"The year 2030: The long-standing division of the world in the three markets of Europe, America and Asia is dissolved. There is a fully integrated world market with globalized product segments."
This is the expected future scenario. Will this scenario become a reality in the next 10 to 20 years? If so, then multinational corporations, together with their customers, suppliers and partners, will have a long journey ahead. To achieve this goal, global competitiveness through local value is required. Technological change and globalization will therefore be the figurative companions, for they determine the direction and context in which businesses will operate on global markets.
Production at one location is outdated
The scenario applies to global operating enterprises, but at the Rompa Group we look specifically at the consumer electronics and automotive industry; industries in which we know our way around. Worldwide manufacturers and their suppliers are present in each region, each with their own products and added value. However, the current business model for suppliers, to produce in one location and supply their customers from that location, is outdated. Thus, the idea of delivering Western European technology and premium products to new markets (e.g. Latin America and Asia) is too costly. Multinationals want to produce in the major continents for the 'local' market as 'time to market' and lower transport costs are important reasons. This is mainly caused by strong economic growth in emerging growth markets since the early 90s.
Technological change has become a constant. The problem is that local suppliers in emerging growth markets are technologically not ready yet. This gives multinationals concerns about producing 'local' in Asia, Latin America or Africa. It is therefore essential that their Western high-tech suppliers are willing to produce local. Add to that the rising energy prices and the growing global consensus that CO2 emissions accelerate climate change, it is clear that controlling additional technological development programs is desirable. With regards to the reduction of CO2 emissions, energy efficiency offers the greatest potential. Simultaneously one has to have a critical view on the operational costs.
Large vs. small
By changing technologies and shifting production sites, a two-pronged approach is to be discovered. On the one hand, large mass production clusters develop in Eastern Europe, Asia and the NAFTA-area, in these areas you see the biggest demand against the shortest possible lead times and the lowest costs. On the other hand, Western Europe and the U.S. mainly focus on small production runs and flexible production of customized products. This sets high demands on flexibility and quick installation of machinery and equipment.
Local production facilities boost competitiveness
To meet the diverse requirements of customers and markets, it is not enough to attend at a local level with merely a sales office. As we mentioned before, the sales model of production of premium products in industrialized countries and delivering to emerging markets is outdated. In order to increase their competitiveness, manufacturers must invest in local production facilities. That means among other things, to recognize and capitalize on local developments and potential. In the future, internationally active firms will therefore have to adapt much faster to new market conditions and needs. The ability to, and the speed with which businesses can change, will become the critical success factors, not only with regards to technological changes, but also at a strategic and organizational level.
Flexible business models required
Strong declines and sharp revivals will alternate in ever shorter cycles. This new volatility requires flexible business models for organizations (and working hours), and requires a great trust between all parties involved and therefore a full partnership. The new business models will also become a major challenge for corporate behavior (cultures). The challenge is to globally accept and implement fundamental developments. Meanwhile, on a micro-level, the integration of regional characteristics and cooperation between (new) local organizations and local environments should systematically be promoted.
It is essential to listen to the long-term needs of your customers and to prepare your organization for international expansion and flexibility. A multicultural management team is an absolute plus. The Rompa Group already has production facilities in Eastern Europe, the U.S. and China, but remains alert to what is happening or is about to happen in the rest of the world.
Editor's note: This author is a PlasticsToday contributor. The opinions expressed are those of the author.