Importing Competitiveness

By Timothy Chen | Published: June 8, 2005 – 7:45 pm

The Wall Street Journal (June 8, 2005) published a piece in the Opinion page entitled “The Art of Outsourcing” by C.K. Prahalad, Harvey C. Fruehauf professor of Corporate Strategy at the Ross School of Business at the University of Michigan. The “tag line” is what catches the readers attention – “We are not exporting jobs, but importing competitiveness.

The concept behind that brief statement is the corollary of the classic – the cup is not half empty, but half full! What benefits can come from a sourcing arrangement with an off shore supplier?? The obvious answer is product cost. In this article the author identifies several other possibilities which can enhance the outsourcer’s business competitiveness.

It is understood that outsourcing, particularly to an offshore supplier thousands of miles and several time zones away, requires excellent, detailed documentation/ specifications and clear, concise communication. What is excellent and clean documentation worth??

The time zone difference can work for the outsourcer by permitting a task to be worked essentially around the clock. The essentials are excellent statements of work and timely project management. What is enhanced time to market worth??

A very timely perspective on the issue of outsourcing to Low Cost Regions.

U.S. – China Trade Relationship

By Timothy Chen | Published: June 1, 2005 – 7:21 pm

A recent column (Economic Viewpoint) in the May 2, 2005 issue of Business Week titled “Stop Scapegoating China – Before It’s Too Late” by Laura D’Andrea Tyson provided some interesting data on the USA – China trade relationship. If you will recall, Ms. Tyson was the National Economic Advisor to President Clinton and the Chairman of the White House Council of Economic Advisors. She is currently dean of London Business School.

The article starts with the statement: “ … China, which sends one-third of its exports to America, accounts for 26% of the U.S. trade gap. Most of its exports to the U.S. are manufactured products, made by workers earning only 4.5% of the average U.S. factory wage. …” The article continues with: “But the fate of U.S. Workers depends primarily on domestic conditions, not the trade gap. A Brookings Institution study … found that trade accounts for only about 12% of the nation’s manufacturing job losses since 2000. Most of the losses stem from weaker exports … The main source of the deficit isn’t China’s … low wages, or export subsidies, but imploding U.S. savings rate – … The U.S. current account deficit – the gap between what America spends and what it produces – recently hit a high because of a sharp drop in personal savings and out-of-control federal spending.

We also conveniently forget that our prolifgate spending has been financed by “… China, along with Japan and few others, … financing the U.S. current account gap via huge purchases of dollar-demoninated securities at relatively low interest rates.

These economic relationships between U.S. and China – American’s love of the inexpensive Chinese products – the U.S. is a huge market and one of the few strong economies – bind us in a symbiotic relationship.

What is the answer to the question on how to compete? One answer is to focus on “value added”. What is the primary value your company adds to the product or service? The rest should be open to the most cost effective approach, such as out sourcing, OEM (original equipment manufacturer) relationship, etc.

Save what you can . Be prepared to compete on a global basis.

Double edge sword

By Timothy Chen | Published: May 17, 2005 – 4:57 pm

Low cost region sourcing requires evolutionary change on the part of both parties. Low cost region (LCR) manufacturers must transition their processes, practices, procedures to those which will enable them to compete on a global basis. The implications are that in addition to very competitive prices (30% to 40% reduction over domestic manufacturers), they must provide consistent, high quality products. For the domestic integrators/ manufacturers, in addition to the to be expected language and cultural differences, the primary issue is dealing with the stretch-out of their supply chain. They may have become accustom to the flexibility of sourcing from a local manufacturer. For example; the ability to make product mix changes on the fly and the ability to expedite or push-out near term requirements. LCR sourcing adds ocean freight/ customs leadtime to the manufacturers leadtime. Does a USA based distributor provide value to this supply chain?? There is the potential to assist the LCR manufacturer with the transition to global competition. The domestic integrator/ manufacturer benefits from a domestic stock which can buffer the changes in product mix and delivery requirements.