"Partners in Wealth – The ins and outs of collaboration"

By Timothy Chen | Published: February 10, 2006 – 11:19 pm

“Partners in Wealth – The ins and outs of collaboration” (The Economist, January 21st-27th 2006) is the title of an article that I found very intriguing. This article was part of a section in that issue of The Economist entitled “The new organization”. The article quotes from a paper entitled “The Strategic Enterprise: Rethinking the Design of Complex Organizations” by Mercer Delta. In the paper is a description of “… its vision of the organizational architecture of the future, made up of a number of strategically aligned business ‘linked closely where there are opportunities to create value by leveraging shared capabilities, but only loosely where the greater value lies in differentiated focus.’ In other words, close and loose relationships will exist within the same organization.” I believe that the point is that the differentiation between “We” (those of us within the organization) and “Them” (those outside our organization such as suppliers, vendors, customers(?), …) has become blurred. “One of the most contentious of these new relationships is outsourcing – the handing over to others of what were once considered to be core functions of the company.” The article makes the point that outsourcing is a fluid activity … that what makes business sense today, may not make business sense tomorrow. At sometime in the future, it may make strategic business sense to bring that particular function back in-house. The example that the article gives is the handling of payment processing. This activity would appear to be a natural choice for outsourcing to a low cost labor market. Apparently banks have begun to realize that by outsourcing this activity, they have given up a valuable information source. With available data mining applications, they have discovered that they are able to identify new products and/ or markets. The example that the article gives for these “close and loose” organizational structures is the design by Boeing of their new 787 model. In a break from past aircraft development projects where the entire design work was performed in-house, Boeing is designing this aircraft with the active participation of its 787 partners in the design process. “The main reason to change, says Mike Blair, head of the 787 development team, was that the company realized it had to trawl the world and find the best suppliers in order to compete with its main rival in the market for commercial aircraft, … it scoured the globe for new partners … some in Europe, some in Japan … in the United States.” The company significantly reduced the number “partners” from previous aircraft development projects and asked “partners (to) share the responsibility for a project.” Each partner is “responsible for all aspects of their piece of the puzzle.” “As Mr. Blair says, ‘it puts a high premium on the choice of partners in the first place.’ ” In summary, I believe the implications are that organizations must remain flexible, constantly reforming the teams that will tackle each business opportunity with the team members (both internal and external partners) that provide the best value to the customer.

Shift in market

By Timothy Chen | Published: November 18, 2005 – 12:18 am

I was struck with a “wow” moment the other day when my wife got on the Internet to listen to a “real time” pod cast of a public radio program she likes from Houston, Texas (we live in the northwest of the United States). I realized that the Houston radio station has essentially expanded their radio audience beyond the reach of their physical radio signal, essentially to anywhere accessible through the Internet. Since their market has expanded, what is/ will be the potential impact to their approach to fund raising, advertisements, programming, etc. This is an example of how technology has eliminated a limitation to their business market. Formerly in order to expand, a radio station business would have had to purchase another radio station in a different geographical area and/or their radio frequency license. This process is an expensive and time consuming effort. Certainly, I have used the Internet as a marketing/ sales tool. However, since our firm markets and sells physical product, we are unable to deliver our product through the relatively inexpensive Internet medium as the radio station has accomplished. Is there more that can be accomplished that I have failed to see?? Where is that Star Trek “transporter technology”??

Strange Partnerships

By Timothy Chen | Published: October 18, 2005 – 6:32 pm

This morning I read an interesting newspaper article relating to globalization in The Seattle Times (October 18, 2005) – Parent of Airbus to build portion of 787’s fuselage by Dominic Gates, Seattle Times aerospace reporter. The gist of the story is that European Aeronautic Defence & Space (EADS), the company that owns 80% of Airbus, will build a major portion of the rear fuselage for Boeing’s future 787 Dreamliner. If you follow at any level the global commercial aircraft industry, you are aware that Boeing and Airbus are fierce competitors. The way the story unfolds is that Boeing outsourced the entire rear fuselage to Texas, USA based Vought Aircraft Industries. Yesterday, Vought released a list of their second-tier suppliers which included the EADS role. The Boeing spokeswoman was quoted as saying “it’s one of ‘the ironies of life’ in the new global manufacturing market that the parent of Boeing’s nemesis is now a partner on Boeing’s newest jet. But Boeing doesn’t have an issue with that outcome …” It would appear that the goal of achieving greater efficiency and productivity in the manufacturing process, won out over politics and nationalism. As the saying goes … the proof will be in the pudding … hopefully, the global partnership will work from the first aircraft through to 100th, 200th, etc.

