Will The U.S. Soon Be a Hot Manufacturing Nation?

Will American make its way back into leading manufacturing status? A report by the Boston Consulting Group indicates that the U.S. will see increases in manufacturing over the next couple of years as parity is achieved due to lower natural gas prices, stagnated wages in the U.S. and higher costs overseas. With a decline of energy costs from oil shale dropping to 50% and increases in the cost of manufacturing in countries like China there is much to cheer in the U.S. The good times can roar again.

American workers are becoming more productive, Chinese workers are more expensive, and the associated costs of manufacturing overseas have risen. A report by the Congressional Research Service found that the U.S. share of global manufacturing declined 30% in 2002 and that number dwindled  to 17.4% in 2012 (1). The new report by the Boston Consulting Group indicates that the costs of manufacturing in the U.S. versus many other places like China will be about the same giving the U.S. advantages. 

At present the advantage of producing products in low cost countries such as China and Asia is less than 5% (2). The U.S. and Mexico are starting to look like great places to manufacture items again. Mexico has had some increases in wages but their productivity has risen much more making them a local cheap labor supplier (3).  The U.S. as a producer of high technology and advanced manufacturing with a regional partner in Mexico is covering both the high and low demographic markets of production. 

Each region of the world has some high and low cost manufacturers. Large multi-national firms can move into areas that seek them the best advantages. These advantages can come from a whole range of factors that may include production costs, labor costs, labor skill, infrastructure, tax rate, telecommunications, science development, shipping costs, etc…  They have also not considered economically suppressed areas within the U.S. that could benefit from increased investment while being supported by stronger tertiary areas.

Many companies are likely to move back to economically stable nations. The U.S. with its increasing competitive costs and relatively stable political structure can be attractive to large multi-national firms. If a windfall of re-investment in the nation comes forth it will likely adjust the shipping and distribution channels across the world to ensure that more products move in and out of the country before heading to their final destinations. Asia will also likely become a larger consumer base where products are sold and a slightly slower manufacturing base where products are built.

Boston Consulting Group (2014). Made in America, Again. Why Manufacturing Will Return to the U.S. Retrieved April 25^th, 2014 from https://www.bcgperspectives.com/content/articles/manufacturing_supply_chain_management_made_in_america_again/

Successful Internet Businesses Match Strategy and Transaction Efficiencies

Small and incumbent businesses seek to make their way online and into the global marketplace. Like new sprouts they try and break ground into a profitable entity. According to research by Howard Rasheed those businesses that embrace online product distribution create significantly higher international sales growth (2009). They studied 240 small businesses who engage in Internet based consumer marketing to find which types of businesses are likely to succeed. 

In the contemporary market, some owners may decide to create truly Internet based businesses that capitalize on the movement of information. Existing businesses may attempt to strengthen their approaches by developing their brick-n-mortar models into brick-n-click businesses that develop a hybrid approach to marketing. In today’s world, few truly brick-n-mortar companies exist in the international market. 

E-commerce businesses often fail due to lacking strong market knowledge, sound business ideas, balanced approaches to development, and failure in long-term planning, poor external relationships, and the improper thinking of management (Martinson, 2006). The internet based businesses are quick and fast paced in the market but often do not think strategically enough to obtain a sustainable threshold. 

Four different types of companies will use the internet for their business: e-commerce companies that market goods with the Internet; content experts who gather and display information from multiple sources; market makers who develop places to sell products; and those that provide Internet services (Afuah & Tucci, 2000). Ultimately each type will have a strategy that fits uniquely to their product and service goals but is inherent to their model.  

When companies do fail it is because they have not developed brand equity. Brand equity is the value of the brand in terms of customer perceptions of loyalty, quality, association, image and awareness (Yoo,  et. al., 2000). The businesses simply weren’t able to create a strong enough following through the murky and often saturated information game. They were unknown and would need to expend greater effort in creating public awareness. 

