Talks on the Brands New World …

This month Rob Bell, founder of the Transformational Logistics Blog, is giving talks on “the Brands New World” at Business Schools across the UK. Starting with Durham and moving on to Hull; Aston; Sheffield and Aberdeen Business School Rob Bell is focussing attention on the challenge facing brands across diverse emerging, developing and devastated markets. There is no one best way and a need for business thinking to adapt.

Since the financial crisis of 2008, the rise of BRIC (Brazil, Russia, India and China) as well as the MINTS (Mexico, Indonesia, Nigeria, Turkey and South Africa) is well documented and yet, the approach adopted by many companies is to continue to do the same things as they have done in the developed world and expect a different result. What’s different?

Business guru Peter Drucker claimed that demography is the future. He was referring to the transformational impact by 2050 of a population rise from 6 to 9 billion; a shift from rural to urban living and the challenge of adapting energy, infrastructure, housing and consumption to cope. Suddenly, major corporations are having to deal with the impact of growth in places without the basic framework to build brand distribution, availability, visibility as had been possible in domestic markets. The transformational agenda sees a pressing need to adapt and respond to local context.

Fundamentally, the old business model / supply chain “take, make and dispose” from loom to room; herd to hide; field to fork is not working. The materials used to make everything from cars and planes to buildings and household appliances are increasingly scarce. We can no longer afford to use and dispose; we have to transform all supply chains to source; make and then re-use or re-cycle. Take cans of beer or soft drinks. Aluminium is one of the most expensive materials to make – because of the energy needed to convert from bauxite to aluminium. If we can re-claim the cans and re-cycle them, we can save millions and preserve the planet. This is done but we have to do this across all resources. Sustainability is more about prudent use as climate change. The shift from linear to circular supply chains is worth an estimated trillion dollars per year. This is a huge transformational agenda of itself.

How we deal with the increased density of population is another transformational priority. The car is no longer viable as a means to move people around – cross most big cities these days and you will travel at the pace of a horse and cart. Even the layout of cities does not help. Compare access to public transport in places from Los Angeles to a host of developed world cities and now, the huge concentrations across emerging markets and making density work becomes a challenge that few have mastered.

This is where favelhas of Brazil; the shanty towns of Africa and slums of India have much to offer. Like Italian City States, people live and work in confined areas and re-cycling is a way of life. In India they say that 40 per cent of the harvest rots on the way to market – though much of this is reclaimed as cheaper food or cattle fodder; but the developed world throws an estimated 40 per cent away after purchase!

The inexorable growth of cities should not mean that we abandon rural areas. More should be done to compensate for the magnetic powers of agglomeration with digital connectivity and efforts to create people based manufacturing rather than a race to the bottom price marginalising all but the highly skilled or moving to robots. Idle hands don’t just do the devils’s work; they destroy the fabric of society, widen divisions between haves and have nots and open democracy up to serious threat.

The consumer, supposedly demand-led, society we have created has to adapt too. The disposable lifestyle cannot be the sole criteria for product design and delivery. Paul Polak makes the point that 90 per cent of designers target the needs of 10 per cent of the population. More innovation needs to focus the needs of the majority world. CavinKare in India made a breakthrough selling single sachet shampoos for slum areas – why buy in bulk when you are paid on a daily basis and living space is cramped. Products have to be adaptable to local needs; affordable and accessible to more people. As austerity bites, this mantra applies across the globe as a means to close the gap between the haves and have nots. Livelihoods and not lifestyles should drive the agenda.

Rob Bell launched the Transformational Blog after a career spent working all over the globe and most recently in Asia, India and Africa. As he puts it: “The idea of a supply chain does not always go down well in places where supplying the developed world means a race to the bottom price and chains are a stark reminder of the slave trade. There is a need to develop more inclusive means to source materials and ensure that the means of production and consumption are sustainable. Perhaps an inclusive value stream from source to use and sustainability is a better way of expressing this.”

The Brands New World talks open with global context arguing that globalisation cannot be about achieving a single homogenous marketplace. As with nature, diversity is essential and there is no one best way in economics or in logistics and supply chain thinking. In 2000, Economics students at the Sorbonne in Paris and Harvard USA protested against the “autistic” economics being taught. Dismissing market fundamentalism as one of the key reasons behind the three F’s crisis (food, fuel and finance) in 2008, real world economics shifts the agenda to dealing with the demands of a far more complex world.

One of their fundamental criticisms has been the nature of the firm and the need for more competition than shareholder capitalism offers. For example, the average ownership of a share on the New York Stock Exchange is seven months – hardly the recipe for long term stability and more the root cause of short term gains and boom bust cycles. More significantly, the essential competitive nature of capitalism has been wrecked by an unprecedented degree of international consolidation and industrial concentration in the run up to 2008. Alongside a huge increase in global output the number if leading firms in most industrial sectors shrank. In many sectors, two or three firms account for more than half of sales revenues.

As Martin Christopher (2006) has argued, supply chains compete not companies and many well-known brands have emerged as systems integrators at the apex of huge extended supply chains with tiers of suppliers across the globe. For Large commercial aircraft 2 firms hold 100 per cent market share; in automobiles, 10 firms hold 77 per cent; Pharmaceuticals, 69 per cent; Agricultural equipment, 3 firms hold 69 per cent and for cigarettes, 4 firms have 75 per cent market share. Despite this global concentration, the majority world in a local context is characterised by informal markets with “informal” firms accounting for over 90 per cent of jobs and income.

