Kraljic Globalisation, Competitiveness and Supply Management

GLOBALISATION,

COMPETITIVENESS AND SUPPLY MANAGEMENT

“NEVI”

Zwolle, March 9, 2011

Dr. Peter Kraljič

Globalisation and CompetitivenessDr. Peter Kraljič

Three Ingoing Questions

� I. Why be competitive: To survive, to win or to win-win?

� II. Who should be competitive: Individuals, Corporations, Countries?

� III. How to define competitiveness: Performance vs. Sustainability or both?


Three Ingoing Theses

� I. “Panta Rei”: The whole world in process of constant –and oft abrupt - change

� II. Competitiveness: “Condition sine qua non” for success in globalised world

� III. Business as unusual: New challenges also for supply management


“Panta Rei”: Three major events over

last 20 years

� Crash of Communism and Disappearance of SSSR / Comecon

� September 11 leading to a futile war against terrorism

� Crash of Financial Capitalism and Erosion of belief in the free market forces

Underlying these events are some fundamental changes across several dimensions


“Panta Rei”: Fundamental changes and

developments across several

dimensions…

� Politics: new power centres in BRIC countries

� Economy: progress and impact of globalisation

� Technology: exponential revolution

� Natural resources: growing scarcity

� Environment: global “hot house” effects

� Demography: long life and aging effects

� Culture: deepening tensions Cross-Crescent – Star of David

� Social: growing gap between rich and poor

� Education: new skills / LLL

� Values: new expectations but also erosion of ethics / greed

… Leading to new scenarios, opportunities and challenges


Economy: Entry into globalised,

post-industrial knowledge driven era

� 1. New rules and success factors of globalisation

(e.g. distinctive skills, global brands, talent management and development)

� 2. New scenarios with “end-game” character

(e.g. Boeing vs. Airbus, Iron Ore Trio)

� 3. New global winners

big multis, increasingly also from BRIC (e.g. TATA, Petrobras)

global sliver dominators (e.g. Novo, BU, SAP)

� 4. New employment structures / trends

- only 15 – 20 % industrial jobs sustainable (USA 20%, D 25%, SI 35%)

- shifts between high and low cost countries

- Future of agricultural jobs (CHI 40%, IND 48%, BU 19%)


Multiple impact of globalisation

1. New opportunities

� access to new markets, customers and suppliers (e.g. Philips, TATA - Nano)

� technological leapfrogging (e.g. China)

� global process optimisation (e.g. Toyota)

� global talent pool (e.g. McKinsey)

2. New challenges

� consolidation / concentration / takeovers

� constant change (e.g. delocalisation, downsizing)

� commoditisation of products (e.g. stainless)

� new transparency / expectations of “share-” and “stakeholders”



3. New risks

� fluctuations and volatility of demand in financial and raw materials markets (e.g. currencies, rare earths)

� brain drain

� object vs. subject – risks, even on country level

(e.g. ACS/HOCHTIEF, Croatia, Hungary, Iceland)

� global domino effects of financial crash (e.g. subprime –Lehman – bailouts)

� leading to global crisis of real economy



4. The impact of this crash was rather dramatic in

� Financial terms – cost of rescue, unemployment e.g. Spain 20% and market cap losses / debts explosion

� Psychological terms – loss of trust into the system coupled with growing fears of the populations

The impact varies of course from country to country and region to region


Globalisations is however only one

key dimension

1. Future developments / trends are a mix of several dimensions

� e.g. environment protection not viable without technology (changes)

2. Impact can vary regionally and time-wise

� e.g. demography / aging population (EU vs. US)

3. Some changes also global, both short and long term

� e.g. financial crisis vs. global warming

4. Dealing with global changes, opportunities and challenges calls for competitiveness and sustainability across several decision levels


II. Competitiveness and sustainability in

globalised world have to be ensured across

six interrelated decision levels

� 1. Giga level = global impact

� 2. Mega level = major economic areas

� 3. Macro level = individual countries

� 4. Mezzo level = clusters (regions and/or sectors)

� 5. Micro level = corporations (incl. SME’s)

� 6. Nano level = individual units / people


1. Giga level is so far not regulated /

managed

� Opportunities created through globalisation, technology revolution and institutions such as WTO or IMF and exploited by global corporations with adequate strategies

� Risks resulting from failures of existing powers / institutions

� UNO: failure in Darfur, Congo

� USA: eroding hyper-power position

� Mega risks due to the lack of global concepts / coherence

� hot-house effect: Kyoto protocol

� financial crisis / recession: G-20 efforts “yet financial markets” -exploding again

� risk of currency war

� Resource bottlenecks (arable land, water,…)


