Koren Y. The Global Manufacturing Revolution: Product-Process-Business Integration and Reconfigurable Systems
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hand, if you are the CEO of Delphi (a $30 billion company supplying automotive parts
that applied for bankruptcy in October 2005) and you cannot compete with low-wage
countries, you will probably curse globalization.
14.6.1 Political, Economic, and Social Aspects
Globalization is essentially driven by large global enterprises that try to increase their
profits. These global enterprises, which are mostly rooted in the more advanced
industrial countries, typically do not care about the social justice problems they may
create, nor are they structured to solve the social issues that globalization can cause,
especially in the United States and Europe.
The shipping of jobs from the United States to low-wage countries (both simple
manufacturing jobs and high-quality jobs in engineering and specialty services) is
one of the biggest problems facing the United States at the dawn of the twenty-first
century. Because of globalization U.S. industry lost 3 million jobs in just 5 years—
2000–2004, with the U.S. automobile industry losing 200,000 jobs during that
period. As a result, the state of Michigan and especially some of its small towns,
which depend on the auto industry, continue to suffer an economic crisis. People
who are not working are not paying taxes, and consequently the state and towns
struggle to support the basic functions (including education) that they are obligated
to provide.
Lou Dobbs of CNN is one of the most vocal opponents of globalization. In 2005, he
devoted many of his CNN evening programs to the evils of globalization. In his book,
Exporting America, he tells the story of Galesburg, Illinois that was home to a Maytag
factory that provided 1600 jobs.
3
After the NAFTA agreement was ratified, Maytag
decided to transfer the factory to Reynosa, Mexico, cutting their labor costs by 15:1.
Maytag did not have a choice; without the transfer of the factory to Mexico, the
company could no longer compete against cheaper refrigerators that Asia was
importing to the United States. But with the closure of the Maytag factory, unem-
ployment in Galesburg went up to 20%. This had a devastating effect on the entire
town and community. Not only were 20% of the households in this town unable to pay
their taxes because they were not working, Maytag also stopped paying taxes. To
make matters worse, workers stopped spending money in local stores, which affected
the whole local community. As a result the town itself could not even offer the basic
services that it is required to provide its citizens.
But the hardship caused by globalization is not only an issue in the United States.
Our student, Steve Pratt from Adelaide in South Australia, wrote to us in January
2006: “I live in Adelaide where two of the four Australian auto-manufacturing plants
are located: GM Holden and Mitsubishi motors. As a result, Adelaide has a high
dependency on manufacturing with not only the auto plants, but also the components
suppliers that support these plants. The city’s growth has been directly linked to the
car plants. But Australia now struggles to compete with the low cost countries of Asia,
and therefore must find efficiencies in other area s.”
Despite the numerous sad stories of people whose jobs were “offshored” and
consequently were hurt by globalization, many experts believe that globalization is
THE DILEMMA OF GLOBALIZATION 371
good for the United States as a nation, and eventually it will lead to economic growth.
It is for this expressed reason that president Clinton signed the NAFTA agreement in
1994. In the 2000 World Economic Forum, he said: “Fifty years of experience shows
that greater economic integration and political cooper ation are positive forc es.”
Thomas Friedman discusses the globalization dilemma and concludes: “America as a
whole will benefit more by sticking to the basic principles of free trade, as it always
has, than by trying to erect walls.”
4
In spite of the problems, we, as consumers, enjoy
the low prices of entertainment equipment, appliances, computers, printers, and other
devices imported from Asia and other low-labor-cost countries.
There is no getting around the fact that globalization is a complex phenomenon full
of contradictions. Analyzing globalization is key to understanding the big changes
that occur, on both global and national scales. We believe that in order to comprehend
the situation and form a position about globalization, we have to look at arguments
from four viewpoints:
.
The United States (or other Western countries) as a nation (economic and
political arguments)
.
The global manufacturing enterprise in an industrial country
.