Other Resources

By Timothy Chen | Published: October 12, 2005 – 7:26 pm

I am not sure where I have been, but I just became aware of search engines for BLOGs. The Blogging program I use (www.blogger.com) has a modest search function which identified several Blogs relating to the topic of globalization. The Blog which caught my eye is Outsourcing/Offshoring Information and Resources. This site provides links to other online resources. Though I have not had a chance to explore these links … the descriptions sound interesting. I also read an article in the current edition of The Economist. There are several other Blog search engines which are mentioned in the article … Technorati, IceRocket, DayPop, Bloglines. So what does this have to do with globalization? Low cost region outsourcing?? Just another example of the astonishing amount of information (good and bad, true and not true, …) available on the Internet.

The Angst Associated with LCR Sourcing

By Timothy Chen | Published: September 2, 2005 – 9:56 pm

I have been reading many articles, as I am sure everyone else has, about the difficulties, negative impact, angst that has result from the upsurge in Low Cost Region (China, India, etc.) sourcing of products. To paraphrase a laid off manufacturing worker in Ohio, she “blames consumers like herself for wanting cheap foreign goods”. This movement is no longer just impacting the hourly production worker, but has begun to have an effect on highly skilled service workers such as programmers and financial analysts. Yesterday, my wife was telling me how her hair stylist has decided to have some needed dental work performed in Mexico for 20% of the price it would cost here in the Northwest USA. Imagine dental work plus a vacation in Mexico for less than the price in the USA!!

I personally do not see myself or my fellow Americans changing our desire for bargains (quality products at inexpensive prices), do you?? How does a business survive and prosper in this type of business reality?? I am not a proponent of “bury your head and hope LCR competition does not affect the business”!

I suggest that the business aggressively adopt several strategies:

1) Out source non-core sub assemblies, manufacturing, business processes to improve margins and/or starve the competition. Focus the business on its core competencies.

2) Step up internal innovation development to stay abreast or slightly ahead of the market (not to far ahead, remember the old adage “the leader takes the most arrows!”).

3) Establish a “brand” for your product, an image that entitles your product to be worth premium pricing in the market.

· Perceived superior quality (e.g. Lexus,… )

· Superior customer service (e.g. Whole Earth grocery stores, …)

· Leading edge technology (e.g. Google, …)

· Life style image (e.g. Coca Cola, )

I do not believe that doing nothing is a reasonable approach for your employees, business and customers.

How China runs the world economy

By Timothy Chen | Published: August 23, 2005 – 7:42 pm

I have recently been reading a series of articles in the July 30th-August 5th 2005 The Economist supporting this thesis. The underlying theme of their thesis is that “China, along with the other emerging giants, India, Brazil, and the former Soviet Union, has effectively doubled the global labor force, hugely boosting the world’s output and hence its future prosperity.” In addition to the “huge, cheap workforce”, the thesis adds that “… its economy is unusually open to trade.” The underlying thesis is that not only does China export a lot, but it buys a lot also.

What are the implications of this thesis?

If we envision a global labor market, the implications of adding such a large labor pool to the global economy appears to be that increases in labor costs in developing nations should be moderate.

We read every day about how China and India have become major buyers on the international petroleum market. Feeding a growing demand at home, they have aggressively sought to secure supplies of this and other commodities. In light of their growing requirements, it would seem reasonable to assume that commodity prices will remain strong.

We know that China has been a major reason that the United States has been able to fund a huge budget deficit with minimal impact to the nation’s financial markets through the purchase of U.S. Treasury bonds. As long as China continues this policy, interest rates in the U.S.A. should remain relatively stable. Hopefully, not reaching a level that would be detrimental to economic growth.

Moderate labor costs + rising material costs + stable capital costs

Just as advanced telecommunications technology has made the world a smaller, more tightly coupled world, globalization has tightly bound the economies of the individual nations together. One of the articles closed with the Chinese proverb: “What you cannot avoid, welcome.”

Devaluation of the Yuan to the Dollar

By Timothy Chen | Published: July 25, 2005 – 4:45 pm

As anyone who follows the subject of outsourcing or “low cost region sourcing” knows, two significant events occurred last week. China reported a second quarter economic expansion of 9.5% of GDP and China revalued the Yuan approximately 2% from 8.28 Yuan/ US$ to 8.11 Yuan/ US$. Probably of more significance than the modest revaluation, was the move to a more “floating” exchange rate based upon a basket of currencies. According to the articles that I have read regarding these two events, the impact on the North American economy will be modest. It was generally agreed, however, that short of a majority economic upheaval, this revaluation is the first of many to come.

