Finding the Right Production Shore Is Tricky

While I ply the Internet for a bargain or two, I prefer to shop local. I value the familiarity, intimacy, and quality that come from local, independent businesses and their products. I buy meat and vegetables at farmers’ markets, enjoy the quaintness of plucking fish from the local fleet’s honor system freezer chest, frequent independent coffee shops, and I have a weakness for tailored suits.

Yet despite my affinity for the local, I am a staunch proponent of globalization. Udon noodles sit next to Connecticut honey in my pantry. My tailor lives in Singapore where he assembles my suits at half their cost in the US, based on instructions that I send to a friend via instant message. I am global. I am local. We’ll settle on just being “glocal.”

Like me, high-technology companies look to balance global scope and local relevance. The same manufacturer may offer a basic, rugged mobile phone that sits at the center of a Grameen Bank microfinance project and a slim, fashionable smartphone that sits on the ear of a European financial services executive.

In designing and selling a variety of products like these, high-tech companies have successfully been global in the scope of their sales, while creating relevant, unique local identities. These companies are now moving the global/local conversation past sales, marketing, and design and on to manufacturing. Should manufacturing be local? Should it be global? Should it be both? Over the past decade, attitudes towards sourcing and locating manufacturing can pretty well be summarized with Steve Levy’s SportsCenter home-run call, “Get out of town — and he means it!”

Developed economy manufacturers shifted operations to offshore original design and contract manufacturers (ODMs and CMs to their friends) in an effort to improve manufacturing cost, scale, and efficiency. The reasons for offshoring still hold. The (mostly) Asian manufacturing hubs that emerged have helped high-tech companies reduce cost, focus on innovation, and bring new solutions to the market. Yet with that concentration of manufacturing, we also lost contact and responsiveness between manufacturing and local markets.

To be sure, high-technology companies and their manufacturing partners have made significant, and often successful, investments in technology and processes to improve coordination with local markets. But customers and other stakeholders are looking for more. Retailers seek greater responsiveness and shorter order windows. Governments, major companies, and large institutions seek assurances that their high-tech products and associated embedded software are secure and tamper-free. Consumers seek differentiated products and solutions that mesh with their lifestyles.

Many of the high-tech companies that I work with are starting to apply some serious thinking to this dilemma. It’s no longer about offshoring for cost, but trying to find the “right shore” location for the right production. Some will be offshore, some near-shore, and some will be onshore. For example, {complink 8019|General Electric Co.} and Whirlpool recently announced significant investments in domestic US production facilities. (See press statement and report: here and here).

For both manufacturers, the balance of cost, service, and customer connectedness made sense. For each manufacturer that comes to this decision point, the hard part will be the same; figuring out the combination of right location/right production/right customer segment/right cost. But just like inventory mix, creating the right mix of manufacturing locations can have significant impact on cost, service levels, and revenues. Finding the right mix of “right” shores is tricky business.

How is your business addressing this challenge?

7 comments on “Finding the Right Production Shore Is Tricky

  1. Mydesign
    November 25, 2010

         Craigh, I like the word glocal, which can sense a lot about the local product which goes to global. As a part of globalization all most all the countries had opened their internal markets for foreign investment with red carpets & soap facilities. In some way, it’s not at all favoring the small and medium scale industries. The normal way of globalization is migration of manpower to other nations, where Labour cost is less. I think instead of only migrating the man power the companies have to focus on the availability of resources. I mean they have to build up the production line, where resources are cheaply available and then the tech power comes automatically. So they can explore both the resources and Labour power in economic way and can sell the product globally.

  2. Backorder
    November 27, 2010

    Going “Glocal” also means adapting the products and selling to suit the customer base. Not only the manufactring but the Sales operations have to be suited both for the local market as well as the global vendor.

  3. Ms. Daisy
    November 27, 2010

    No doubt globalization is the future of commerce in general. But like you I do not want my food coming from a world away were the agricultural practices are not monitored and the produce are proped up with chemicals to keep them “market fresh”. In terms of technolgies and other none agricultural products, I am open to the off shore production. I agree a balance has to be struck to ensure fair trade and reduced cost of production.

  4. Backorder
    November 29, 2010

    Striking the right balance is the key. For perspective's sake, we can look at the China-US currnecy imbroglio, and the deeper roots behind it. The fact that a lot of manufacturing has made China its base gives it an advantage in global economics that might come back to haunt the parent nations of such companies. Oh wait, is there any such thing as a parent nation for an MNC?

  5. Ms. Daisy
    November 29, 2010

    It has definitely has come back to haunt the US market in general. China is already refusing to accept US exports and has been able to do this with impunity because of China's new found economic advantage.

  6. Craig Gottlieb
    November 29, 2010

    My personal take is that to date, companies have largely focused on the sales side of the equation when it comes to being locally relevant.  Marketing and product differentiation have become increasingly attuned to local tastes and needs.  Part of what I was getting at in my post was that we are now seeing the same sort of attention to location and differentiation being made on the manufacturing side.  One could argue that the growing success of offshore production and the commensurate rise of those economies (and the cost to operate there) is another factor that has made a broader based conversation on manufacturing location more possible.

  7. itguyphil
    November 29, 2010

    I hear that over there when it comes to products, they only provide citizens with Chinese-made supplies. For example, McDonald's in China are only allowed to use Chinese-made food 'products'. Interesting shift.

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