The community or town in the United States (social arguments)
.
The private consumer and citizen in the United States and other Western
countries
The pros and cons of globalization from these four points of view are listed in
Table 14.1.
One outcome of globalization is that Western countries that produce high-tech
products import the parts for these products from low-cost countries. A study
conducted in Germany in 2002 indicated that the value share of imported parts in
products produced in Germany and then exported was 39%.
5
This confirms that global
outsourcing that Western companies are implementing is a contributor to low-cost
exports and the increasing wealth of these countries.
Globalization also contributes to a lower inflation rate, as pointed out by Alan
Greenspan (U.S. Federal Reserve chairman, 1987–2005). “Greenspan would point to
large pools of labor in Asia that have come online over the past two decades as the
reason for the a slowdown in the increase of labor costs and the resulting fall in the rate
of inflation.”
*
George Soros (a billionaire who has created several foundations dedicat ed to
supporting open societies) said on the issue of free market ideology: “Markets are
amoral. But society cannot function without some distinction between right and
wrong. The globalization of markets without corresponding strengthening of our
social arrangements has led to a very asymmetrical social development.”
6
If we look at the global scale (not included in Table 14.1), it is true that while
globalization has increased the standard of living of hundreds of millions of
*
U.S. News & World Report, November 7, 2005, p. 61.
372 THE TWENTY-FIRST CENTURY GLOBAL MANUFACTURING ENTERPRISE
TABLE 14.1 The Broad Impact of Globalization—Political, Economic, and Social Aspects
United States Global Enterprises U.S. Communities U.S. Citizens
Rationale for Globalization—The Opportunities
Opportunity for national
economic growth
Market expansion into new
countries
U.S. entrepreneurs enrich the
community by flourishing and
paying local taxes
New jobs created by
entrepreneurship; new specialty
jobs and expertise are created
Reduced inflation pressure,
because of lower-priced
products
Lower-cost manufacturing
increases profit
Capital investment from overseas
is invested in U.S. towns
Consumers enjoy lower prices and
greater purchasing power
Spread of American values and
culture; world-wide cohesion
promotes peace
Access to best talent worldwide Universal agreement on basic
cultural values reduces the
power of terrorist groups
Product quality and selection
improves due to global
competition
Rationale against Globalization—The Threats
Larger trade deficit, caused by
loss of production, may greatly
devaluate the dollar; United
States is headed for decline in
its economic power and
standard of living
Companies fail because of
low-wage competition
Companies pull out of towns, or
go bankrupt, stop paying taxes;
employees no longer pay taxes
and become a drain on social
support
People lose their jobs in
manufacturing and services,
including high-paying jobs (e.g.,
engineering, medical assistants)
Loss of jobs increases total
unemployment compensation,
which increases the deficit
Loss of sovereignty over
standards and market norms
makes it difficult to maintain
quality
The gap between rich and poor
enlarges; the middle class is
diminishing
Low-skilled workers earn lower
wages; highly skilled workers may
be forced to relocate globally
The United States no longer
produces goods necessary for
national security
Off-shore supplies can be cut,
causing whole industries to
shut down
Society may suffer if critical
goods are not available when
crisis occurs
The standard of living of America’s
citizens declines
373
people in many countries (especially India and China) and reduced the income
inequality in poor countries by providing jobs, especially to unskilled workers,
globalization does not work for all countries. Globalization has actually done
nothing yet for Africa’s countries. And although it is true that globalization has
reduced the income gap between rich and poor countries, at the same time it has
widened the gap more between countries that participate in globalization and
those that do not. Theoretically globalization offers equal competitive opportu-
nity for all countries. But in practice i t disproportionately favors China and the
richer countries.
So, globalization does not work for all. It operates according to the globalization
rules set by three institutions: The World Trade Organization (WTO), the Interna-
tional Monetary Fund (IMF), and the World Bank (WB).
