|Monday, February 25, 2013|
|Offshoring? That's So 20th Century! Or Is It?|
Last summer, according to The Economist, MIT surveyed 108 American manufacturers with multinational operations. It found that 14% of them had firm plans to bring some manufacturing back to America. Another 33% were actively considering it. Almost half of really big US firms, with sales above US$10 billion, plan to “reshore” some of their operations, according to a different study by Boston Consulting Group.
So, is the era of offshoring jobs over? Can American workers – and the communities where they live – relax? Can their counterparts in other high-cost countries from Canada to Europe look forward to a reshoring surge?
And if you live in China, India, Malaysia, Mexico or another offshoring destination – do you need to start watching your back?
I don’t pretend to have the answer. But I can tell you about something I saw with my own eyes. Last year, I had the privilege of visiting Oulu, Finland, one of our Top7 Intelligent Communities of 2012 which is also among the Top7 of 2013. I was taken to visit a Nokia manufacturing plant. Now, Nokia has been through some rough years, as its failure to keep up with mobile innovation cost it dearly. Oulu, home to one of the company’s major R&D facilities, has suffered right along with it. I was eager to see what the company was doing with the people and facilities they had chosen to keep in Oulu.
What I saw was a manufacturing plant, but of a very specialized kind. This facility exists to take prototypes of new equipment and turn them into production models. Its production capacity is deliberately limited to the thousands of units. Once they have worked out all the bugs and found the most efficient way to produce the product, manufacturing moves to Asia, where contract manufacturers make millions of them at per-unit costs that the Nokia plant could never equal. But the Oulu plant is not out of the loop. It also functions as the repair facility for the equipment it helps create. (They are making mostly wireless base stations and other heavy gear, not handsets.) Everything that fails in the field comes back to Oulu, where it is tested, torn down and diagnosed. The lessons learned go into product upgrades, which are put through the plant’s processes until they are ready to go to Asia and be implemented in mass manufacturing.
Most of the personnel in the plant are highly skilled, from engineers to technicians to design specialists. When they need to do a production run, the plant hires engineering and technology students from the University of Oulu to work part time. The young people appreciate the money and the chance to see high-tech manufacturing first-hand. Nokia gets products into the hands of customers faster and can make sure those products work properly committing to high-volume production. And the benefits run like a river through the economy of Oulu.
This looks to me like the future of communities in a century where business serves a global market. Modern economies prosper from being specialized. Some of the food that farmers grow feeds insurance brokers who sell them crop insurance. By specializing in different things, both do better than if they tried to do everything themselves. The way to be a successful community today – whether in industrialized or developing nations – is to figure out what you are good at and then commit to having the people, infrastructure and innovation capacity to deliver it.
|Monday, February 18, 2013|
|Whatever Happened to the Giant Sucking Sound?|
If you lived in America in 1992, you will recognize the following words, unless you happened to be living under a rock: “The Giant Sucking Sound.”
That is the colorful phrase used by presidential candidate Ross Perot to predict the impact of the North American Free Trade Agreement, as good-paying American jobs would be sucked away to the low-cost outsourcing destination of Mexico.
Mr. Perot had a gift for making phrases, if not for politics. The Giant Sucking Sound came to stand for two decades of concern about the offshoring and outsourcing of employment from high-cost zones like the US, Canada and Europe to low-cost zones from Mexico and Eastern Europe to China and Vietnam. The Onion, a satirical Web site, mocked these fears with a recent report that American parents are outsourcing child care to India and Sri Lanka, using cardboard boxes to ship their offspring across the seas.
Offshoring and outsourcing had devastating impacts on many communities in the Nineties. But the Giant Sucking Sound has grown a lot quieter in the new century. For one thing, at least in the US, most of the manufacturing that could be outsourced already has. And services are not moving offshore as fast as feared. According to the Hacket Group, big American and European companies are likely to lose a net 2 million business services jobs to outsourcing between 2002 and 2015. To put that in perspective, the total workforce of the US and the European Union combined exceeds 360 million people.
Offshoring and outsourcing were driven by two things: the low wages paid to workers in developing nations compared with their rich-world counterparts, and the information and communications (ICT) revolution, which made it possible to knit together global operations and deploy knowledge work anywhere. So, what changed? Wages in the world’s offshoring hotspots have grown explosively, as labor markets do what they do best: adjust to demand. So the cost advantage of hiring Chinese assembly line workers or Indian IT experts is much less than it was.
