Today we continue our coverage of each and every “future” trend that we debunked in our Future of Procurement series that falls under old-blues and ongoing news. Before all is said and done, we’re not only going to make sure that you not only understand why the historians are still talking about these ancient trends, but why they are still relevant to many Procurement organizations stuck in the past with the historians as well as what your organization needs to do to prevent getting sucked into the historical time vortex as well. So on to trend number thirty one!
As per our original series, while an idiot, and maybe even an imbecile might not be aware that Globalization is, obviously, going to lead to increased competition (and that as the pace of Globalization increases, so does the pace of increased competition), but even your everyday dull-witted dimwit is going to realize this, as is everyone of average intelligence (and it’s pretty unlikely that you’re going to find anyone of lower IQ in a senior management or Procurement position [with the possible exceptions of Texas and Florida]). As a result, not only is this trend as old as globalization, but it has been obvious for almost as long.
So why are the historians still pegging it? What are some of the primary reasons?
- Emerging markets are new Emergent Markets
and even emergent markets are outsourcing
China is no longer emerging, it is now the world’s second biggest economy, regardless of whether you take the UN, IMF, or World Bank GDP calculations as gospel, Brazil is the seventh, Russia is the eighth, and India is the tenth. In other words, the BRIC are all top 10 economies. If that’s not an emerged market, I don’t know what is (especially since Canada and Mexico, the latter of which used to be buoyed by American near-sourcing, have been knocked down the list. Canada is not even top 10 anymore! [the doctor blames Harper.])
- A New Set of Emerging Markets are Rising
and even Africa is seeing investment
A few years ago, people were talking about BRICS. Most because they saw the beginnings of the rise of South Africa, which matched the beginnings of the rise of the BRIC a decade or so ago, and a few because they were forward looking. But now that the BRIC has emerged, focus is shifting to the MIKTS (Mexico, Indonesia, South Korea, Turkey, and South Africa). As a result of the continual rise in transportation costs, labour costs in China, and automation, progressive American multi-nationals are realizing that near-sourcing to Mexico is not only the low-cost opportunity, but increases JIT capability in their supply chain. Indonesia is the new China and Vietnam for traditional manufacturing. South Korea, while very technologically advanced, is not as prominent as Japan or China as an outsourcing destination and, thus, provides additional opportunities for forward-looking multi-nationals for high-tech outsourcing. And Turkey, like Poland, has considerably lower labour costs than Western Europe but still has top-notch manufacturing standards and capabilities that not only meet Western European standards and capabilities, but in some industries, such as steel, exceed those capabilities. (For example, 1 US Dollar is approximately 2.3 Turkish Lira, and minimum wage in Turkey equates to about 4.3 Lira per hour, while the minimum wage in their neighbour Greece is about 2.5 times that, and the average Turk makes about 2,000 Lira or $800 US a month).
- Developed Markets are becoming hyper-competitive
and sometimes the only option is global expansion
Despite the irrational beliefe by some US leaders that markets can grow forever (because, theoretically, population can grow forever), from a global perspective, relatively speaking, market share at any given time is a zero-sum game. Your economy grows at the expense of another economy. At any given time, the are a fixed number of people on earth with a fixed number of hours to contribute to create a fixed amount of product — which means at any given point in time, there is a fixed global gross domestic product. So if your economy is getting more for that product than another economy is getting for an equivalent product, then your market share is growing at the expense of that market.
So it should come as no surprise that now that reality has sunk back in and companies realize that market growth is limited to population growth, markets are becoming hyper-competitive as each company wants a bigger share of the fixed pie.
So what does this mean for you?
- Emerging markets are now Emergent Markets
Don’t look for outsourcing cost savings from these markets, look at new customer opportunities and opportunities for nearby, or even local, production to keep global transportation costs and transportation delays down.
- Third World Markets are Now Developing Markets
If you must outsource, you need to look to the MIKTS, not the BRIC. If you still believe there is labour arbitrage, cost savings, etc. by outsourcing, then you have to look at Mexico, Indonesia, Turkey, or South Africa or get ahead of the curve and figure out what markets will be developing markets in 10 years.
- Developed Markets are Becoming Hyper-Competitive
Savings is not the answer — someone bigger can use leverage to save more. Value is the answer — value to the consumer, value to the company, and value to the supplier. So look for value generation in everything your organization does.