Author Article List

The Customer Is King: Producers Continually Need To Add Value

Published on Wednesday, March 01, 2006

Advancements in technology—especially those that have made the Internet, Voice Over Internet Protocol (VOIP), and supply chain management possible—have empowered consumers to shed the chains of proximity, and to search, locate and obtain goods and services virtually anywhere. No longer constrained by geography, consumers are now free to choose among the world’s most attractive offerings. In today’s era of globalization, the customer is king.

In turn, producers must compete with others not only across town, but around the world. Consequently, the consumer-led squeeze is demanding producers deliver greater value. For some, this may mean boosting quality, for others, lowering price.

Seeking the Right Solutions

To achieve these goals, producers are, for example, increasingly shifting manufacturing to China and outsourcing services to India. Done in haste, these actions could cause U.S. companies to perish. Globalization will favor more nimble, customer-focused producers.

Companies that dictate to customers will certainly lose. In contrast, those that listen, collaborate, and adapt to quickly changing needs of more powerful consumers will thrive. Importantly, companies that find specialized niches to serve will have access to larger customer bases.

It’s Just the Beginning

This chain of events does not stop here. As producers continue to shed non-core functions and focus more on core competencies, they are demanding higher-level skills from employees. In turn, “knowledge workers” are creating more advanced technologies.

These developments, however, are just part of what is happening. We are witnessing one of the greatest periods of transformation in history. Today, knowledge and information have become the new generator of competitive advantage. And in a world of empowered consumers, the smartest, most adaptable, and most responsive producers will emerge as the consumers’ choices.

This trend already is evident. Many of the largest corporations, which for decades dominated the economic landscape, are being pushed aside by leaner, more knowledge-intensive companies. And since knowledge and skill are infinite resources, obtainable by both large and small companies alike, smaller companies are not disadvantaged by their size.

As a result, a real, sustainable competitive advantage is the ability of a company’s workforce to learn, implement and deliver faster than the competition. Herein lies a primary advantage for American companies, as well as for smaller, entrepreneurial firms.

The U.S. shift from brawn power—use of muscle on the factory floor—to brainpower——is nearly complete. Today, self-directed workers operate in teams and apply more sophisticated skills to create and run new processes.

What is the Result?

U.S. manufacturing output continues to rise while the number of workers, as well as inflation-adjusted prices, continues to fall. In turn, the manufacturing contribution to U.S. gross domestic product is declining.

Looking forward, producers must compete less on price and more on product design, branding strategies, productivity, flexibility, quality, and responsiveness to customer needs. This puts a high premium on skills. Consequently, it’s no surprise that U.S. unemployment is higher among workers with lower levels of education.

A Shortage of Skilled Workers

According to a recent survey by the National Association of Manufacturers and Deloitte Consulting LLP., 81 percent of manufacturers questioned said they face “moderate” or “severe” shortages of qualified workers. And more than half said 10 percent or more of their positions are empty due to lack of candidates. Producers are demanding more from labor—but already are falling short.

This pattern is not without consequences. The previous shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Workers were required to learn new skills. The skills demanded today, however, are far more sophisticated, and probably are creating even more fear and anxiety than before. This is causing a backlash most evident in anti-globalization and anti-free trade protests.

Fear of Change

Change, which is often accompanied by fear and disorganization, is not comfortable. Nevertheless, with change come new challenges and exciting opportunities. For companies and their employees to succeed well into the future, it is necessary for them to grasp today’s new economic realities, and adapt and embrace the challenges ahead.

America’s Free Trade Agenda: The State of Bilateral and Multilateral Trade Negotiations

Published on Sunday, January 01, 2006

Despite more than five decades of evidence demonstrating the gains from liberalizing trade, the impact of international trade and open markets on the U.S. economy remains a hotly debated issue. In 2005, Congress considered renewing the President’s trade promotion authority, withdrawing from the World Trade Organization (WTO), and approving the Dominican Republic–Central American Free Trade Agreement (DR–CAFTA).

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Trade and Globalization Play a Major Role in Reducing World Conflict

Published on Sunday, January 01, 2006

Buried beneath the daily stories about car bombs and insurgents is an underappreciated but comforting fact: The world has somehow become a more peaceful place.

War Is Declining

As one little-noticed headline on an Associated Press story recently reported, “War declining worldwide, studies say.” According to the Stockholm International Peace Research Institute, the number of armed conflicts around the world has been in decline for the past half century. In just the past 15 years, ongoing conflicts have dropped from 33 to 18, with all of them now civil conflicts within countries. As 2005 draws to an end, no two nations in the world are at war with each other.

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Demographic Shifts Are Impacting Markets and Investment Decisions

Published on Tuesday, November 01, 2005

Global demographic shifts are changing the size of national markets, impacting consumer behavior and affecting investment decisions worldwide. How are they affecting your markets?

Connecting the Dots

Increasing consumer income in a national market, for example, quickly translates into greater demand for goods and services there. In turn, that country is likely to attract more foreign direct investment. These are but a few of the changes caused by shifting demographics.

A rising median age, for example, affects consumer needs, preferences and tastes, and also impacts demand. As this occurs, companies need to continuously monitor where their markets—or moving targets—are growing and shrinking. In response, many companies are relocating production and service facilities closer to the expanding markets in order to better serve them.

