Monthly Archives: March 2008

What Defines An Emerging Market?

Knowledge @ Wharton China recently ran an interesting article that asked when are emerging markets no longer ’emerging’?. According to the article, dozens of countries, many of which show signs of a strong and growing middle-class population, fall under the label even though they are evolving at their own pace and with their own twists on economic development.

The term, reported to be coined by Antoine W. van Agtmael during a conference in 1981, was initially meant to be a more uplifting definition of ‘third world’ markets that were up-and-coming and good investment opportunities for multi-nationals – and although it initially applied to stock markets in countries with a cutoff of $10,000 in income per capita, the specific numerical references soon faded and now the term is synonymous with ’emerging economies’ and no longer relies on income or other statistical measures.

According to Philip Nichols, Wharton Professor of Legal Studies and Business Ethics, a numbers-based definition is less meaningful than an understanding of the way in which business is done in a country. He defines emerging economies as places that are changing form an informal system based on relationships to a more formal system with transparent rules that apply equally to all market participants.

These economies, according to Witold Henisz, Wharton Professor of Management, are revising their approach to the global economy as resource-rich nations gain clout with today’s booming commodity markets. They are still willing to integrate with international markets and allow foreigners to help build their economic infrastructure, but are demanding a greater share of the benefits.

But what I would like to know is when is a country no longer considered to emerging? It seems some countries like India, China, and South Korea in particular, where per capita income is over $20,000 (well above most countries in South Asia, East Asia, and Latin America), have been “emerging forever”. Given that we are now experiencing a huge shift in the global economy, where many emerging markets are starting to become middle class and where there will soon be One Billion additional global consumers in emerging markets in ten years, this is becoming an important question. (Especially since it is estimated that the economies of these countries will surpass the combined economies of the developed countries in 25 years.) It’s a very good question – and one that some of our best economic minds should be working on.

At this point, it’s clear that China and India are still emerging. When you consider the dismal shape of infrastructure in India and the fact that, in China, household income is 10 times higher in urban coastal cities (like Shanghai) than in rural inland provinces, it’s clear these countries each have a good decade to go at the minimum. But it seems to me that countries like South Korea are almost there.

Consider the purchasing power parity index as reported by the World Bank for 2006. Canada, an established developed country that falls 20th on the list, has a PPP of 34,610. South Korea has a PPP of 23,800. In both countries, if you earned this income level, it appears that you’d pay approximately 15% federal tax. In Canada, you’d have an additional provincial (state) tax of 10%. Thus, after taxes, a Canadian who made 34,610 would likely get to keep about 25,960. A South Korean who made the equivalent of 23,800 in Won would likely get to keep about 20,230. Emerged? I don’t know – but this calculation seems to indicate that if it’s not, it’s almost there.

And when you consider that some companies are now looking at places like Madagascar, as reported by Ashton Udall over on the Product Global blog, to continue to keep their production costs low, it’s clear that some companies are starting to see certain ’emerging’ markets as having ’emerged’ as they are no longer achieving the labor and production savings they have come to expect from ’emerging’ markets with their ‘low cost country sourcing’ strategy.

Any other bloggers want to chime in with their thoughts?

Where are all the (Supply Chain) Leaders?

Get offa me!
Away from me!
Get me outa here!
Don’t follow me!
Don’t bother me!
I’m no leader.
¬†¬†from “Leader” on “Essentially Naked” by Bif Naked

In his latest article (Supply Management Transformation: A Leader’s Guide), Robert Rudzki of Transformation Leadership and Greybeard Advisors notes that he likes to ask two questions when presenting at a conference: “Do you believe that most senior executives around the world understand the enormous potential of modern supply management?” and “Do you believe that those same executives understand how to achieve that enormous potential – how to build the transformation roadmap?”. He also notes that while 10% of the audience – at best – might raise their hands for the first question, there will be no hands raised after the second is asked. I have to say I’m not surprised.

This is unfortunate because you need a strong leader in place to not only achieve a supply management transformation, but to communicate the benefits of such a transformation to the senior executive team. This person must be willing to advocate change and put her neck on the line. She’ll need to develop a bold vision with stretch objectives that relate to the primary interests – namely ROIC (Return on Invested Capital) and ROE (Return on Equity) – of the executive team. Furthermore, she’ll also need to lay out a specific transformation plan and roadmap with concrete milestones and construct a business case that offers a performance commitment in exchange for the executive support needed to make it happen.

Furthermore, the “transformation” she leads must go beyond simply a re-organization of the organizational chart. Although it is true that a poor organizational design can impede success, an organizational design is rarely a driver of success. The quote by Petronius Arbiter, circa 210 BC included by Robert in his article says it all:

We trained hard … but it seemed that every time we were beginning to form up into teams, we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing , and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization.

Finally, the leader must ensure that the interests of all of the key stake-holders and participants are linked to the objectives of the transformation process. It must be part of their performance objectives and part of the criteria used to determine their compensation.

It’s a great article, which is also filled with great information on the six dimensions of successful transformation, drivers of world-class supply management, and successful supply management organizational design.

Successful Supply Chain Solution Implementations Require Planning

A recent Industry Week article on Implementing Supply Chain Management Solutions made a good point — the biggest factor in the collapse of supply chain management (SCM) implementations is … change — the type of change inflicted on an organization with little regard for how greatly it will impact the people and processes that serve as the engine of the business.