But business executives also learned from experience the downside of turning vital parts of their operations over to other companies or running manufacturing facilities on the far side of the world. Handing off key industrial processes and IT systems to another company risks creating a competitor. Shipping long distances is slow and costly, and sharply limits a company’s ability to adapt to market changes. Doing your engineering and design in one location and your manufacturing in another can save money in the short term – but it robs engineers of expertise in manufacturing, which can wind up costing a lot more money long-term.
The result of this learning curve can now be seen in the headlines. In 2012, General Electric moved manufacturing of home appliances from China to a factory in Kentucky. Google has decided to make its media-streaming appliance, Nexus Q, in San Jose. Lenovo, a Chinese technology company, will shortly open a new assembly line for personal computers in Whitsett, North Carolina. Europe has yet to see a surge in “reshoring,” as it is called, but the recession has loosened some labor markets and reduced labor costs, and it could soon happen there as well.
It turns out that being close to your customers, and ensuring that your key people stay close to what the company does, has enduring value. Location matters. Community matters, even in a global market. As communities in the industrialized nations fight for a better future, the Giant Sucking Sound is one less thing to worry about.
Note: I am indebted for the facts behind this post to a terrific special report, “Here, There and Everywhere,” in the January 19 issue of The Economist.
|Monday, February 11, 2013|
|Are They Really the Seven MOST Intelligent? (Or Just Eye Candy?)|
Are the Top7 Intelligent Communities of 2013 the seven best places to live in the universe? I seriously doubt it.
There. I have said it in public.
Actually, I have been saying it in public for over 10 years. But let me ask a more important question: is Olivia Culpo, the reigning Miss Universe, beautiful? Yes. Is she also an exceptionally talented woman? I think so. (Let the photograph below be your guide to the first question. Her performance in Carnegie Hall, as a cellist, is my answer to the second.) She is truly beautiful and talented, as millions of people now know, including the children of Cranston Public Library in Rhode Island, where she read them Shel Silver story time programs.
But is Olivia the most beautiful woman in the entire Universe? After all, she claimed the title of Miss Universe 2012. Here we get into the challenges and opportunities of global awards programs. She is certainly equal to Miss China and Miss Belgium and Miss Bolivia. But what about Miss Mars, Miss Jupiter and way out Miss Epsilon Eridani? The Universe is a BIG place, and it remains difficult to accurately assess every planet. So can we objectively say that Ms Culpo is THE ONE?
Why? Because what we do know is that she won the crown with credentials and a performance that exceeded all others based on a criteria that was established and agreed upon to measure her and the other entrants. She racked up the points. She now brings joy, optimism, intelligence, focus and physical beauty to a global audience. Isn’t it wonderful? She says that she seeks to develop herself and to discover her destiny, while having found herself in a position to help others. She sounds a lot like the leaders of ICF’s Top7.
Like them, she also arrived at her mountaintop through a competitive process. The process combined subjective judging with a quantitative evaluation. Every year the Top7 and Intelligent Community of the Year are similarly selected . Our process works exactly as intended. It is not designed to find the absolute greatest place on the face of the earth to live, but rather one that most communities in the world agree is a fine representative of what a community should be. That is essential when considering where to invest, build a future or remain when other parts of the world flirt with you.
Today, the current Top7 are preparing for an ICF site visit, to be followed in early June by their appearance in New York to see which will wear the ultimate crown. The great part about our awards program is how it fires- up communities, brings them together for a common cause and gives them a reward for their incredibly hard work. You see it in their media. The number of likes reported from today’s article in Estonian World, which reported on Tallinn’s return to the Top7, is “huge,” according to editor Silver Tambur. Similar reports have come in from the others, especially citizens in Columbus, Ohio and Toronto, Canada.
Our awards program goes a long way toward giving the Intelligent Community movement seven communities that demonstrate objective proof of accomplishment. More important, the data we glean from their multipart nomination forms, site visits and final evaluations enables us to draw a baseline for success. This is data helps others to accelerate and is central to our work and our Master Class project.
