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LOGISTICS IRELAND 2006KEYNOTE PRESENTATION
SUPPLY CHAIN GLOBALISATION:
THREAT OR OPPORTUNITY?
Dr Daniel Park
MASS Consulting Group
Manchester, UK
5 October 2006
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STRUCTURE OF THE PRESENTATION
• Threat or opportunity?• Globalisation reconsidered• Multiple dimensions of globalisation• Forces for change• Trade versus investment• Where next?• Where next for Ireland and “Irish” companies?• Closing thoughts.
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THREAT AND OPPORTUNITY
Example of Threat• Collapse of USSR economy• Manufacturing “decline”
(e.g.GM, Ford)• Loss of jobs• Skill obsolescence
Example of Opportunity• China “Open Door”• Manufacturing redefined• (e.g. BMW)• Creation of new jobs• Lifelong learning
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GLOBALISATION RECONSIDERED (1)
First Thoughts
“By almost any economically relevant metric, distances have shrunk considerably in recent decades.”
Dr Ben Bernanke, Chairman, US Federal Reserve, 2006
“It’s no longer a competition between products or services, it’s a competition between business models.”
Professor Gary Hamel. London Business School
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GLOBALISATION RECONSIDERED (2)
Global merchandise “exports”
• 8% of World GDP in 1913• 13% of World GDP in 1990• 22% of World GDP in 2006• Re-consider trade versus
production specialisation.
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GLOBALISATION DRIVERS
Policy Drivers
Competitive Drivers
Cost Drivers
Market Drivers
GLOBALINDUSTRYPOTENTIAL
* Integrative trade policies* Compatible technical standards* Common marketing regulations
* Simultaneous collaboration and rivalry* Cross-border M&A* Flexible (incl. time-based) structures
* Scale economics* Low transportation costs* High product development costs* Jointly managed facilities
* Converging customer need* Increasing search for variety* High imports and exports* Transferable marketing
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IMPACT ON PRODUCT LIFE-CYCLE
Yesterday’s profit-makers
Today’s profit-makers
Tomorrow’s profit-makers
Critical Phasing Critical Phasing
Time CompressionTIME
RE
VE
NU
E -
PR
OF
IT
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IMPACT ON ORGANISATIONAL DESIGN
Changing from• Asset-focused• Slowly evolving• Control via ownership• Vertically integrated
Changing to• Competence-focused• Responsively changing• Control via competence• Horizontally networked
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HOW DID GLOBALISATION EVOLVE?
Core - periphery
Comparative advantage
Intra-industry trade
Networked supply chains
Resource endowment
Value creation
Economies of scale/scope
Reduced logistic costs
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THE CURRENT PHASE
• Cost improvements and time compression in operations and communications.
• Increasing range of traded products and services.• Expansion of regional trade blocs.
Resulting in• re-evaluation of “core” and “periphery”;• greater fluidity in capital structures;• fragmentation of manufacturing activity;• integration of manufacturing processes.
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CORE AND PERIPHERY(Comparative Advantage)
Natural Resources
Agricultural Products
Goods Capital Labour
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MARKET FLUIDITY (1)
• More mechanisms of capital flow than in the past• Net capital flows relative to output are similar
but• Gross capital flows are very much bigger
and• Flows of foreign direct investment relative to
output are much bigger.
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MARKET FLUIDITY (2)
% domestic % foreign
ownershipownership
Stock market - Ireland 1995 58 42
2005 40 60
Stock market – UK/LSE 1995 70 30
2005 45 55
Stock market – USA/NYSE 1995 75 25
2005 70 30
Sources: AIB, Davy, LSE, NYSE
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FRAGMENTATION OF ACTIVITY(Intra-industry trade)
Product Package
Tiered Supply
Simplified Distribution incl. 3PL and 4PL
Final Demand
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INTEGRATION OF PROCESSES
Source: Edward Sweeney “Managing Information Flows” Logistics Solutions, Autumn 2006, page 19.
Source Processors Retailers
Suppliers Distributors Consumers
PRODUCTS/SERVICES
INFORMATION
FUNDS
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FORCES FOR CHANGE
Asian Operations
Multi-Process Alignment
Value Migration
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TRADE VERSUS INVESTMENT
• Trade - what belongs where?• Balance of prime cost against proximity to demand• Mix of trade and local production• Example of Germany.
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TOWARDS A NEW VIEW OF GLOBALISATION
A market is not so much about geographical demand as about the value of the decision-making authority located there.
Central objective is to identify where value is created and to align resources and supply chain structures to gain share of this value.
Globalisation is about the capability of contesting any market irrespective of geography.
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WHERE ARE WE NOW ?
Main questions• How much is core, how much is periphery?• What parts of manufacturing remain in Ireland?• How much trade, how much investment?
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WHERE NEXT ?
• Globalisation of service sector.• Re-definition of “manufacturing”.• De-coupling of geography from strategy and structure.• Change in role of national government.
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WHERE NEXT FOR IRELAND INC ? (1)
• Ireland has to develop a skill base that enables it to punch above its weight in international business.
• This necessitates migration from “process maintenance” to “process innovation” activities.
• International trade is only part of international business. Identify the location of VALUE
• Ireland should take a good look at Singapore.
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SINGAPORE INC
Singapore Economic Development Board
International financial institutions
Investment in education
Singapore as R&D centre
Creation of globally-minded indigenous enterprise
Attraction of internationally mobile operations.
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WHERE NEXT FOR IRISH COMPANIES ?
• What constitutes an “Irish” company?• Develop differentiating competencies• Migration into higher value-adding activities• Outward as well as inward investment• The “homeless corporation”• Achieve for innovation what was achieved for
quality (1980s) and process re-engineering (1990s).
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WHERE NEXT FOR IRISH COMPANIES ? (2)
From “Gattorna-type” alignment of physical supply chains (service companies, 4th-party logistics, etc)
to
alignment of multiple supply chains - physical, information, financial
necessitating
alliances, JVs, shared assets, time-based structures.
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WHERE NEXT FOR IRISH COMPANIES ? (3)
• Increasingly difficult for Irish-based companies to have cost-based strategies
• Irish companies will need to differentiate themselves on the basis of relevant competencies
• The “Irish economy” and “Irish business” will be increasingly dispersed.
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CLOSING THOUGHTS
• Differentiating competencies centre on process integration to cope with manufacturing diffusion
• As differentiation on the basis of product and service gets more difficult, ability to create innovative business models is crucial
• SCM as a cost-reduction tool is now mature• This will take Ireland’s companies into a value-
based concept of international business requiring globalisation driven by SCM as a differentiating competency.