The Japan Times has an article on how companies can stay competitive in a globalized world, reporting on a symposium at which MIT’s Suzanne Berger spoke. The lessons are pretty clear, and B-schools have been saying this for decades: innovate in the ﬁrst-world countries, and contract manufacture to developing ones.
But the incentive for innovating, even in the ﬁrst world, seems to have disappeared for many. Many companies rehash older products and put the word ‘Classic’ on it—from toy cars to watches.
That is where the ﬁrst world falls into trouble: without innovation, their brands cease to mean the same things to the next generation. They become outmoded and passé.
They also open themselves up to competition from the poorer countries as they increase their knowledge and expertise, and create brands to challenge them.
Yet there are so many ﬁrst-world countries and companies resting on their laurels today. Why? Follow the money: save on innovation, move production to a cheaper nation, and increase proﬁts and dividends.
This is such a short-term ﬁx that the company does well for a few quarters before it gets into massive trouble—or ceases to exist altogether. Yet, the quarterly focus of most investors and the collective short memories of the market work against the long term.
But consumers are not investors, for the most part. They are swayed by the brand—and the brand must have products that appeal. And if they do not, then it does not matter where production is, or how much proﬁt per unit can be generated.
Chevrolet is an example, at least in Europe, where the cars are being made in Korea but have the appeal of refrigerators on wheels. Whereas Apple, as The Japan Times highlights, developed its iPod in the United States, used Japanese components, and outsourced to a Taiwanese company that does assembly behind the Bamboo Curtain. Each company did what it was best at.
Only if we turned out enough science grads, rather than kids studying tourism.
Takashi Kitazume’s article notes:
Berger emphasized that the only winning strategy in dealing with globalization is to differentiate—to create unique capabilities in the company that are difﬁcult to replace. …
[Prof Berger warned,] ‘If your strategy is competition with others chasing after the cheapest labor, there really is no way of winning, because there will always be others who are willing to go the further mile’ into more remote areas of the world.
Japanese companies—perhaps because of their past experience in which outsourcing to Taiwanese and South Korean[s] eventually created powerful competitors for them—are cautious and maybe too concerned, whereas American ﬁrms are so aggressive in outsourcing their own capabilities that they may ﬁnd it difﬁcult to retain their innovative capabilities, she observed.
By way of a footnote, it may be fair to put western for American above, and New Zealand is certainly guilty of losing much of its innovative capacities, the government failing to invest in science and technology education. The warnings were there in 1999, and the country now faces a crisis as its Finance Minister engineers a recession. I only wonder: for whom? Certainly not the people. Posted by Jack Yan, 06:57
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