Decisions Resulting from Growing World Population

According to the U.S. Census Bureau, the world’s total population surpassed 6.4 billion in January 2005 and is anticipated to exceed 7 billion by 2013. Where these people live will influence decisions by American companies as to where to build their future production facilities.

For example, companies sometimes choose to produce goods and services in the foreign country in order to eliminate ocean transportation costs, tariff barriers and other costs. Plus, proximity often enables companies to gather better intelligence on changing market conditions so they can quickly adjust. This is why foreign-owned multinationals operate in the United States. And according to Insourcing Jobs: Making the Global Economy Work for America, by Professor Matthew J. Slaughter of the Dartmouth College Tuck School of Business, these foreign companies employed 5.4 million Americans with a U.S. payroll of $307 billion in 2002.

Following long-established geographic and cultural patterns, almost all the net population growth—the difference between births and deaths—will occur in developing countries located in Asia, Latin America and Africa. For example, by 2013, China’s population is expected to reach almost 1.4 billion, followed by India’s, projected at 1.2 billion. Indonesia follows at 268 million, Brazil at 201 million, Pakistan at 190 million, and Bangladesh at 169 million.

Per Capita Income Figures Can Be Misleading

Average per capita income in developing countries is understandably low as compared to developed countries. In 2005, for example, GDP per capita or income is estimated at approximately $41,700 for each American, according to the International Monetary Fund. On the other hand, per capita income is approximately $6,500 in Mexico, $1,340 in China and only $620 in India. Based on these figures, international mangers sometimes conclude that consumers in these countries cannot afford American products or services.

Should U.S. companies subscribe to this logic, they will be at a loss. In terms of buying power, general per capita income figures can be misleading. For instance, India is estimated to have a middle class of more than 200 million people with the same purchasing power as the U.S. middle class. And according to Robert Wu, a consultant who works with Chinese and American firms, “China has 200 to 300 million people living in urban areas with considerable consumption capacity.” For just about all U.S. exporters and investors, a new and relatively affluent market of 200 to 300 million plus consumers is well worth pursuing.

Consumers Are Living Longer

The average life span continues to rise and is projected to increase from 64 years in 2002 to 69 years by 2025, and to 77 years by 2050, according to the U.S. Census Bureau. This increased longevity has contributed to global population growth and is leading to a shifting age demographic characterized by higher proportions of the elderly. As a result, over the next two decades the age structure of world population will continue to shift, with older age groups making up an increasingly larger share of the total. In fact, the number of people age 65 and over is estimated to more than double. The greatest relative increase will occur in developing countries, while the largest absolute change will take place in Asia. The bottom line: by 2020, two-thirds of the world’s elderly will live in developing countries.

As this age shift occurs, the elderly population in the United States and the rest of the developed world will increase by more than 50 percent. Concurrently, demand for products and services designed to satisfy the needs of this group will increase.

For example, Americans over the age of 50 tend to use significantly more pharmaceutical products than any other segment of the population. As the world’s population continues to age in both developed and developing countries, the demand for health-related products, as well as home care, is anticipated to skyrocket. In response, many U.S. companies that produce health related products and services are likely to relocate facilities in proximity to this expanding market.

Rise in Median Age Impacts Consumer Buying Decisions

As the elderly population grows in numbers, the median age of the world’s people will continue to rise as well. Not to be confused with average age, the median means half of the population will be above and half below the age cited. In 1998, the median age was 24 in less developed nations, and 37 in more developed countries. However, by 2025, the median ages will rise to 30 and 43, respectively. Keep in mind: these people will grow up in an increasingly sophisticated age in terms of technology, communications and consumer products. Many of these age groups will be influenced by American culture; as youngsters they will listen to American music, watch American movies and wear American blue jeans. This also is a generation that will be better educated and enjoy a more affluent lifestyle.

What implications does this have for consumer spending? According to Harry S. Dent, Jr., author of The Roaring 2000s Investor, on average, Americans enter the workforce at age 19, get married at age 25.5 (27 for men and 24 for women), bear their first children two years later, and purchase their first homes at age 33 or 34. They trade up to the largest homes they’ll own by 44, and fully furnish them by age 46.5 or 47. Interestingly, the average American also reaches peak spending at about 46, the same time the kids leave home. Dent observes that empty-nest couples then spend more on vacation homes, travel and leisure. They also become prospects for investment services and products as they approach retirement age.

Spending patterns in other developed nations are similar to those in the United States. As a result, it’s reasonable to assume that as the median age rises and life expectancy increases in developed countries, from 76 years in 2002 to 80 years by 2025 according to the U.S. Census Bureau, consumer spending also will rise. Depending on a company’s products or services, relocating facilities within close reach of these growing markets may be recognized as a sound strategic decision in the business community, but may be labeled as anti-American in the political community.

Incorporate Demographic Data in Your Global Strategic Plans

By studying shifts in world demographics, a company can pinpoint where tomorrow’s major populations will live, identify the fastest-growing age groups (an important indicator of tastes and needs) and predict, based on similar demographics elsewhere, demand for certain products or services. In turn, this will influence where a company’s next factories or service centers will be built.