Online success is due to the high speed travel of information that allows companies to integrate into the various aspects of the market. The Internet provides cheaper transaction costs that help to coordinate activities (Clemmons et. al. 1993).  The author found that purely Internet base firms are more likely to succeed than other businesses but when they do fail it is because of their internal decision making processes. Product sales and distribution in the online environment appear to have advantages but small organizations may have a hard time achieving appropriate pricing against more established businesses. Those services that can digitized, and therefore lower transaction costs across multiple perspectives, appear to have the highest success rates. 

Afuah, A and CL Tucci (2000).Internet Business Models and Strategies. NewYork, NewYork: McGraw-Hill Irwin.

Clemmons, E., et. al.  (1993). The impact of information technology on the organization of economic activity: The move to the middle hypothesis. Journal of Management Information Systems, 10(2), 9–35.

Martinsons, M (2006). Strategic management lessons from e-commerce.Handbook of Business Strategy, 7(1), 337–340.

Rasheed, H. (2009). Contrasting e-commerce business models: performance implications for small enterprises. Journal of Developmental Entrepreneurship, 14 (1).

Yoo, B., et. al.  (2000). An examination of selected marketing mix elements and brand

equity.Academy of Marketing Science Journal, 28, 195–211

Economies Fly High with the Kite Model

International competitiveness doesn’t exist in a vacuum. There are many components such as the internal clusters, national methodology, and the cultural grouping of countries to consider. A paper by Yu-Jen and Hsiao-Fong helps to develop higher levels of understanding of how these factors work together to raise the development properties of a nation (2012). Their work focuses on combining the Flying Geese Theory and The Diamond Model to develop a more holistic framework.

Flying Geese Theory:  The theory was developed by Japanese economist Akamatsu Kaname to categorize countries into leading nations, middle countries, and follower countries (1962). Less advanced countries will attempt to move up in the V pattern but may fall backwards based upon their abilities. The pattern is not set. Countries that adapt new technologies, higher skilled labor, better structures, and greater education will lead the flock.

The Diamond Model:  The Diamond model was developed by Michael Porter (1990) to explain how countries become more competitive. He looked at clusters and history of development. His analysis took into account Factor Conditions, Demand Conditions, Related/Supporting Industries, Firm Development, Government and Chance. The factors work together to create a type of diamond pattern. 

Both theories have their limitations and therefore do not do well in isolation describing concepts of a country in an international market. The Diamond Model can be seen as inner clustered workings of a country while the Flying Geese Theory can be seen as a country working within an international environment. Clusters help create the competitive nature of the country and like geese they jockey with related countries for position. 

The Kite Model seeks to integrate the Diamond and Flying Geese approaches into a more comprehensive framework. A country that develops must compete with others within their group for more influence and access to resources. The Kite Model has the following components:

Body: The integration of all the elements of the kite. 

Frame: Support the kite through infrastructure and human capital. 

Wings: The balance of forces that include international ties and domestic endowments. 

Tail: The fundamental aspects of an economy that allow the economy to rise. This includes government efficiency, law, regulation, political stability, capital formation, investment, ideology, policies etc. 

String: The guiding force of government that encourages movement in a particular direction. 

The largest benefit of the Kite Model is that it doesn’t leave a large gap in the analysis. Clusters, internal/external factors, and the cultural groupings of countries do have an impact on overall success of countries. These do not stand along and influence each other in varying ways. The model is not meant to be a “save all” but does help decision-makers to formalize the various economic components that lead to growth. 

Kaname, A. (1962). Historical pattern of economic growth in developing countries. The Developing Economies, 1 (1). 

Porter, E. (1990). The Competitive Advantage of Nations. Free Press: NY

Yu-Jen, C. & Hsiao-Fong, C. (2012). Kite model for national development strategy. The Journal of Contemporary Management Research, 6 (2).

Reaching New Customer Service Peaks in Manufacturing

Art Work: Dr. Murad Abel

The world of manufacturing is changing and new methods of competing are important to ensure that companies are staying competitive. Companies can incorporate additional concepts related to service and service metrics into their manufacturing operations to help encourage higher levels performance that are more reflective of market needs. Research by Visnjic, et. al. (2013) helps decision makers find new ways of adopting higher service oriented operations.