2. Mega level: competition vs. co-operation of different, often unstable economic areas

� USA / NAFTA as (still) leading economic power

� EU so far not successful in reaching Lisbon strategy objectives

� Transformation site Russia / EE / SEE

� Oil rich Middle East “War theatre”

� Japan and Pacific Rim

� Growing powers China and India

� Mercosur with Brasil

� Resource rich Oceania (Australia. Indonesia)

� Forgotten continent Africa (with China interest)


EU competitiveness so far not ensured, due to divergent national interests

� Objective: #1 economic area correct, yet implementation failing (e.g. R&D, investments, Maastricht-criteria)

� Positive achievement: economic zone achieved in terms of goods and capital flows

� Negative effects due to national divergences

- Euro zone is not EU

- personal mobility of labour not ensured (e.g. Germany, Austria)

- economic divergence / interests (e.g. agro-cultural subsidies, “patriotisme economique”)

- political differences (e.g. Iraq, Kosovo, EU / NATO expansion)

- lack of leaders / role models

� Facit: A lot of progress, yet still a way to go.


3. Macro level: competitiveness is not a question of size

� Country competitiveness is an indicator not only of actual performance, but also of future growth, sustainability and progress of society

� Two major international analyses with over 300 criteria

- IMD: 58 countries

- WEF: 139 countries

� Both analyses show over time similar results

- USA as a rule mostly No. 1 rank overall, now droping

- Among top 10 countries as a rule some smaller countries from Europe and Asia (e.g. Austria, Switzerland, Denmark, TheNetherlands, Sweden, Finland, Hong Kong, Singapore, Malaysia)

� BRIC and CEE countries with exception of China mostly in the middle or lagging


Global Competitiveness Ranking 2009/10

Top 10 BRIC CEE countries*

1. Singapore (3) 18. China (20) 29. Czech Republic (29)

2. Hong-Kong (2) 31. India (30) 32. Poland (44)

3. USA (1) 38. Brazil (40) 34. Estonia (35)

4. Switzerland (4) 51. Russia (51) 42. Hungary (45)

5. Australia (7) 43. Lithuania (31)

6. Sweden (6) 49. Slovakia (33)

7. Canada (8) 52. Slovenia (32)

8. Taiwan (23) 53. Bulgaria (38)

9. Norway (11) 54. Romania (54)

10. Malasya (18) 56. Croatia (53)

57. Ukraine (56)

______________________________________________________________

Source: IMD 2009/10, BASE; 58 countries


Global Competitiveness Ranking 2010/11

Top 10 BRIC CEE countries*

1. Switzerland (last year 1) 27. China (29) 33. Estonia (35)

2. Sweden (4) 51. India (49) 36. Czech Republic (31)

3. Singapore (3) 58. Brasil (58) 39. Poland (48)

4. USA (2) 63. Russia (63) 45. Slovenia (37)

5. Germany (7) 47. Lithuania (53)

6. Japan (8) 49. Montenegro (62)

7. Finland (6) 52. Hungary (58)

8. The Netherlands (10) 60. Slovakia (47)

9. Denmark (5) 70. Latvia (66)

10. Canada (9) 71. Bulgaria (76)

77. Croatia (72)

79. Macedonia (84)

88. Albania (96)

89. Ukraine (82)

96. Serbia (93)

102. BiH (109)Source: WEF base, 139 countries


3. Macro level: Importance of HR and coherent actions

� Both analyses also confirm the importance of human resources in the context of interplay education, innovation, productivity and values

- USA and Switzerland mostly leading in area of

science, research and innovation

- Scandinavian countries and Singapore often ahead in areas of education, technology and values

- China, India and Singapore with gains in productivity

� Both analyses confirm also that competitiveness is not a question of country size, but rather a result of coherent actions on political, educational and corporate levels


4. Mezzo level is often neglected, despite its often growing importance

� Globalisation leads to concentration and often to deep and radical change of individual sectors

- example China: steel, textile exports, solar energy, ICE

� Regions are competing - also within individual countries – for (F)DI and often show significant differences regarding growth and value creation

- examples: France (ldF–rest), Germany (ABL–NBL),

Italy (North vs. South)

� Clusters play an increasing role at the interface macro-micro level and lead to important growth and job creation effects(e.g. Wolfsburg)


5. Micro level remains decisive for sustainable progress of states and regions

� Growth and value creation of each country depends upon an adequate mix of globally competitive companies, also from smaller and now BRIC countries

- big MNC as growth engines (e.g. Nokia, Arla, Maersk, Nestlé, Severstal, Embraer)

- midsize companies as leaders of global slivers (e.g. Novo, VA-Tech, Böhler-Uddeholm)

- Hidden Champions: SME’s and start ups as drivers of innovation and job creation (e.g. Silicon valley, North Italy, Slovenia -Kolektor, Seaway)