7
The most advanced
industrial countries formed these institutions, and they set the globalization rules
so that the financial interests of their countries would be pursued above any others.
These institutions, as well as the global enterprises they serve, do not care how many
people have actually been made worse off because they lost their jobs. This is the main
reason for large demonstrations at the meetings of the WTO in Seattle (in 1999), the
IMF in Prague (2000), and the WB meeting in Washington DC (in 2001). More equal
spreading of the wealth across the globe is still a problem that should be addressed.
14.6.2 The Role of Policymakers
Globalizat ion, when pursued to ful fill just the financial interests of the few, may
create poverty r ather than higher s tandard of living. The free market ideology that
guides these int ern ati ona l instit utio ns (WTO, WB, and IMF) has limits—it does not
result in social justice. What is needed is a more balanced and humanistic approach
to globalization, an approach that better balances the personal economic security of
people with the financial h ealth of large enterprises. The big question is how to do it.
U.S., European, and Japanese enterprise s that have enjoyed globalization should
participate in finding solutions to these problems, and they should do it jointly with
policymakers .
Globalization, indeed, has many facets—economical, technological, and cultural.
It, like all of nature, creates not only winners but also losers—both among individuals
and nations.
.
The integration of markets means that people of one country can consume the
products of other countries, and through the Internet and TV people know more
about the lives of people in other countries more than ever before. Unquestion-
ably, globalization is affecting the daily lives of people all over the world, which,
in turn, affects not only their economic status but also their cultural habits. We
are, therefore, witnessing a wide-ranging transformation of human life in
unprecedented ways.
.
Moving existing manufacturing plants to low-labor-cost countries causes people
to lose their jobs; globalization, therefore, can have a devastating effect on the
lives of many well-to-do individuals in developed countries.
374 THE TWENTY-FIRST CENTURY GLOBAL MANUFACTURING ENTERPRISE
.
Many people are also concerned about the growth of an international
“monoculture”, dominated by the West, which seems to threaten the disappear-
ance of national, cultural, and religious traditions. This is a very dangerous
misunderstanding that may cause devastating reactions to the economic transac-
tions of global trade.
.
Developing countries, especially in Africa, see globalization and its consequent
trade liberalization as an unfair trading system that increases the gap between
industrialized and developing countries. They interpret that their poverty has
actually increas ed because of globalization and protest the unfairness in tariffs
that industrialized countries put on their products (often their agriculture, which
is most likely what they have to export).
.
Globalization undermines the ability of governments to raise taxes on imports,
and as a conseq uence they cannot provide services for their citizens.
Government policymakers are constantly whipsawed between two opposing
positions regarding free trade versus protectionism in the global economic environ-
ment. Should government press for a purely free-trade position and trust the
marketplace to provide all the most positive results for the economy? Or, should
we use protectionist tariffs to defend the local workforce from foreign labor?
Experience has shown that neither option offers a complete solution, and in fact,
in the long run, both may create bad consequences, such as recession and inflation.
It is the responsibility of policymakers to find ways to make globalization work
better for the individuals who are left behind because of changes in international
trade, and to reduce the inequality for the developing countries.
14.7 WHERE ARE MANUFACTURING ENTERPRISES HEADED?
We started this book by defining globalization as a revolutionary approachof integrating
world markets and nations, which are becoming very dependent on each other.
Globalization is the integration and interdependency of world markets and resources
in producing consumer goods and services
For manufacturing enterprises the integration of world markets has created new
conditions:
.
Fierce competition on a global scale
.
Global product supply being much greater than demand
.
Increased customers’ purchasing power
.
Rapid changes in customer needs and demands
.
An accelerated pace of product and process innovations that spread rapidly
WHERE ARE MANUFACTURING ENTERPRISES HEADED? 375
.
International environmental awareness that brings about stricter regulations
imposed by governments (e.g., fuel efficiency, collecting used products for
disassembly).
These conditions cause new challenges for the global manufacturing enterprise.
