Flexibility within and among locations can help companies respond to changing conditions

Manufacturers of all types seek the same Holy Grail: the strategy that delivers products at the lowest possible total landed cost. In search of that goal, over the past few years companies all over the world have relocated facilities, outsourced production to low-cost countries, invested in automation, consolidated plants, or fundamentally redefined relationships with suppliers.

Establishing the cheapest manufacturing footprint becomes infinitely more elusive when basic assumptions change fast and furiously, as they have in the past year. Redesigning the footprint can be the biggest and most important transformation a manufacturer can undertake. Yet too many managers choose the footprint by using only a single set of future cost and demand assumptions. Any manufacturing footprint exposes companies to risks, such as changes in local and global demand, currency exchange rates, labor and transportation costs, or even trade regulation. A wrong bet can transform what should be a competitive advantage into a mess of underutilized or high-cost assets.

The missing ingredient in many manufacturing-strategy decisions is a careful consideration of the value of flexibility. Companies that build it into their manufacturing presence can respond more nimbly to changing conditions and outperform competitors with less flexible footprints. To capture this value and gain the best position for responding to future economic changes, all companies should integrate flexibility into their manufacturing-footprint or sourcing decisions.
(From McKinsey Quarterly)

New Financial Power Brokers

Let me share the abstract from a recent article published in Mckinsey Quarterly. Last year’s events have altered the fortunes of the four large groups of investors—oil exporters, Asian sovereign investors, hedge funds, and private-equity firms—described as “the new power brokers” in a 2007 report from the McKinsey Global Institute. That MGI study analyzed their rapid rise in wealth and clout at a time of soaring crude prices, expanding trade, and cheap credit. Although the boom years ended in late 2008 as the financial crisis escalated and the global economy slumped, new MGI research shows that the power brokers fared relatively well. But their future paths have diverged: petrodollar and Asian sovereign investors are more influential than ever, while the rapid growth of hedge funds and private-equity firms has halted abruptly.

What’s the difference between the chicken and the egg?

What’s the difference between the chicken and the egg? The chicken is a lot more work to eat — feathers and such — but offers a lot more opportunity for a good meal.

Which came first? It really doesn’t matter, although first-mover advantage is a great thing to have. But, how much risk the chicken faced crossing the road is a pretty big deal, and stops many from choosing the chicken. So, whether you pick the chicken or the egg, you face some pretty tough decisions.

This is a simplistic way to think about opportunities and rewards, market choices and risk. However, meeting change head-on, making tough choices and assuming risk seems to be the only constant among today’s most successful businesses.

Risk aversion is part of human nature. There is comfort in knowing your surroundings, knowing what is safe, and knowing what works and what doesn’t. Unfortunately, businesses today trying to play by yesterday’s rules are in a difficult position.

All is not lost — many companies have developed ways to cope with today’s environment, and the most successful have figured out their identity is tied to serving their customers.

Shifting to a focus on what customers want instead of on what a company is comfortable making is a good first step toward adapting to today’s marketplace. Second, fostering an accountable entrepreneurial environment seems to be a must. Third, investing in the pursuit of markets, wherever they are, is a strategy full of uncertainty, but often presents the opportunities with the highest rewards. And, finally, marketing, marketing, marketing — it builds brands, protects all the effort that has gone before and leads to new opportunities.

Agreements are dictated more by politics than by economics

Something is usually better than nothing. Shorn of all of the economic jargon and legal niceties, that is the logic behind the booming business in bilateral trade deals that is sweeping Asia. As the Doha round of world trade talks languishes, Asia’s trading nations say that they cannot afford to sit on their hands and wait for Doha to revive. Better, they argue, to loosen up trade with simpler deals between a couple of countries or, if you are truly ambitious, a handful.

Some regional trade deals in the right circumstances have indeed added to economic well-being. But the sorts of deals that are now being signed in Asia, just when multilateral trade desperately needs supporting, are likely to do less for their countries’ economies than for the egos of the politicians who sponsor them. Taken as a trend, they amount to a dangerous erosion of the system of multilateral trade on which global prosperity depends.