An analysis and blue print for Developed World to compete with Developing World.

1. HOW TO RESTRUCTURE FOR THE NEW WORLD ORDER?
We’ve seen many major companies over the past few decades that had a
strong leadership position, only to be overtaken and overshadowed by smaller,
more nimble rivals. In the technology space, we have several past examples of
AOL, Apple, Compaq, Cray Supercomputers, Digital Equipment Corporation (DEC),
Eastman Kodak, IBM, Memorex, Netscape, Nokia, Novell, Silicon Graphics, Sun
Microsystems, and Xerox that either stumbled badly and had to severely
restructure to survive, or just went out of business.
So in order to avoid the same fate, the CEO’s office and the board of
directors (for both small & large firms) and government officials need to implement
a combination of the following strategies over the next five years to remain
competitive globally:
Competitive Strategies for Survival:
◊ Put more resources into education and training: India and China are
pouring lot of resources into education. China produces approximately 75,000
people and India approximately 60,000 people, respectively with higher degrees in
engineering or computer science every year. To stay competitive, we need to keep
U.S. employees well trained through continuous on the job education and training.
The U.S. government needs to be lobbied for increased H1-B visas so that the tech
companies can hire the foreign students already studying here, and also bring
qualified foreign engineers from overseas to work for them here.
◊ Embrace “polycentric innovation” rather than concentrate R&D just in
the U.S. and Europe: Not limit the Design and R&D efforts only to the US and
European labs, but rather take advantage of creativity in other markets. Emerging
markets are rethinking innovation, and coming up with interesting products due to
their younger populations and economic necessities. For e.g. GE’s Bangalore unit
has designed an $800 hand-held, simplified ECG unit called Mac 400. This could
cut prices for GE’s western users from $2,000 to $800, and will enable GE to sell
this simplified, lower cost option to its customers world-wide, including in China,
where it already has started selling these mobile ECG’s.
◊ Rethink and rationalize everything from products to distribution
systems: In emerging markets, purchasing power is generally less than in the
western world, distribution systems can be hopeless, piracy extremely prevalent
with an expectation of getting products for free, and high staff turnover a constant
reality. To survive in these markets, there’s a need to constantly innovate, sell to
the top, middle and the bottom of the pyramid, and develop mom and pop
distribution systems. For e.g. despite its recent stumbles in the smart phone
market, Nokia still remains an aspirational as well as high-end luxury brand in the
developing world. It sells phones through small local convenient stores rather than
huge distributors; while it makes high-end smartphones, it also sells $50 or less
basic phones with long battery life that can be used as a flashlight during long
periods of power outages, allows multiple phone books for shared users, and has
rubberized key pads and menus in several different languages.
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2. ◊ Reverse supply chains if needed: Traditionally, western companies bought
cheap parts in emerging markets, and then assembled the final products in the
western world utilizing skilled labor here. But now companies such as Brazilian
Embraer are buying specialized U.S. parts and sending them back to Brazil for
assembly. This cuts down on the labor cost, develops Embraer’s expertise to create
products for Brazilian, other Latin American and emerging markets, and also U.S.
customers get more affordable products with specialized U.S. component parts.
◊ Focus on incremental, stealthy, and imaginative improvements: Not all
innovations and improvements are “break-out” variety. Many of the innovations
are need-based, accidental or through competitive “snooping around”. For e.g.
Chinese counterfeits bring latest fashion accessories onto the streets in no time.
Their design and production lines must be pretty nimble and cutting edge to copy
designs so quickly and accurately. Also the Q-Drums designed and sold in Africa,
and the water filter designed by Tata Consultancy Services (TCS) that uses rice
husks to purify water are examples of creative and incremental innovations that
improve people’s lives and provides lost cost solutions at the same time.
◊ Keep looking for promising acquisitions to strengthen product portfolio:
Flush with cash and expertise, many emerging market companies such as Tata
Group and Reliance Industries of India, Emaar Group of UAE, Carlos Slim of Mexico,
and several Chinese Groups are gobbling up companies world-wide to both scale up
and scale out. They aren’t afraid to “pay-up” as they know they can rely on their
low cost network to make the acquisitions work in the long-term. Tata Motors
acquisition of Jaguar from Ford is a case in point.
◊ Stay Frugal by re-engineering or reverse-engineering: Compared to the
western world, emerging market companies have usually to deal with limited
resources, rampant corruption, theft, and poor infrastructure. This translates into
managing resources more sparingly and as needed. Often times, this means
understanding the customer’s price points and usage constraints, and then finding
solutions through backward calculation and reverse engineering.
◊ Cultivate flexible networks: Western companies need to develop relationships
and networks globally that are flexible and responsive to changing market
demands. For e.g. Bharti Airtel of India has contracted out everything except its
core business of selling phone calls, by handing over network operations to
Ericsson, business support to IBM and the management of its transmission towers
to an independent company.
◊ Sell locally: Why design and sell only to the western world? Emerging markets
have new wealth and also huge populations. If we’re making products there, we
should sell locally as well as in other markets.
◊ Embrace Continuous Innovation: Innovation needs to be encouraged and
harnessed on a regular basis. If a company can afford it, Google has an interesting
model of allowing 20% of the employee’s time for projects of their choice. Allowing
some time off for employees to explore projects of their interest could provide
management with unexpected, cutting edge solutions.
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