.
Abrupt changes in product demand
.
Frequent product change s and new government regulations
.
Short windows of market opportunity for new products
.
Increased product variety, moving toward a market-of-one.
.
Precise coordination of global resources, through multi-tier supply chains, to
build products for lowest cost and in close proximity to customers.
How can manufacturing enterprises create a competitive advantage in this
turbulent environment, and how can they justify their size? Will the manufacturing
enterprises in developed countries become much smaller? Will they disappear?
Analyzing previous manufacturing paradigms might help in developing new
strategies. Figure 14.5 summarizes the transitions between three major manufactur-
ing paradigms in the last 100 years related to the changing needs of customers and
market climates. It illustrates how the market influences the invention of new types
of manufacturing system, and how desire for richer product variety drives the
product architecture and the business model that enterprises implement.
Currently the global manufacturing para digm points at two directions: person-
alized production and regionalized production for multi ple world regions. The
latter, perhaps m ore c ritical to the economic success of the enterprise, requires the
development of product architect ure that can be tailored to address specific
cultural and regional needs. This product architecture enables the design of
products with multiple functions that can fit the culture, g overnment regulations,
climate, and needs, as well as the purchasing power of various target markets on
the globe. To ac complish this, manufacturing enterprises must develop a global
strategy that considers which produ ct varian ts to develop for which regions on the
globe, in which countries to locate factories, and how to integrate their global
supply chains.
And the same imperatives that drive personalization and regionalization—the
competitive global market and economy, and the globally integrated society that
desires to maintain individual national cultures —force the invention of new products
and new manufacturing technologies.
In July 2009 Charles M. Vest, the president of the National Academy of
Engineering, wrote:
1
“We must turn our attention to unleashing technological
innovation to create products and services that add actual value. As a nation we
must refocus on the real economy, and that will require a reenergized innovation
system to generate new knowledge and technology.” The real economy is one that
produces something that adds value, and not the one that sends people shopping,
buying stuff that they cannot afford and do not need. Therefore, manufacturing will
376 THE TWENTY-FIRST CENTURY GLOBAL MANUFACTURING ENTERPRISE
always remain a major means by which wealth is created for any society. The
manufacturing enterprises cannot disappear.
But the manufacturing industry as a whole is going through a major transformation
that requires enterprises to comprehend the new frontier in manufacturing technology
and strategy, and to develop new ways of thinki ng. They have to be restructured and
strategically directed, which will eventually yield a growing economy and wealthier
society.
The new frontier for the manufacturing industry is in achieving faster respon-
siveness to market changes as well as to customers’ requirements. To accomplish this
goal, manufacturing enterprises have to be designed for frequent reconfigurations in
their structure, in their global resources and supply chains, as well as in their factories.
The manufacturing strategies of the twenty-first-century enterprise should be de-
signed with the options to be rapidly modified exactly when needed.
We offer below a set of 10 strategic planning rules for global man ufacturing
enterprises that will help them to prosper in the turbulent global economy. Imple-
menting these rules will result in a growing global economy and a larger number of
manufacturing jobs.
Figure 14.5 Paradigms and their product, process, and business characteristics.
*
NAE Member Newsletter, July 2009.
WHERE ARE MANUFACTURING ENTERPRISES HEADED? 377
Strategic Rules for Global Manufacturing Enterprises
1. Global Strategy: The manufacturing enterprise must develop a global strat-
egy that determines issues such as which products to develop, for which regions
on the globe, where to locate factories, how to integrate global supply chains,
and how to boost productivity with the same global resources. The enterprise
should develop business strategies for emerging markets, such as Brazil,
Russia, India, and China.
2. Integration of Product–System–Business: The global manufacturing enter-
prise must apply a systems approach in which product design is integrated with
the manufacturing system that will produce it and with the business plan that
sells it.