� “Conditio sine qua non” is not the size of domestic market but global competitiveness based upon coherent vision / strategy and constant change optimizing four key corporate levers


Four elements of coherent vision / concept

1. Strategy: clear and sustainable competitive advantage

� Base for advantage: example steel sector

- 1 S = structural advantage (Bao, Severstal, Tata)

- 2 S = scale & scope (Arcelor Mital, BHP, CVRD)

- 3 S = specialisation, speed, skills (BU, Acerinox, SMS)

� Vision and flexibility

- plan for events / discontinuity

- what if scenarios (e.g. supply vs. customer markets)

- constant change as only stable factor (GE)

- sustainability / ecology / CSR



2. Organisation: optimisation and coherence of organisational elements and levers

� New “7S” paradigm = invisible organisation, focused on people

- formal context: 30 % of performance

- mental and social context: 70 % of performance

- above threshold of shared values and trust

- stars vs. happy underperformers

� Basic structure (e.g. Functional, Divisional, Regional,…)

� Networks, not boxes (McKinsey)

� Value chain optimisation / integration

� Delegation, motivation, interaction

- Nucor: workers as owners / entrepreneurs



3. Operations: ensure “CI” distinctiveness

� Continuous Innovation and Innovativeness (e.g. BOSCH, J&J)

� Continuous Improvement (Toyota, VA Stahl)

� Customer Intimacy and Relationship (CRM, SCM, SRM)

� Competitive Information (benchmaking)

and in times of crisis

� Cash flow, cost and Inventories optimisation



4. Human resources management as core corporate function and competence

� Top talent = key corporate resource

� Ex-ante ties to strategy and needed skills

- cross-functional

- multi-national

� HRM - innovation connected to training / LLL

- recruiting and retaining top talent

- evaluation / motivation / renumeration

- development: leaders, not only managers


6. Last but not least: Nano= individual and educational level

� Demands of knowledge driven economy coupled with globalisation effects lead to new challenges

- winning war for talent

- reducing brain drain risk

- managing delocalisation / outsourcing

- dealing with polarisation of high vs. low value added jobs

� Europe needs additional investments and new concepts

- beyond Pisa / Bologna

- constant knowledge upgrading

- motivating youth for jobs with future potential (e.g. engineering, sciences)

- concepts / mentality of LLL

- training and reskilling

� Goal: ensuring “cutting edge” skills / know how


7. HR-Quadriga: Future competitiveness of Europe via education, innovation, productivity and values

� Mega region not (yet) in No. 1 position

� Hardly any structural advantages

� Few corporations beyond established multinationals - able to compete globally on scale & scope level

� Best chance in 3-S area, driven by education, innovation, productivity and knowledge management and embedded in adequate organisational culture and value system


III. Business as unusual *: new

challenges also for supply management

1. Crisis in three acts

� Financial: 50.000 Mio $ impact

� Economic: world BNP down 5%

� Social: 15 Mio jobs destroyed

* Source: S. Garelli, IMD


III. Business as unusual: new challenges

also for supply management

2. Future recovery unclear

� V - form: Germany

� W - form: USA

� U - form: Europe

� L - form: Japan

Issue: overcapacities?




3. Two types of Economy

� Replacement Economy� Driven by “dramatic innovation” (e.g. phones)

� Typical for developed countries

� First Buy Economy� Driven by need / new purchasing power

� Typical for emerging markets




4. New pillars of growth

� Emerging markets → new middle class

� Emerging “less poors” → new business models (e.g. Nano/TATA)

� Clean technologies → sustainability

� Growing life expectation → wellness / HC




5. Growing commodity prices: example 1999-2009

- Nickel +94% - Copper +269%

- Corn +104% - Sugar +270%

- Gas +108% - Gold +308%

- Oil +202% - Lead +378%




6. Driven by China’s and India’s appetite

� China’s world consumption share� Al: 19% Coal: 31%

� Cu: 20% Cement: 47%

� Steel: 27%

� China’s & India’s oil consumption

� 2009: 11,5%

� 2030: 45%




7. As consequence, business models and focus have to be restructured and/or adapted

� 1980’ies: working better → Reengineering

� 1990’ies: working cheaper → Outsourcing

� 2000: working elsewhere → Globalisation

� 2010: working simpler → Competitiveness




8. Supply management key for future competitiveness

� Controlling 50 – 80% of corporate spends

� Need to avoid future supply bottlenecks

� Responsible to develop sustainable supply strategies

� Considering Mega-trends

� Understanding competitiveness criteria

� Developing correct supplier relations


Examples of competitiveness criteria:

Supply focus (primary)

