Leading in a Time of Rapidly Shifting Tectonic Plates

November 17, 2014

tags: Boston Consulting Group, China, leadership, Manufacturing

A movement at the boundary of two tectonic plates of only eight inches will set off an earthquake.

Using plate tectonics as the metaphor, what has been happening to global manufacturing over the past three decades has been a series of ongoing earthquakes. China’s rise as a major manufacturing centre by the nineties, subsuming Hong Kong and Japan and increasingly the United States, Canada and Western Europe, escalated in the 2000s to where it was the world’s manufacturing hub.

That rank stood its ground until a series of earthquakes occurred.

Nothing is static in today’s global economy. Those at the front of the pack resting on their laurels are soon being surpassed by those nations hungry to create wealth for their citizens. The list is long, but it includes such countries as Bangladesh (clothing and textiles), Vietnam (footwear), Honduras (clothing), Latvia and Estonia (IT outsourcing) and Uganda (back office processing).

The up-to-now race to the bottom of companies seeking out the cheapest manufacturing location (read labor costs) is rapidly changing to a combination of other factors besides wage rates: technology (eg, automation), energy costs and productivity improvements.

Enter a compelling new study by the Boston Consulting Group: “The Shifting Economics of Global Manufacturing.” Yeah, I know–boring stuff by economists. Okay, sure, except that we have all a stake in the outcome.

There’s good news if you live in the United States and Mexico, not so good news if you live in Canada, and crappy news if you live in China, Brazil, Russia, India and Australia. To read this report, which is actually very interesting, click here.

So what’s this have to do with leadership?

Everything.

Manufacturing in Mexico and the U.S. rebounded from their previous slide in a short span of time, while other countries such as Canada and Australia have continued to limp along, because corporate leaders grabbed the bull by the horns and initiated sweeping changes (e.g., automation, mechanization and improved teamwork approaches). And it didn’t hurt that in the U.S. some governors enacted legislation reducing red tape for business start-ups, subsidies for manufacturing plant re-location and weakened the role of organized labor.

In Mexico (see photo, Volkswagen plant), the national government has negotiated 44 free trade agreements with other countries, the most anywhere on the planet. And the country’s workers have an established strong work ethic, resilience bolstered by Mexico’s long battle with the drug cartels.

Whether one agrees with some of these initiatives and practices is not the point. What is relevant is that business leaders and politicians did something. In Canada, my home country, corporate leaders in the manufacturing sector have been tortoise-like in their desire to sharpen up and engage the world. The same applies to politicians at the federal and provincial level. Navel gazing is the order of the day as the rest of the world gets on with business.

In preparing this post I checked the Toronto-based Institute for Competitiveness and Prosperity (ICP), a think tank that does good research on a variety of issues. Before I retired from the Government of Canada in 2010, I had been involved in a collaborative effort with the ICP, Stanford University, the London School of Economics (LSE) and federal regional development agencies. Lack of interest from the federal government killed its participation, and I retired not long after.

The ICP continued on and released a report Management Matters, which was the Canadian component of a previously released LSE international study on the importance of effective management practices in manufacturing. Unfortunately, the ICP, whose focus is on the Province of Ontario, has not furthered its research in the past four years. That’s not to fault them, however. Where the leadership gap resides at the political is with Prime Minister Stephen Harper and his Minister of the Department of Industry. And, as I noted above, corporate Canada has been strikingly impotent at initiating a concerted and focused effort in the manufacturing sector.

The world is too inter-connected, moving too fast in technological breakthroughs and possessing numerous economically hungry countries for wealthy countries like Canada to stand still and ponder whether there is a problem. The hungry will eat the indifferent.

Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.
– Jack Welch (Former CEO of General Electric)