by Sandeep Duggal under
Just as the commoditization of global transportation, communication network and manufacturing lingua franca led to the globalization in manufacturing, the emergence of highly configured devices, changing macroeconomics, geopolitics and evolving knowledge and preferences of both OEMs and consumers will lead to the end of Chinese hegemony in manufacturing. It will also lead to the emergence of a more logical (and flexible) dispersed operations and manufacturing model that relies on true "national competitive advantage" and less on pure wage competitiveness.
As Michael Porter stated in the Harvard Business Review in 1990, “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.”
Lasting national competitive advantage is generated through innovation at the corporate level, not policy or monetary manipulation. That innovation can take many forms – product, marketing, financial, or production.
Companies who read the tea leaves of the current macroeconomic environment (as well as that of the current geopolitical environment) and who seek to innovate in ways that are unexpected will set the bar in terms of competitiveness. To many, it almost feels contrarian in nature. While the crowd goes one way, the innovators look for opportunities in the other direction.
And so it goes with manufacturing. Rather than completely consolidating globalized transportation and manufacturing into macro-scale contact manufacturers and distributors, the contrarians are finding increased value in rethinking production on a local scale. Breaking the supply chain at key strategic junctures and onshoring the “last mile” of the supply chain to nimble US-based manufacturers, companies can move IP-sensitive steps, weight-laden features, and other components of the supply chain back onshore.
Let me conclude by stating that I am not predicting a total demise of Chinese Manufacturing, but rather that China, like many other countries, will be a supplier of certain commodities and services in which it has national competitiveness - industries the Chinese State wants to be a leader in and those where labor content and lax environmental regulation makes China a logical choice of manufacturers. I think that this means high-volume undifferentiated goods, high-volume PCB assemblies and certain ‘dirty’ components (flat screens, PCB Fabs, electroplated goods and so on. China will, in short, become a major, but not the only, Global player.
No longer is it a lock that Chinese companies provide the best cost, best timing, and most IP-secure solutions for globalized supply chains. Through innovative thinking about supply chains - - thinking that combines the best aspects of global sourcing and local manufacturing capabilities – U.S. based companies are beginning to leverage true national competitiveness and finding success in ways that we could not have envisioned 20 years ago.
Posted by Sandeep Duggal at 4:08 PM