Local suppliers quantity

Local suppliers quality

Cluster development

Degree of customer

orientation

Buyer’s sophistication

1. J 1. A 1. I 1. J 1. J

3. D 2. CH 2. J 2. A 2. CH

6. CH 3. D 3. Taiwan 3. CH 3. S

8. A 4. J 4. CH 4. S 7. China

11. USA 5. S 5. Sing. 18. Sing. 9. NL

12. NL 8. NL 19. NL 22. USA 10. Sing.

19. China 14. USA 41. F 28. NL 14. USA

22. CZ 17. CZ 34. LIT 18. D

54. China 35. F 25. A

26. F

Source: IMD/WEF 36. CZ


Examples of competitiveness criteria:

Supply focus (secondary)

Capacity for innovation

Utility patents (per mio pop.)

Unique competitive

advantage

Production process

sophistication

Ethical behavious of

firms

1. D 1. Taiwan 1. J 1. J 1. S

2. J 2. J 2. CH 2. D 2. NZ

3. S 3. USA 3. D 3. CH 3. SF

4. CH 4. Israel 4. SF 4. S 4. Sing.

5. SF 5. Korea 5. S 5. SF 5. DK

6. USA 8. S 8. NL 6. NL 9. NL

14. Taiwan 11. Sing. 14. Sing. 11. USA 11. A

17. Sing. 27. SI 29. SI 14. Sing. 33. EST

22. SI 35. CZ 82. I




9. International companies already restructuring their supply function:

example: EIPM survey 2010

� 87 participants

� 9 finalists- Delphi - Kone - Schindler

- Henkel - Michelin - ST-micro

- Janssen - Nokia - Volvo




10. Some key observations� 8/9 companies transformed and upgraded their procurement

organization in the last 5 years

� All are considered as strategic and have regular performance reviews at top level CEO/EXCOM

� Clear Vision and Mission statements are in place

� All are global and have strategic sourcing teams

� Category procurement with x-functional teams is the norm

� Everywhere TCO metrics, few on value creation through whole cupply chain

� Supplier segmentation drives specific SRM activities, including collaboration and joint development (still rare)

� CSR increasingly on key priority lists

� Most often customer feedback is collected informally Source: EIPM




11. The survey used EFQM – excellence module approach focusing upon…

� Key enablers:leadership, strategy, people, partnership, processes

� Key results/impact:value creation, SRM, innovation, CSR, people development

…showing predominantly above average ratings


Enablers Below

average

Average Good Outstanding

Leadership 2 1 3 3

Strategy 2 / 7 /

People 1 1 7 /

Partnerships 1 2 4 2

Processes 2 3 4 /

Source: EIPM - 2010


Results Below

average

Average Good Outstanding

Value creation 1 2 4 2

SRM / 2 4 3

Innovation 2 2 5 /

CSR 2 5 / 2

People development

1 4 3 1

Source: EIPM - 2010




12. More importantly, all finalists apply a number of best practices showing both

� Coherence of approaches in areas of SRM, CRM and innovation but also

� Variety of approaches in areas of value creation and people development

…demonstrating thus how to handle the supply management function of the future.


Examples of best practices:

Coherence of approaches

SRM- Global SRM – process- Supplier segmentation- Supplier surveys / evaluation

CSR- State of art initiatives- Sustainable excellence concept / targets

- Ethics - based- EHS - criteria

- Code of conduct compliance

INNOVATION- Co-development / partnerships with suppliers- X-functional product innovation- Mega-trends / innovation-gate based concepts


Examples of best practices:

Variety of approaches

VALUE CREATION

- Supply performance targets linked to corporateobjectives

- Joint TCO-projects and improvement targets- Common X-functional sourcing objectives- Contribution to top-line-growth-concept- Factory margin improvement concept- KAM-concept

PEOPLEDEVELOPMENT

B. KUX

- Talent management program- Corporate purchasing university / campus- Structured T & D – programs- Global competency / skills moduls and assessments- PDP linked to personal business plans and KPI –

cascades- Sourcing excellence awards / perception surveys


FAZIT

1. In a volatile globalized world competitiveness is becoming a “conditio sine qua non” for success, not only on corporate, but also on individual or country / society level

2. To meet the future opportunities and challenges it will take a more holistic approach to competitiveness, understanding and acting upon necessary levers across several interrelated levels, from nano to giga.


FAZIT

3. On corporate level, beyond classical levers of

competitiveness, the HR-Quadriga: education,

innovativeness, productivity and values will be of increasing

importance for sustainable competitive performance /

position

4. In this context supply management function must play a key interface role for both suppliers and other corporate

functions in terms of overall value chain optimisation

5. Supply managers have already achieved a lot, but even more

has to be done to make our corporations and individuals

truly competitive in a global sense.

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