Statistics say that somewhere between 70% and 85% of software implementations, including those in SCM, are at least partial failures. And I believe those statistics – even though it should be the case that between 70% and 85% should be smashing successes because we’re not in the software dark ages anymore. However, as the article points out, the use of [SCM] systems brings [about] a new way of doing business, and with that, monumental change in how people do their jobs and, unfortunately, even though most project implementation teams do a great job of communicating the benefits that will be accompanied by the new system, they often do a poor job of communicating the impacts of the new system on the daily life of the impacted users.

It’s one thing to talk about new processes, it’s another thing to convey that understanding, and another thing still to convince people that they want to change the way they go about their daily routine — and have them do it successfully. In other words, you need to do good change management.

Good change management requires proper planning, which includes not only what needs to be done, but how it needs to get done, who needs to do it, and what they need to know to do it — and do it right. Then, as the article points out, you need to develop good training plans that will lessen the impact of change and ensure that your colleagues are ready to enter the brave new world you’re leading them into. After all, that’s where the savings are, and where you all need to be.

Blame Always Rests With The Importer of Record

Today’s guest post is from Jim Dickeson, a specialist in import/export compliance and a licensed customs broker from Import Export Geeks. The post is based on an article that originally ran in the Supply Chain Management Review (EH Publishing) on March 1, 2002.

The five myths harbored by US importers of record that the article highlighted were as follows:

  • Our risk exposure is limited to the Customs duties.

    An importer’s financial exposure is equal to the value of the imported goods, plus duty! U.S. Customs includes the value of the imported merchandise when determining liability and can assess penalties based on the liability.

  • Customs released our shipment, so we’re out of the woods.

    The statute of limitations is five years after the material misstatement or omission was made to Customs and the liability on an import continues for five years beyond actual release of the shipment.

  • The seller prepared the invoice, so mistakes are not our fault.

    The importer is responsible for what is reported on the Customs entry regardless of who prepared the invoice.

  • Our customs broker does all the work, so if there’s a problem, he will fix it.

    Even if you use a broker, you’re still fully accountable.

  • Our customs broker keeps all entry records, so we don’t need to.

    Importers are required to keep a copy of all correspondence related to import transactions for at least five years.

When you consider that average error rates in global trade processes approach 10% to 20%, that the effective control of global trade processes is often 100 to 200 times worse than accounts payable in an average company, and that Customs tends to reclaim $7 for every $1 that they spend on an audit, it’s critical that you banish the import (and corresponding export) myths today.

Thanks, Jim!

Should You Recession Proof Your Business … or Idiot Proof It?

Industry week recently ran an article on how to recession proof your business by three authors that had a rather interesting take on how you go about this. According to the article, you start by identifying the tribes that constitute your business and determining where they are in their sociological progression. If they are in the “life stinks” (stage 1), “my life stinks” (stage 2), or “I’m great” (stage 3) stage — where the latter is said to be the case for 48% of workplace tribes in the U.S., then the consensus (of the authors) is that your business won’t survive the recession.

It’s obvious that a “life stinks” and “my life stinks” mindset is a recipe for disaster. But why is a “I’m great” mentality mindset insufficient? As the author’s note, this is where the theme is “I’m great, and you’re not”, people at this stage have to win, and winning is personal … they’ll out-work, [out-]think and [out-]maneuver their competitors, and the mood that results is a collection of “lone warriors,” wanting help and support and being disappointed that others don’t have their ambition or skill. As I’ve mentioned before, the day of organization man is over … it’s the era of networked person, who’s a team player.

In comparison, a tribe that has reached the “stage 4” mindset, where they believe that “we’re great”, have evolved beyond a loose organization of lone-warrior organization men into a tightly knit organization of cooperative networked persons. As the authors note, they are nimble, innovative, stress-resistant, and adaptable — the qualities that help them do well no matter the circumstances. They align on core values, build strong relationships, and develop plans in real time — the key to the responsiveness needed to navigate the troubled waters of a downturn and the uncertain demand that it brings.

Thus, the authors contend that the best way to “recession proof” your business is to do what it takes to help your team reach “stage 4”. Now I’ll agree that this is a necessary factor for success, and one of the keys to surviving a downturn — but, I hate to say it, it’s not necessarily sufficient. It takes a good team — but this team needs good data, good technology, great support, and resources. If your team doesn’t have good data, how will they make good decisions? If they don’t have the technology they need to capture good data and analyze it in real-time, how will they be able to take action with any confidence? If they don’t have your support, how likely are they to be willing to put their neck on the line when it counts most? But most importantly, if they don’t have the resources, and more importantly, if you don’t have the resources, does it matter?

Innovation, enabled by an innovative team, is the best way to survive a downturn and come out as a market leader, but that team is going to need good systems, good management, and the resources to ride it out. That requires you to be running your company appropriately in the first place — to be making smart long-term decisions on a regular basis and spending the corporate coffers responsibly. If you’ve been following the market, throwing money away like the boom is never going to end, making bad decisions year after year, or acting like an Enron or (remember them? — if not, look them up) — in short, running your business like an idiot, then chances are that a great team is not going to save you — because, at this point, there won’t be enough of your company left to save. And when it comes right down to it, if you’ve kept your team free of idiots, there’s a good chance that your teams quickly achieved “stage 4” on their own — which would mean that your business is already recession-proof. So isn’t the answer to idiot proof your company?