Just like Americans went through a shift in their manufacturing management toward Japanese models in the past they are now moving toward new customer service oriented values. They are seeking to tie their products more closely to the needs of the customer and this requires a new way of thinking. As the system changes, so will the measurements of success and the accounting of financial revenues.

Metrics are important markers that help guide strategic decisions. The previous product-based performance measurement systems are inadequate to understand the service dynamic. Organizations are seeking to update their measurement mix in order to create higher levels of relevant data used to guide the organization to higher levels of performance.

Companies often rely on a few measurements and try to replicate them in other places, other nations, and at different times. Because measurements are supposed to give one the ability to take a snap shot of what’s going on in the market a single measurement skews this the accuracy of this picture. It is beneficial to ensure that measurements are chosen for their well-rounded image so trends and changes can be discerned.

The researches completed a three-year case study of Atlas Copco a multinational equipment manufacturer to come to their conclusions.  They looked at both qualitative and quantitative data to understand their measurement systems.  They have a presence in 100 companies and 14,000 employees that makes them adequate for a global case study.

They found that moving services from a support function role to a revenue stream helps encourage better decisions.  Conflicts between production and service should rectify by developing and catering new performance measurements that can bridge the gap. Companies should seek both breadth and depth in their customer service penetration.  Capitalizing on the new service oriented dynamics makes companies more responsive to market trends and raises their potential revenue generation.

The report does provide some information on bringing forward concepts as they relate to changing the perception of customer-oriented processes within manufacturing. Having the right data metrics is important for analyzing and making strategic decisions. Implementing service components into the manufacturing processes takes some time, as it is a new way of thinking. As the implementation process continues, the mindset of employees and decision-makers will change with it.

“The relationship with the customer tells us every day how well we perform and, for sure, keeps us alert to all the changes in the market.”—Ronnie Leten, CEO Atlas Copco Group

Visnjic, K., et. al (2013). Steering manufacturing firms towards service business model innovation. California Management Review, 56 (1).

Exploding Your Small Business into the International Marketplace

From the fire into the frying pan is one way to describe entrepreneurs that start out engaging in international marketing. According to Zhou et. al. (2012) such entrepreneurs often excel quickly past their competitors as the organization maintains pliability and learning to match market needs. Despite the overall risks of marking internationally from the beginning, organizations are more likely to grow quickly and obtain greater cash flow. 

Organizations must learn to be competitive. Starts up businesses have a significant learning curve at first but begins to wane over time as they gain skills. When they are connected quickly to the international markets there is more opportunity to find resources that requires greater learning activity. Doing so before the small company becomes structured helps to ensure its pliability in finding new revenue streams and maintains its entrepreneurial activities.

To be successful such firms will need to exploit both foreign market knowledge and networks to create the right kind of internationalization. It primarily impacts the perceptions of decision-makers that will need to focus on finding relevant information and using connections with larger international firms to create market opportunities. It changes the perception from the beginning of an organizations life to a wider world. 

According to learning theory, “what an organization knows at its birth will determine what it searches for, what it experiences, and how it interprets what it encounters” (Huber, 1991, p. 91). It is an issue of perspective gaining and creating the right vantage points to obtain information. This information can then be used to create new ways of solving problems. 

International marketing requires a wider perceptual field. Business must ensure they understand the varying niche markets around the globe, know which ones meet their needs, and understand how to provide communication to customers within that market. The more they understand how to match their marketing to the global perspective the less risk of financial failure they face over time. 

Moving beyond this report we can see that the Internet and the interconnectivity of various groups of people affords opportunities not seen a few decades ago. Products can be marketed, shipped and sold around the globe with less effort than in the past. The Internet is affording opportunities to not only get out the message about products but also to integrate more information through search engines, services, and analysis. Where businesses were once limited to local companies they can now explode onto the international market. 

Zhou, L. et. al. (2012). The effects of early internationalization on performance outcomes in young international ventures: the mediating role of marketing capabilities. Journal of International Marketing, 20 (4). 

Huber, George P. (1991) Organizational Learning: The Contributing Processes and Literatures. Organization Science, 2 (1), 88-115.