Tom Friedman, in his book The World is Flat, cites ‘supply chaining’ as one of the main flattening forces. And yet, what Friedman identifies as a flattened world is, in fact, a set of fat flat nodes connected by pipelines through vast deserts of remote rural areas or, second and third class cities and villages unable to compete on the global stage. Friedman champions the ‘connectivity’ resulting from the convergence of communications technology, computer technology and, the explosion of software has led to the leveling of the global playing field or, a ‘flat’ world. Globalisation 1.0 and 2.0 were European and American centric whereas 3.0 empowers individuals to act globally. However, being plugged in is only part of the story and, in terms of logistics, there remains a Global Logistics model that needs to adapt to a multi faceted reality that no amount of technology can level flat. This is the scope and relevance of Transformational Logistics.

The developed world tends to view informal markets with the suspicion of Prohibition in 1920s America. We need to temper this puritanical zeal with reality. When Haiti collapsed after the disaster the informal market helped to build back livelihoods – not the formal private sector. In fact, as the work of de Soto demonstrates across the developing world, the legal and judicial system that we take for granted in the developed world is not a byword for trust in these markets. Drive a truck one hundred kilometres anywhere in Africa and you will be stopped at least twice by official police checks with the payment of bribes the only solution.

The formal market does not have all the answers – as 2008 and the fall out amply illustrates. And yet, the Wall Street bonus pool in 2013 was so big it could have doubled the wage of every minimum wage earner in America and this sum was the result of a hidden subsidy from taxpayers to Wall Street to shore up the creaking system. Remember they can consider this income as capital gains and not ordinary income. This is the seed corn of “rent-seeking” capitalism; the sort that made Argentina what it is and the opposite of what makes Brazil an emerging fast growth economy.

Before readers think that this is written by Karl Marx; it was Alan Greenspan, Chair of the Federal Reserve Bank, who said that   The maestro admitted in an October congressional hearing that he had “made a mistake in presuming” that financial firms could regulate themselves and that the whole collapse had been down to the greed of 25 individuals! The Economist leader The new age of crony capitalism (15/03/14) details the need for capitalism to be “saved from the capitalists”. Better said – the market fundamentalists who persist in the thought that pure markets work and that shareholders are better custodians than stakeholders. The transformational agenda looks to the future and how best to make society work; maximise opportunity (regulating monopolies and rent based croneyism for a start!); optimise resources and achieve sustainable growth.

As a branch of this thinking, Transformational logistics looks to open up debate on a more expansive tool kit – one that promotes inclusive value streams characterised by transparent and traceable processes and ethical products and services. This means creating “source > make > re-cycle” streams beyond the highly concentrated BIG Corporates.

Transformational Logistics urges us to leave aside what Professor Sassen has described as those parallel geographies of urban glamour and the squalor of slums and, this extends to the rejection of an informal economy that is characterised as disorganised or in some way inferior to developed world best practice. It challenges us to explore synergies and common purpose all along what should evolve as inclusive value networks and eco systems rather than linear homogenous supply chains. And it inspires us to shift innovation from building the next best branded mousetrap to improving the quality of life for the Majority World and, from this, delivering inclusive growth for us all. This is where innovation can focus and deal with constraints rather than creating  ephemeral demand. This may mean scaling back on using state-of-the-art equipment to solve everything and throw us back on ingenuity to explore ways to re-think the model.

Classical supply chains defined by major corporates such as Walmart and Procter and Gamble use state-of-the-art purchasing, handling and distribution systems. This is not the whole story as the majority world sees far more asymmetrical supply chains combining modern (consolidated, financially strong, high tech and highly skilled) with traditional (fragmented, financially weak, low tech and low skill) players operating a tiered eco-system of suppliers with modern outlets. This is a huge challenge. Transformational Logistics argues the value of simply modal processes (appropriate not just state-of-the-art technology) and innovation inspired by adaptation and not just blue sky thinking.

There is another perspective: that growth in emerging markets has stalled as with China or, gone into reverse as with India. The “rise of the rest” had been the story for a while: in dozens of emerging countries and regions poverty rates plummeted, the middle class exploded and forecasters had been loud on convergence – that the developing world was catching up with the developed world. Perhaps the point is that short term perspectives are not the way to make investment decisions. The demographics are clear – huge increases beyond the developed world and the rise of the middle class means market opportunity. However, their needs may be a world away from selling developed world solutions to meet emerging world needs.

Brands can no longer be about lifestyles based on credit fuelled disposable income and disposable products. Brands need to develop as a reassurance of ethical process not just products. Brands need to be sensitive to the livelihoods of those sourcing the materials and making the products; championing circular (source, make and re-cycle) rather than linear (take, make and dispose) supply chains. Products have to be adaptable to local context; affordable and accessible across multiple traditional and modern channels of distribution. This transformational agenda demands changes to logistics and supply chain thinking and practice beyond the scope of systems and standards forged for consumer society in the developed world.

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2 Responses to Talks on the Brands New World …

  1. Tom says:

    The life cycle of products have risen to the agenda, both for suppliers being more conscious that they need to reuse to save costs and the environment, as well as more aware consumers demand more environment-friendly world. To win the next consumer battle, recycling, environment friendly production and distribution is the key to any suppliers success.

  2. the every product life cycle is based upon their intro level.

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