Behind the game of soccer lies a complex web of interactions that deliver value from customer wants to product designers to manufacturing distribution and services. We can damn these interactions as exploitation and imperialism. Or we can understand how the game is played and see for ourselves whether it is indeed imperialism that’s killing us – or our lack of understanding 😳 of our business model and the global market and how it affects the local market 😯 – in 10 slides. You be the judge.
The soccer ball was designed in the US, most likely in California. The specs were sent through the Internet – an infrastructure owned probably by Sprint or Verizon. This went into a hub that then passed the data packets to an office in Shanghai. The data is fed to an Computer Aided Machine using American software ported to the local Chinese language. The customer service is most likely being handled by a call center based in Baguio City, Philippines. The Corporate HQ is in Silicon Valley.
The socks were probably made with cotton grown in South America, sent to Mexico for processing, shipped from Mexico, on a Danish ocean vessel, to a port in South Africa.
Take the Hanes Brand of hosiery for example:
While capital spending could vary significantly from year to year, we anticipate that our capital spending over the next
three years could be as high as $500 million as we execute our supply chain consolidation and globalization strategy and complete the integration and consolidation of our technology systems. Capital spending in any given year over the next three years could be as high as $100 million in excess of our annual depreciation and amortization expense until the completion of actions related to our globalization strategy at which time we would expect our annual capital spending to be relatively comparable to our annual depreciation and amortization expense. The majority of our capital spending will be focused on growing our supply chain operations in Central America, the Caribbean Basin, and Asia. These locations will enable us to expand and leverage our large production scale as we balance our supply chain across hemispheres. In 2007, we acquired our second offshore textile plant, the 1,300-employee textile manufacturing operations of Industrias Duraflex, S.A. de C.V., in San Juan Opico, El Salvador. This acquisition provides a textile base in Central America from which to expand and leverage our large scale as well as supply our sewing network throughout Central America. Also, we announced plans in 2007 to build a textile production plant in Nanjing, China, which will be our first company-owned textile production facility in Asia. The Nanjing textile facility will enable us to expand and leverage our production scale in Asia as we balance our supply chain across hemispheres.
In December 2007, we acquired the 900-employee sheer hosiery facility in Las Lourdes, El Salvador of Inversiones Bonaventure, S.A. de C.V. For the past 12 years, these operations had been a primary contract sewing operation for Hanes and L’eggs hosiery products. The acquisition streamlines a critical part of our overall hosiery supply chain and is part of our strategy to operate larger, company-owned production facilities.
The shoes were probably designed in Germany, material designed in USA, sent to Vietnam for production, then sent to a port in South Africa.
Indeed there is more to soccer than meets the eye – there’s more to outsourcing than meets the eye.
There’s something better than whining about imperialism and how victimized we are. It’s a thing called “knowledge” – it allows us to step up to the plate, understand the “rules of engagement” – and not only survive, but even thrive! It doesn’t matter if you are a rebel returnee, a fireman, policeman, sari-sari store owner, teacher, professor, doctor – businessman – the model will work for you.
Don’t worry if you were decimated before – the only time you really lose is when you stop trying and learning the lesson from these challenges. Allow me to keep it short and simple. I draw upon material publicly available on the Internet. The illustrations are of course, AP originals.
The Fundamentals – The Value Chain
It all begins with the Value Chain – a paradigm shift in the way we do business – globally and locally.
The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance
The Six business functions of the Value Chain are:
- Research and Development
- Design of Products, Services, or Processes
- Marketing & Sales
- Customer Service
This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).
Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.
Human Resource Management (HRM).
Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.
This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.
An Extended Enterprise is a loosely coupled, self-organizing network of firms that combine their economic output to provide products and services offerings to the market. Firms in the extended enterprise may operate independently, for example, through market mechanisms, or cooperatively through agreements and contracts.
Alternatively referred to as a “supply chain” or a “value chain”, the extended enterprise describes the community of participants involved with provisioning a set of service offerings. The extended enterprise associated with “McDonald’s”, for example, includes not only McDonald’s Corporation, but also franchisees and joint venture partners of McDonald’s Corporation, the 3PL’s that provide food and materials to McDonald’s restaurants, the advertising agencies that produce and distribute McDonald’s advertising, the suppliers of McDonald’s food ingredients, kitchen equipment, building services, utilities, and other goods and services, the designers of Happy Meal toys, and others.
Extended Enterprise is a more descriptive term than supply chain, in that it permits the notion of different types and degrees and permanence of connectivity. Connections may be by contract, as in partnerships or alliances or trade agreements, or by open market exchange or participation in public tariffs.
How the Extended Enterprise is organized and structured and its policies and mechanisms for the exchange of information, goods, services and money is described by the Enterprise Architecture.
A value chain is a chain of activities for a firm operating in a specific industry.
The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level.
Products pass through all activities of the chain in order, and at each activity the product gains some value.
The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities.
A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001.
The value chain categorizes the generic value-adding activities of an organization. The “primary activities” include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The “support activities” include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity.
