Last April I wrote a blog entry titled “Manufacturing is moving east”. I was in Singapore earlier this week and got struck once more with the dynamism of the region. Out of the 6.8B inhabitants of our world, 4B, or 60%, live in Asia. 27% of this population is less than 15 years old, compared to 20% of the US population and 15% of the European one. By 2030, Asia will host 60% of the developing world middle class, and these are the growing markets. By 2025, China will be the 3rd largest consumer market and by 2028, India will have the 5th place. 42.6% of Internet users are in Asia, but 80% of the Asians are not connected yet.
I believe you get the story. Asia is the place to be for manufacturing companies to continue growing. Hence the move to Asia. This started with outsourcing manufacturing and services in Asian countries. Increasingly, however, companies are realizing that, beyond cheap labor, there are quickly growing markets in which their presence is required.
Wages in Asian markets are going up quickly. Foxconn for example announced last June that it would more than double base pay for some of its workers. The Chinese government announced the revaluation of the Renminbi. Geographical areas that were popular a couple years ago for the set-up of new plants are already seen as “too expensive”, and major companies are quickly moving inland in China for example. Vietnam is another hot space for building new factories.
About 6 months ago I was in Egypt. Talking to locals, I suddenly heard that Asian companies started to outsource some of their base manufacturing to Egypt. In a couple broadcasts around the celebration of the 50th anniversary of the independence of the republic of Congo, several specialists were pointing out that China’s presence in Africa is not only related to the availability of minerals and commodities, but also to the need for cheap labor. Paul Kagame, the president of Rwanda, is pushing the installation of fiber optics throughout the country to provide internet access to the whole population. Is Africa quietly becoming the new Asia? Would this be a great opportunity for Africa to finally grow out of the current chaos?
The world cup has demonstrated Africa’s capabilities to organize large events
But this brings a real good question. What should European and American companies do? Should they continue outsourcing their manufacturing to Asian ones, although the actual work may end-up being done in Africa, making the supply chain even more complex? Or should they go themselves to Africa and set-up shop there.
What-ever decision companies take; they really need to have a global view of the world. Africa only represents 15% of the world population and although 40% of this population is less than 15, the local market will remain much smaller than Asia for the forcible future. Although wages may be lower, the same levels of productivity may not be achieved in the first stages.
In the quest for new markets, low manufacturing costs and higher sustainability, companies will have to balance market presence, costs and logistics. This requires an in-depth understanding of the ecosystem, forcing companies to invest in better business intelligence. And understanding the dynamics from the enterprise itself is no longer enough. I increasingly believe in the need of long term planning, balancing macro-economics with the evolution and responsiveness of the ecosystem. Developing scenario’s and analyzing how to respond to them, using for example Shell’s scenario planning approach, are ideal ways to establish longer term plans of where to set-up or outsource manufacturing capacity, how to feed markets and what logistics routes to establish.
We increasingly need to think globally. But that requires growing our understanding of other markets, cultures and people interactions. Unfortunately, neither in our education, nor most of our companies, we are trained on understanding other cultures and establishing multi-cultural relationships. This brings me to the believe that people who grew up with multiple cultures and languages, either because of their geographical origin or their parents, will have a major advantage moving forward, as they have learned, from their early days, to coop with multiple cultures, facilitating their interactions around the globe.
