recognise its long-term value - at present, most do not.

It is likely industry will change it spots - perhaps a third Industrial Revolution is on its way, led by a digital manufacturing movement? Adjusting to such change will be difficult at worst, but not impossible. Its resilience has been proven in the face of natural disasters, economic volatility and competitive pressures in times gone by, and there's no doubt our approach needs to change. I recently became engrossed in a presentation by Professor Goran Roos who noted that Australian manufacturing, mainly because of its parity with the US dollar, has moved from a low-cost competitive environment into a high-cost one and has to shift its approach accordingly. He makes salient points in his 2011 report "Manufacturing into the Future" such as - advanced economies need manufacturing because:

• nations that emerged best from the GFC were based around high-value add export oriented manufacturing
• it is the biggest spender on applied research and driver for productivity
• it is the largest generator of employment
• manufacturing is at the forefront of applied technology and innovation
• the resources boom may be shorter than expected

It is people like Professor Roos that will help build a sound business case for manufacturing that will resonate with economists and influencers, minus the sentimentality.

Blatant promotion: Professor Roos is a keynote speaker at our upcoming Manufacturing Skills Conference on 18 May.

Let's address the career path
Many governments and industry associations have orchestrated campaigns to make manufacturing "sexy" or "cool" to kids. I read an article on the manufacturing skills shortage that examined the deep psychological roots the industry has for Gen Y and thereby influencing their choice of manufacturing as a career path. AJ Sweatt says its not that people are smarter, that they don't want to make things or even that they don't think manufacturing is "cool". He says:

"The problem is that for a generation, US manufacturers outsourced the jobs of fathers, mothers, uncles, aunts, brothers and sisters in search of cheap labor...the factory/mill/shop/plant was shutting down, and the manufacturing job that had given them a decent life, pride, and dignity was no more. There were probably tears. Moods changed, relationships suffered, some families shattered. These kids watched their parents and communities face a dust-bowl reality that said they were expendable....How do you tell someone to ‘un-live’ that?"

Is this the same for Gen-Y and Gen-Z in Australian manufacturing? Perhaps. In my encounters with Gen-Y, it seems that remuneration, status (career progression) and lifestyle are the determining factors in a career choice. Much is being done to re-educate Gen-Ys about the changing nature of (new) manufacturing careers, but this is a long-term challenge requiring a long-term commitment. If we do not continue this campaign, we will reduce the future capability of (new) manufacturing. We will only know if it has been successful once all of Gen-Y are in the workforce and by then, we should be wising up Gen-Z that manufacturing is "mental"(?)..watch that phrase catch on in a couple of years.

The "S" word
Now here's a dirty word... "subsidies" a.k.a. "protectionism". I know it is US-centric, but I refer you to a great article on how "Balancing Trade is not Protectionism". The author Mike Collins argues that the US trade balance is not based on a level playing field as China manipulates its currency to force a trade deficit. He says the only beneficiaries are US multinationals (who produce in these low-cost countries) and those nations that manipulate their currency, likening the relationship as trying to sustain a heroine addiction. His argument that the US should be using the "S" word to protect its future from the ultimate collapse that will happen from an ever-expanding trade deficit.

I tend to agree that why wouldn't we, as part of a manufacturing policy, identify key manufacturing sectors of strategic importance and support them in preparation as future economic cornerstones? As those sectors mature, ultimately other low-cost providers will emerge which is when the free market should take over and we should look at the next wave of strategically important sectors.

Well, that's my brain drained. What do you think?

Forget onshoring (reshoring) - what about MIMOC?

Do you ever a read a post and say to yourself "Man, this person is smart!". I've only read a few posts by AJ Sweatt and all fill me with excitement and envy. In a post dated October 2011 (nothing like keeping my finger on the pulse), he discusses reshoring and how the concept is important in redressing the balance of unneccesarily lost jobs overseas, but ultimately not sustainable.

Instead he suggests MIMOC - Manufacturing in Markets of Consumption, which apparently has been around for years. Known by Coca-Cola and many well-known auto manufacturers, the process specifically locates production locally for exposure to local markets. Makes sense.

The benefits of MIMOC are:

• it encourages exports
• it’s sustainable
• it simplifies politics & public opinion
• it creates jobs
• it creates, nurtures & moderates the global manufacturing network

I also like his point that MIMOC gives corporations an "out". Corporations can relocate operations based on where the local market is situated. No need to admit failure over an unsuccessful offshoring initiative.

Click here to read the full article. 

