I have been in India these last couple days and had the opportunity to speak at an Automotive event in Chennai. One of the presentations there intrigued me as the speaker bluntly pointed out that "Manufacturing is moving East". I went digging a little and found an interesting document from Eurostat, titled "Industrial Product Indices - Global Developments" . Unfortunately, the one I found only goes to 2007, pre-dating the latest recession. However, the numbers are staggering. Taking an index of 100 in 2000, China is at 240 and India at 160 in 2007. Contrasting with that, the 27 countries of the EU are at a meager 112, while the US is at 110. You could argue that moving east is maybe not completely correct as Brazil is at 125, but still far away from the India and China numbers.
The internal market in China grows as demonstrated by a growth of 17.2% of retail and consumer sales during this year's lunar new-year as reported by the Global Times. This has a number of implications.
First, as the internal market grows, American and European companies seeking growth are attracted by the Indian and Chinese markets and increasingly invest in the local markets to have/increase presence in the market. This brings an interesting new competition to the local companies. On the one hand, the Europeans and Americans have to learn to do business in Asia, but on the other, they bring efficiencies and production methods with them that local companies not always used.
Both China and India have experienced the American and European production methods through the outsourcing of manufacturing and services. Many Indian and Chinese companies are subcontractors and suppliers to large European and American enterprises. They have had the exposure allowing them to compete effectively in their local markets. However, smaller companies may have more difficulty and may end-up either going bankrupt or being absorbed by larger ones as they struggle to survive.
But as one of the attendees pointed out to me, globalization is increasing fast. He fully agreed that manufacturing was moving east, but pointed out at the same time that a number of Indian and Chinese companies had started buying European and American companies lately, citing Tata Steel buying British Steel, Mittal Arcelor, Tata Motors Jaguar-LandRover, Jelly Volvo, and I'm sure there are a number of others. So, in the end is it "Manufacturing moving East, Investments moving West"?
I don't know, but it definitely demonstrates increased globalization. And this brings with it a number of challenges for all parties. First, companies increasingly require working in a multi-cultural environment. This often, and I can speak from experience, brings with it misunderstanding and frustration. Indeed, the same word does not always have the same meaning, and decisions are not taken in a similar way. Doing some research for this post, I ran into a quite interesting article titled "Cross-cultural differences in decision-making styles: A study of college students in five countries", pointing to such differences. Now, such decision making differences do not only affect business people involved in the supply chain, but also the consumers. A study performed in Columbus, Ohio, researched the difference in decision process when buying a car between Japanese and American students. It's often difficult for management, located in one country, to fully assess the differences in the market in another country. They need to rely on local people and trust them enough to involve them in the decision process.
Second, as supply lines become longer and more complex, companies need increased communication levels to keep abreast of the situation. History has demonstrated at multiple occasions that it is often supply lines that stop the greatest worriers on their way to conquer new territory. The same applies for businesses. Building strong communication and supply lines is critical to embark on this movement east.
Local companies on the other hand have to increase their efficiencies if they want to maintain their competitive advantage, the knowledge of the terrain.
So, the current trend to globalization, the move east are great opportunities to develop more robust enterprises that take full advantage of their size and capabilities to conquer new markets, east today, maybe south in the near future. Whether these enterprises are from the west or the east, does not matter, it is the ones that can combine a strategic vision with strong operations and a deep understanding of cultural differences and global collaboration, that will be the winners in the future.
In my previous post, I spoke about the tangibles and intangibles of Supply Chain Collaboration, but intentionally did not address one element, the cultural aspects of Supply Chain Collaboration. Companies have increased the outsourcing of their manufacturing and over the years, China has become the "Factory of the World" in the eyes of many. In a quest for reducing costs, companies have gone to India for services and China for manufacturing.
What many companies forget, when outsourcing their manufacturing or some of the back-office services (eg. Purchasing processes), is the cultural issues inherent with such moves. First, employees that used to go down the hall now have to coop with time differences, remote collaboration and all the usual issues related with moving activities to different locations. On top of that, the latest recession has reduced travel, resulting in more work to be done over the telephone. And then there are the culture clashes. The expected benefits are often not met within the timeframes expected as a result of these culture shocks.
Particularly employees living in large countries with more homogeneous cultures have difficult to understand that people may not react in the same way as they do, that the same word may not have the same meaning, and that, as a result of those misunderstandings, expected activities are not performed.
To share my personal experience, when I started working with people in India in the mid 90's, I took yes for granted. In my culture, when somebody says yes, that means he/she will do what has been said. I got really frustrated when I realized things were not been done, that I was not respected, thinking people were not listening at what I asked. It took me a couple visits to India, where I experienced the difference in saying yes, and several discussions for me to understand yes had many meanings out there. Actually, one of my local friends one day put it to me: "In Hindi there are 40 ways to say yes, and no way to say no". Whether that is correct or not, does not really matter, but it is important to understand that, as simple of a word as the word yes, may mean very different things to different people.
In a blog entry titled "Culture clashes and how to avoid them", Brenda Townsend Hall gives a number of examples related to culture clashes in enterprises. They are related to the UK culture, but many of us can recognize the implications for their own cultures.
So, when starting to work remotely with people, it is important to identify the differences in culture, understand how people react to events, what key words mean for them, how they experience leadership and management etc.
As our work environment becomes more diverse, due to immigration, people will start experience the implications of cultural diversity in their day to day work. This may help resolve some of the problems related with outsourcing. However, to take full advantage of outsourcing, companies need to address the cultural diversity of the future teams. I would suggest the process starts with a detailed description of the culture of the country where the activity is outsourced to. Taking the time to explain what is important for people, how they react, what is important for them etc. will pay later in the process. One interesting approach is, once the teams have started working together, to continue feeding them with general information of what happens in the other location. This may include politics, sport, cultural events etc. Such awareness will facilitate discussions between the parties, allowing the members to know each other better, in turn building trust and facilitating communication. Also make sure employees know some words of the other language.
One very simple element we implemented when working with remote teams, was the exchange of photos, allowing us to depict the person that was speaking at the other end of the telephone.
Outsourcing manufacturing to China? Well you may want to look at "Formation of Cultural Competitive Force when doing Business in China", written by Maohua Sun.
Global operations are affected by cultural differences, denying it or refusing to address the aspect does not help in the long run. So, to improve the working of their Supply Chains, companies should address the cultural differences of its ecosystem partners to foster a global team. It is not easy but will pay of greatly.
Feel free to share your cultural experience by contributing to this blog.