The notion of the Extended Enterprise has taken on more importance as firms have become more specialized and inter-connected, trade has become more global, processes have become more standardized and information has become ubiquitous. The standardization of business processes has permitted companies to purchase as services many of the activities that previously had been provided directly by the firm. By outsourcing certain business functions that had been previously self-provided, such as transportation, warehousing, procurement, public relations, information technology, firms have been able to concentrate their resources on those investments and activities that provide them the greatest rate of return. The remaining “core competencies” determine the firm’s unique value proposition.
The Philippine BPO industry is tapping a relatively small segment of the market. The economies which are able to gain competitive advantages in other activities will be able to balance their handicaps in other activities – that evens up in the market. That’s where the proverbial rubber meets the road. Where brand name collides with functionality or not necessarily so.
The bottom line really is understanding the value chain model and applying it across industries, at various scales of industry – small, medium large. It can be used if you are an exporter or an importer. Whether you are a cooperative, a proprietorship, corporation, non-profit, government – it does not matter. You will spot your competitive advantage in the value chain – and you can spot the activities where you don’t have an advantage.
In activities where you have an advantage you can pursue different growth strategies = the specifics of course will depend on the actual situation on the ground. You need to have the right data and information so you can make the best informed decision.
Then you can assess how do you want to grow your company globally or locally.
Do you invest in a core area? Do you upgrade equipment? Do you right-size? Do you introduce new advantages? Before you cry exploitation of imperialism – please reconsider your business model honestly.
This goes beyond your profit and loss statement – rather it breathes life into the numbers.
We are loosing a lot. We can do more considering that given our handicap we were able to come up as a far third from China and India. Both countries have more diverse portfolios than we do. In contrast the Philippines tends to put its eggs in one basket. One lechon manok, and everyone goes lechon manok; one dude goes shawarma, everonye goes shawarma- its the herd mentality at work – politics or business.
ECONOMIC TIMES OF INDIA July 10, 2009, 9:31AM EST
India Remains World’s Top Outsourcing Destination
Despite a backlash against outsourcing, India’s low costs, skilled workforce and business environment make it No. 1, says AT Kearney
By N Shivapriya
India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions, despite the backlash against outsourcing to the country. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the business environment it offers and the availability of skilled people, according to global management consultancy AT Kearney.
India has retained its numero uno position even as some other well-established outsourcing hubs dropped in their attractiveness to be replaced by new emerging destinations in AT Kearney’s latest ranking of the top outsourcing destinations across the globe. “The top three countries in the 2009 Global Services Location Index (GSLI) remain the same—India, China and Malaysia—but the world’s volatile economic environment is reflected in the rest of the rankings,” the consultancy pointed out. The study evaluates 50 top countries.
The economic meltdown and appreciation of the local currency against the dollar has taken its toll on Central and Eastern Europe, which were emerging as important offshoring hubs for Western Europe. Overall, nine countries dropped nine or more rankings in the attractiveness index. While the one-time rising stars such as Poland, Czech Republic and Hungary lost out, others in the Southeast Asia and Middle East scored. Egypt, Jordan and Vietnam made it to the top 10 rankings for the first time. UAE, Tunisia and Morocco have also improved their standing, with the noteworthy trend being the Middle East and North Africa emerging as key offshoring regions given their large and educated population and proximity to Europe.
India and Philippines together account for 50% of the world’s BPO market, but Philippines, often spoken of as threat to India, is only a ‘distant’ second, according to the study. “Philippines is more call-centre oriented and we don’t necessarily see it growing at the same pace as China and some other South Asian countries. Some of the reasons that has made India number one continue and they will help it tide over the economic downturn faster than any other in the world,” said AT Kearney senior partner Saurine Doshi.
Significantly, India is also no longer being viewed only as a competitor but also as an enabler to industry growth in other regions. “Indian companies are some of the gorillas and they are increasing their global footprint as clients look for multi-region support,” added Mr. Doshi.
Smaller, tier 2 cities in the US, such as San Antonio, have also emerged as important destinations because of the falling dollar. A combination of rising unemployment and political pressure to create jobs is increasing interest in onshoring possibilities among smaller inland locations, according to AT Kearney. “Similar trends are evident in UK, France and Germany,” the consultancy said.
We need to think of more options and be more open to new relationships with the world. It’s a big small world and it depends on which glasses you are looking at.
You say keep globalization out. I say embrace globalization.
You say protect. I say liberalize.
You say country first. I say humanity first – more economic freedom not less, more economic options not less, more economic opportunities not less, more job opportunities not less.
There’s enough for everyone – but you gotta work hard at finding your niche, it will not be given to you on a silver platter. For those who care enough to learn it, they will earn it.
Risk and sacrifice and action guided by knowledge brings sustainable rewards – gifts that keep on giving.
The world is moving forward with or without the Philippines. We can keep on complaining about how shortchanged we were. Or we can get creative.
We can release the full potential of the Philippines – a strong FOIA, a constitution without the protectionist clauses that stunt growth, within a politically stable governance framework.
Offhand, these are the things that I recommend for consideration and implementation.
Please feel free to add to the list.
And that completes the ten slides.
Under the right circumstances, Filipinos CAN compete in a global market. The Koreans, Taiwanese, Malaysians, Singaporeans, Vietnamese, Chinese, and Indians have done it – and are moving forward.
Can the Philippines afford not to compete? We can compete – but first, let’s level the playing field – innovation not protection.