The most popular US brands in China

A great article from 24/7 Wall Street listing the Top 10 American brands in China. The full article reasons that while population growth over the last 40 years (667M to 1.3B) in China has been an attractive market for growing these brands, it is also the rise of the Chinese middle class that has substantially contributed to the success of these brands. 

There were a couple of "wows" for me here. First, KFC number one? Wow! NB: McDonald's doesn't get a mention in the Top 10. Second, Microsoft as No. 3 has a 99% market share? Wow!! NB: The article also mentions Microsoft believes four-fifths its Windows products are pirated. I could go on... maybe one more. For the first time, GM sold more vehicles in China and than the US. Anyhow, enough of my "wows" here's the list of the Top 5. The Top 10 can be found in the full article by clicking here. 

1. KFC

• Market share: 40% (Yum! Brands)
• Industry: fast food
• Competition: McDonald’s

KFC has become a sensation in China. Since the first restaurant opened in Beijing in 1987, the chain has grown to more than 3,200 locations in 650 cities, according to Bloomberg. McDonald’s (NYSE: MCD), the second most prominent fast food chain, operates 1,100 locations. McDonald’s commands only 16% of market share, while Yum! Brands (NYSE: YUM), which owns KFC, has 40%. KFC is so hugely popular that the company’s target is to increase its number of restaurants in China to 20,000. China accounted for 29% of Yum! Brands’ measured-media ad spending and 36% of its worldwide revenue in 2010, according to Ad Age. While McDonald’s restaurants in China have an almost identical menu to those in the U.S., KFC offers local patrons a number of more familiar dishes, such as Chinese-style porridge for breakfast.

2. General Motors

• Market share: 12.8%
• Industry: automotive
• Competition: BYD, Toyota

General Motors passed Toyota Motor (NYSE: TM) in the first half of 2011 to become the largest automaker in the world. It is also the top-selling brand in China. GM’s presence in the country is still expanding. In the first half of 2010, the company sold more vehicles in China than in the U.S. for the first time ever. At that time, China accounted for a quarter of the company’s global sales, according to the New York Times. Since 2000, the company’s market share in China has grown from 3.4% to 12.8%. Last year GM sold more than 104,000 LaCrosses, one of its most popular models in China. GM operates in China through joint ventures with a number of Chinese companies, such as SAIC Motor.

 

3. Microsoft

• Market share: 99.3%
• Industry: PC operating systems
• Competition: N/A

Microsoft dominates the PC operating systems market in China. According to web analytics company Baidu Tongji, the company has about 99.31% of market share. Apple’s Mac OS and Linux have virtually no representation. Due to rampant piracy, however, Microsoft only makes a fraction of the revenue it would make if everyone in China bought software directly from the company. Nearly 80% of PC software is pirated in China. According to Microsoft CEO Steve Ballmer, the company’s revenue in China will only be about 5% of what it is in the U.S., despite almost equal sales of personal computers in the two countries, the Wall Street Journal reports.

4. Boeing

• Market share: 52%
• Industry: commercial aircrafts
• Competition: Airbus, Embraer, Bombardier

Boeing currently has more than 50% share of the Chinese market for commercial aircraft, according to Forbes. The company’s presence in China most likely will increase in the coming years. Air passenger trips in China have increased 16% from 2010. Boeing expects the aviation market in China to more than triple over the next 20 years, requiring an increase of about 5,000 planes valued at $600 billion. Boeing and China have a two-way relationship. According to Boeing-China President David Wang, speaking to CNC World, “China is already Boeing’s biggest customer outside of the United States and Boeing is the largest purchaser of made-in-China aviation parts and components.”

 

5. Nike

• Market share: N/A
• Industry: sportswear
• Competition: Li Ning, Adidas

Nike is China’s leading manufacturer of sportswear. It is followed in market share by Chinese company Li Ning, which holds one-third of the market, and Adidas, although some research puts Adidas in second place. In June Nike reported annual revenue of $2 billion in Greater China, according to Reuters — double the amount made by the company in 2007. Although Chinese companies currently hold a significant market share, they are locked in heated competition to keep up with the expansion of foreign rivals. Concerning sportswear in China, HSBC noted in a report that, “Local brands will lose more market share to imported brands over the next 12 months as the former struggle with inventory issues, while the latter benefit from consumers trading up.”

The rest of the Top 10 lines up like:

6. Coca Cola/Sprite

7. Procter & Gamble

8. Intel

9. Starbucks

10. Apple

Click here to read the full article.