Supply chains compete not companies is an insight from Professor Martin Christopher that T L uses as a fundamental principle. On the one hand, this means that no company stands alone and partnerships become the norm as non core activities are outsourced. On the other hand, global sourcing has triggered the need to coordinate various tiers of suppliers, aggregatating capacities from formal SMEs and informal micro enterprises alike.
This insight opens up fresh opportunities to link clusters from Regions all over the world. This can lead to the development of hybrid business models that explore synergies and common purpose between the informal economy and formal markets. For example, what about linking a mature cluster in the developed world with one in an emerging economy as a means to transform outcomes and accelerate sustainable growth?
When is a table a table? The point is that the wood for the top comes from Liberia; the screws are made in China and the legs moulded in, say, Thailand. The table takes shape out of a flat pack in your living room – for the first time. The cardboard for the packaging was made in China from waste paper sourced in the UK and the design itself took place on a drawing board in Goteborg, Sweden.
Now, consider the drive to develop manufacturing in developing and emerging economies. Conventional wisdom would attempt to vertically integrate a cluster in a single geographical region. Why? Why not explore the possibility to “stretch” the cluster with a dispersed network of suppliers linking to a demand driven “front end” located in one of those City Regions where up to 70% of the worlds consumers will soon live. This would mean that the table could be branded, manufactured, marketed and sold by a loose partnership of specialists all over the globe.
A stretched cluster means dispersing elements of the value chain to wherever parts, components or processes that make up the end product can be produced better, cheaper and faster than in a single location. This stretched cluster cocnept could open up endless possibilities for micro enterprises and smes in the emrging world. Alos, it could be the vehicle for more effective and efficient knowledge transfer as we use the supply chain to transform outcomes.
Take the example of buttons. We are not talking the whole garment here. A remote Region of China, Qiaotou is now responsible for 60% of global button production and, most of China’s zip production too. China makes 80% of the world’s zips. The first commercial workshop was set up in Qiaotou in 1980 and there are now more than 700 factories producing over 15 billion buttons and 200 million metres of zips per year. This critical mass has generated a level of expertise that is not just about making buttons but includes all of the disciplines that are needed to market and sell them in overseas markets.
This example of buttons, recalls the experience of 19th century America when single industry townships were set up. The traders figured out what would sell and how to do so; the entrepreneurs how to create and develop capacity; the bankers followed to set up trade finance and then the lawyers moved in to make sure that the transactions carried minimal risk. And the migrant workers (and later their families) moved in to make things scaleable and, with them came all sorts of services. These days, this would include shops selling mobile phones!
During many lively discussions with B Sridhar in recent months, several other examples from India have emerged. For instance, the Leather industry in Tamil Nadu. See: the Post on this Blog relating to Leather. In an innovative project sponsored by UNIDO (United Nations Industrial Development Organisation) working with Tamil Nadu Leather Trade associations and funded by the Italian Government; the leather cluster in Italy is working with a corresponding cluster in Tamil Nadu. This is a three year project designed to act as a catalyst for investment; provide access to expertise, develop local skills and improve productivity.
What is true of manufacturing expertise is true of knowledge based elements too. Take the example of PRL Rao, an entrepreneur from Hyderabad. Working with the Indian School of Business in Hyderabad, he has developed a strategy to take his niche electronics business global and assisted in developing a Business Plan that will provide potential financial and marketing backers with suffient information to support their investment. In an interview with the Financial Times [FT, 09.02.09], Mr Rao was clear on the value of a knowledge partnership with an academic institution: “Through ISB, I got to understand the scene outside India much better and, the conviction that we must operate globally got stronger.”
The Japanese have invested in Indonesia in a similar way. There, post conflict dislocation has led to the creation of Village Productivity Groups that are geared to add value to products and promote access to markets. This is another initiative sponsored by UNIDO and, as we consider “strethc clusters” in more detail, such examples help us to shape a replicable model to roll out elsewhere.
Archomai, the University of Sheffield’s LSCM Research Group and the World Trade Centre, Humber are exploring ways in which the idea of working globally can be applied to the Food industry in Yorkshire and Humber. Already, it is clear that working with another region, as with Leather and Tamil Nadu, is not just a matter of skills and productivity. As Dominic Ward of the Hull based legal firm Andrew Jackson and member of the WTC Advisory Board makes clear “it is not enough for a company in an emerging economy to focus the process itself and expect successful export to happen overnight. There is a need to understand the regulatory environment of the target export markets, the legal documentation that any export transaction requires and, the need for appropriate trade finance to be in place before anything moves.” This is where products and services have to be merged in a seamless end-to-end approach to export opportunities.
In a recent workshop at the World Trade Centre Humber, Rob Bell and Ben Dunn held discussions to explore ways in which a business idea in an emerging economy can draw on global expertise all along the supply chain. Now, T L is starting to explore ways in which this can open up the possibility of sponsoring a supply chain. That is, finding ways in which expertise from one cluster or region can assist a fledgling industry sector in an emerging economy. There are three main areas to focus:
- Target market intelligence. This can be all about providing an emerging economy cluster with the insight into how their products have to adapt to export markets.
- Offering. There is a clear need for an emerging economy cluster to understand the rules of the game. For example,
– What are the implications of any SLAs (Service Level Agreements) that may be a pre-requisite of any trade with leading Retailers.
– What are the Food Hygiene and Food Safety issues that need to be addressed? An insight into ISO 22000 is a great start.
– What are the product packaging, labelling and tracebility issues that need to be factored in to comply with service level agreements.
– What are the Environmental issues that need to be considered? Again, ISO 14001 is required reading. For example, the work being done by Professor Lenny Koh at the University of Sheffield LSCM on the Green Supply Chain is an area that is developing fast.
– What are the implications for an organisation in terms of skills and facilities to comply with any or all of the above?
– What are the risks associated with compliance to any or all of the above?
- Market Access. We can start with the end-to-end supply chain that will be required to for any product to enter a new market. This can include considerations of specialist equipment and packaging when we are looking to sell food and other perishables.Then, we need to move beyond productivity and security to comply with formalities and, mitigate potential risks. For example, EXIM (Export Import) documentation; Legal considerations and, Trade Finance.
No emerging economy cluster or micro enterprise is going to be able to deal with the all of the above on their own. In fact, few SMEs from developed economies have the resources to cover all of these bases internally either.
Technology can be used to explore fresh ways of mentoring . On a personal note, a recent tele conference with NITT Trichy (many thanks to Aditya, Ganesh and Rahul for setting this up and to everyone for some superb questions) taught me a lot about how such dialogue can be structured and how a variation on that approach could become an affordable and accessible mentoring scheme.
Given technology, we are confident that this pooling of know how to transform economic, social and environemtal outcomes and can generate signficant benefits. It is like using the learnings from telemedicine to develop tele supply chains or a mentoring service drawn from dispersed expertise. And the benefit from those who make a contribution just might be for them to open up new markets as they do so.
Watch this Blog for more on Export Ready and, the creation of T L Know How Networks along the supply chain. Any thoughts on Sponsoring a Supply Chain or, a cluster in an emerging economy?