CNOOC Ltd bid for Unocal

By Timothy Chen | Published: July 7, 2005 – 5:53 pm

I have been reading many articles over the past few weeks, as I am sure others have, regarding the recent acquisition bid by the Chinese CNOOC energy company for Unocal. As one would expect, the opinions range from “this is a disaster” to “let’s play fair”. May be because of my ancestry and overseas experience, I tend to lean towards the “lets play fair” end of the spectrum.

Is it reasonable to expect or assume that China will always be satisfied to be the “cheap labor” source for the benefit of the USA and European consumption driven economy?? Is it not reasonable for the Chinese to also want to attain the same economic level as other developed nations?? If the USA and Europe desire free access to invest in the Chinese market, why should the Chinese be restricted from investing in the USA’s commercial enterprises??

As many of us remember, these same concerns were expressed earlier regarding Japanese and Korean investments. I suspect that they will be expressed again in the future as India, Brazil and Chile become stronger competitors. I believe that the basis for these fears is the belief that this is a “zero sums” global economy. Someone get stronger, someone else must get weaker. This same fear is translated on to the individual company level … if the Chinese can compete in the North American market with their unfair “labor” advantage; there will be less for us. I suggest that the appropriate strategy is a proactive “partnership” arrangement, where the competitive value add of each partner is use to leverage competitive access to the global market.

Rapidly Developing Economies (RDE)

By Timothy Chen | Published: June 29, 2005 – 6:08 pm

The recent article “Navigating the Five Currents of Globalization” by The Boston Consulting Group (January 2005) identifies five underlying global market changes which will have a profound impact on the future operation and organization of commercial businesses.
  • “… Rapid growth of RDE markets”
  • “… cost and capital advantages of RDEs”
  • “… development of talent and capabilities in RDEs”
  • “… migration of customers to RDEs”
  • “… emergence of RDE-based global competitors”.
Certainly the economies of the developed nations (the United States, Japan, Western Europe) will continue to grow. In real terms, these economies will continue to represent the bulk of the GDP for the foreseeable future. The rapid growth of the RDE economies, however, can not be ignored.

Developing a partner in a RDE can be viewed as a two way street. In the short term, the business gains low cost region price advantages and the RDE supplier finances growth. In the long term the RDE supplier gains experience and knowledge in the design and manufacture of globally competitive products. The business has the potential to use the RDE supplier as the entry point into the RDE market.

Rather than viewing the RDE supplier as a potential threat, maybe the businesses in the developed nations should view the exchange as a future opportunity for mutual growth.

Words of Wisdom – Commencement Adresses

By Timothy Chen | Published: June 16, 2005 – 9:35 pm

The New York Times published an article (“War on Terror Dominates Talks Given at Graduation“) by Sam Dillon which gave excerpts from several commencement addresses given to the 2005 college graduates. The personages ranged from Tom Hanks, actor, Vassar College (New York), to Mario Batali, chef, Rutgers College (New Jersey), to President Bush, Naval Academy. A few attracted both my interest and may have some bearing on the topic of this BLOG. Mario Batali Chef Rutgers College (New Jersey) Pay attention to the truth. It’s not an intellectual thing. It’s a gut thing. … It’s an idea. It’s a dish. It’s an icon. It’s an experience. It’s not rules. And as you cook up your life, I hope you never let anyone else’s recipe for success intimidate you or get in your way. Rules are overrated. Samuel W. Bodman Energy Secretary Georgia Institute of Technology After so many years of American dominance in science and technology, the rest of the world is clearly starting to catch up. Countries like China and India, which have been sending their best and brightest students to study in America, are now working to keep more of their young scholars at home. They are building their own networks of fine research universities, and forging their own partnerships with government and private industry, and establishing their own high-tech communities. Bill Moyers Journalist Graduate Center, City University of New York The web of cooperation is under siege. A profound transformation is occurring in America as the balance between wealth and the commonwealth is threatened by that “winner-take-all” ideology. … You are going to be needed if we are to recover America as a shared project. — “Rules are overrated” … or “thinking outside the box” or “if it is not broken, break it!!”. The location shift of science and engineering talent pools to Low Cost Regions … “Winner-take-all” ideology … What did I gleam from these few paraphrases?? The truth changes, are you sure that the underlying “rules” on which your business is built are still valid? Does the science and engineering talent always have to be in-house?? Is it possible to take advantage of lower cost, 24/5 task management offered by LCR talent centers?? Business interaction has to be mutually beneficial … the trick for Develop Nation companies is to stay closer to the customer, leveraging that advantage to stay ahead of LCR competitors.