3. Rapid Responsiv eness: The key to global success is faster responsiveness to
customers’ needs and market changes that is built into their business strategy as
well as into their manufacturing system.
4. Reconfigurable Manufacturing Systems: The global manufacturing en-
terprise must possess reconfigurable manufacturing systems whose capac-
ity can be easily changed to adapt to market demand, and its functionality
can be cost-effect ively adapted to introduce new products with short lead
times.
5. Innovative Products: The engine for a successful enterprise is a stream of
innovative products introduced within short lead times. Nurturing an enterprise
culture of creativity is imperative for continuous innovation.
6. Products Fit for Regional Markets: The product d esign and its functions
should fit the culture, regulations, climate, and purchasing power of the targeted
market customers. To reduce cost, develop from a common base (platform) and
differentiate modules as necessar y.
7. Personalized Products: An emerging market in industrialized countries
is created around cost-effective personalized products—ideally, each
product will be made exactly for an individual customer’s needs (a market
of one).
8. Empowerment with Information: The enterprise must provide real-time
continuous information to employees and empower them to make decisions;
empowerment sustains a momentum for rapid innovation in both the product
and the manufacturing system.
9. Critical Parts and Final Assembly: A cost-effective manufacturing strategy
that also protects intellectual property is to build assembly plants in the target
market country but k eep production of critical parts at home.
10. Strategic All iances: Combine the skills and resources of alliance partners
to develop innovative products at the highest quality and lowest costs.
378 THE TWENTY-FIRST CENTURY GLOBAL MANUFACTURING ENTERPRISE
Globalization has brought many new players to the field from various world
regions that impact each other. Consequently, globalization has created a more
complicated world with economic turbulence that affects companies and individuals
alike. At first, small and medium-size companies felt the fierce competition and small
market turbulence. When the market turbulence increased, it started to impact the
large global enterpr ises as well. Eventually these waves of turbulence will become
bigger and have a stronger effect on the entire world economy. They will impact not
only the careers of factory employees but also the living conditions of millions around
the world.
By the 1990s, the United States built a highly productive, low-inflation economy
that generated unprecedented wealth, jobs, and earnings. The foundation of this
economy was the manufacturing industry. But globalization has changed the playing
field and resulted in a reduction in the strength and size of the manufacturing sector.
This reduction impacts the entire U.S. economy, as well as the economies of Europe
and Australia. The twenty-first-century new industries in the United States and
Europe are focused on manufacturing solar panels, wind turbines, and batteries. But
these industries will shortly migrate to China, which suffers from polluted air and
rivers and desperately needs these energy-generated technologies. By contrast,
personalized production will also reside close to the customers, and has the potential
to regenerate the economy.
Is it possibl e to regain the U.S. and European economic success of the 1990s by
strengthening the manufacturing industry by the government and implementing the
above strategic rules by the industry itself. Governments must understand that the
foundation of a strong economy is still in the manufacturing of new products. The
service economy can survive only when it is based on this solid foundation. But
creating a strong economy requires another change; in the twenty-first century
manufacturing enterprises must be dynamic entities that continuously change in
response to unpredictable market turbulences. To make them dynamic and respon-
sive, industries should implement the 10 strategic rules at a global scale, as well as the
five “PRIDE” principles.
Globalization is here, and it will stay. New technologies will intensify globali-
zation even mor e. Therefore, in the global era, enterprises will have to coordinate their
resources across national borders and reconfigure quickly to accommodate unpre-
dictable market, cultural and political changes. Rapid responsiveness, new produc ts
design for globalization, reconfiguration technology, and seamless integration among
the business and engineering facets are the imper ative challenges of the revolution in
global manufacturing, challenges that when met will bring wealth and prosperity to
the global manufacturing enterprises of the twenty-first century.
WHERE ARE MANUFACTURING ENTERPRISES HEADED? 379
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380
THE TWENTY-FIRST CENTURY GLOBAL MANUFACTURING ENTERPRISE