I read two articles recently in two different publications that refined the concept of globalization.

The Rise of Central Europe – Deep reserves of educated, ambitious, and affordable workers are driving the region (Business Week – December 12, 2005).

The rise of nearshoring – Ex-communist Europe is grabbing a lucrative niche in the global outsourcing business (The Economist – December 3rd-9th 2005).

First some data (Business Week):

Data: Compiled by Ariba Inc. using national sources

On the surface, one would assume that the price advantages offered by the China/ India competition would overwhelm any attempt by the East European countries to compete in an open market. After all, I occasionally tell of my personal experience while working for a large multi-national U.S. corporation in a fabrication facility in Brazil. The facility was manufacturing products that originated in a U.S. facility, subsequently were moved to Scotland, then to Brazil. The Brazilian facility eventually lost the business to a facility in India because the Brazilian factory workers were paid US$1 per hour and the Indian factory workers were paid US$0.25!

How do you compete?? Proximity … leverage the fact that your are;

• Physically close,
• Perhaps a member of or soon to be member of the European Union,
• Have employees that are fluent in German, French, Italian, Spanish, etc.

In fact these countries are starting to see investments not only from western companies, but from companies based in China, India and Turkey that seek access to the European Union market.

What are the challenges?? Most are hold over’s from the communist controlled economy mentality;

• Stifling bureaucracy, corruption, etc.
• Lack of investment in infrastructure, higher education, etc.
• Complacency (don’t worry we will get it right eventually!)
• Shallow talent pool (e.g. middle managers with customer/ quality focus, …)

The key is does your company offer the best value to your customers??

A definition that is given for the term “Globalization” is demand seeking the most cost efficient resource.

I believe that cost efficient does not necessarily mean the lowest $$ purchase price. In addition to the obvious other costs of shipping expense, importation expense, handling … are the difficult to measure; product quality consistency, delivery consistency, engineering support.

Product Quality Consistency: As an OEM integrator, you would like every component product that is provided to be of equal to or better than, the First Article samples provided for qualification. Anything less impacts your integration manufacturing process, decreasing yields, adding rework expenses. Incoming inspection is the traditional approach to reducing the impact. The better approach which controls WIP (Work In Process) levels and Quality Control costs is to select suppliers dedicated to providing high quality products. (Note that I do not use the concept Quality Assurance. I believe Quality Assurance is total project activity, from the beginning engineering design, to vendor audits, to integration manufacturing audits).

Delivery Consistency: Any OEM integrator that competes in a competitive market employs Just-In-Time materials management principles. WIP inventory represents cash investment, cash costs $$ money. Suppliers must be selected that;
1) Have the capability to be integrated into your materials requirements planning system and have their own systems in place to assure the timely reflection into their materials requirements planning system of all your requirements changes. Give up on the idea of a “Firm Production Schedule” that covers full leadtime. The existence of these schedules are a myth. The only reasonably firm schedule is booked customer orders.
2) Have the quality systems in place to assure consistent yields.

Engineering Support: The manufacturing engineering, industrial engineering, quality engineering resource must be available to handle and resolve the day to day process issues. Nothing continues to work forever without some attention!

In summary, cost efficient does not necessarily mean cheapest.