Like Miss Culpo, who was an unknown before the tournament, these often modest communities are no longer curiosities. Everyone knows, now, that Taiwan has committed itself to becoming a nation packed with Intelligent Communities. Ditto Canada. No longer are “no named” communities named Taichung, Stratford and Tallinn achieving at a very high level in relative darkness. They are a focus for study, celebration and inspiration.
True, not all Intelligent Communities are physically striking, proving that it takes more than a pretty face to succeed. It takes more than IT prowess, despite today’s overreliance on it. It even takes more than a technology park, academic patents or persistent innovation to become a truly successful community. It takes a new type of collective beauty and a redefinition of community altogether. I ask whether there is anything more beautiful and powerful than an attractive place, which is producing jobs, oozing with talent and is joyfully committed to telling itself and its children stories that they will pass on for generations about the year people stopped wanting them for their body, and instead became endlessly fascinated by their intelligence.
|Tuesday, January 29, 2013|
|Communities at the Center, Communities at the Edge|
On January 23, for the 12th consecutive time, ICF named its Top7 Intelligent Communities of the Year. There were two European cities, two Asian communities and three North Americans. That’s a pretty average spread – but there was little else average about the group.
For one thing, they skewed large. Over the past five years, the Top7 averaged 440,000 in population. In 2013, the average population of the Top7 was 1.2 million because, for the first time, they included three cities with more than 2 million inhabitants.
Something else about the 2013 Top7 stood out. There was a dramatic and instructive spread between what I think of as the Center and the Edge. Toronto, Canada’s finance capital, is an example of a Top7 community clearly at the Center. The biggest city in Canada, it is the hub of a region of 6 million people that produced C$286 billion in GDP in 2012.
Oulu, on the other hand, is a community on the Edge. It is in Finland, a country whose entire population is slightly outnumbered by that of the Greater Toronto Area. It takes six hours to reach Oulu by car from Helsinki, Finland’s business and political capital – considerably more time than it takes to go from Oulu to the Arctic Circle only 200 km north. But it is a highly successful tech hub with a global reputation for innovation in wireless and a growing roster of other technologies. Utterly different from Toronto, it is just as great a place to live, to work and to raise a family.
In more than a decade of work with communities, we have seen that success is not a matter of size or wealth. Those things are not causes – they are results. Their success is the product of a belief that they are at the burning center of the human universe. They have something special to offer the world and are hungry to see what the world has to offer them. They have the power to think big even if, in physical terms, they stay small.
One of our first-time Smart21 communities – which did not yet make it into the Top7 – offers a great example. It is the city of Mitchell, home to 15,000 souls on the plains of South Dakota USA.
Mitchell is the Center of a region on the Edge – one that has lost 30% of its population over the past 70 years. But Mitchell’s fate is not that of its region. With a willing private communications company and a Federal broadband stimulus grant, Mitchell developed a fiber-to-the-premise network serving every business and residence. Its university and technical school have leveraged the city’s agricultural heritage into academic leadership in precision agriculture, in which farmers use satellite and remote sensing data to develop a highly detailed portrait of their land and apply that knowledge to boost yields.
They also work closely with city government, business, and public institutions to promote digital literacy and supply the highly trained workforce in increasing demand by area businesses. These include software companies, data centers and consulting firms attracted by Mitchell’s network or fostered by its construction. Alone in its region, Mitchell has grown both in population and prosperity.
Today, “the middle of nowhere” could just as easily be a street corner in a crumbling city as a town on the prairie. Which is the Center and which is the Edge? In a global economy woven tightly together by information and communication technology, it is no longer so easy to tell.
|Tuesday, January 22, 2013|
|Manti Te’o, the Aloha Economy and the Top7|
Honolulu, Hawaii (USA) – On Monday morning, the local Hawaiian newspaper reported that the article with the most hits on its website over the last 24 hours was the story about Manti T’eo, a native son and a star football player at far-away Notre Dame University, a cold place situated on what Hawaiians call “the mainland.” The young man had evidently been hoaxed. He had been having an affair with a fake girlfriend on the Internet for three years. The hoax went so far as to report her death, which generated national sympathy for him. As a graduate of the same college as Manti, I don’t want to dwell on the story, but in a state that many describe as being “30 years behind” in terms of access and development of the type Intelligent Communities take for granted, one wonders if the locals might not want to bypass the 21st century altogether for a good reason.
Of course, they do not. They simply want to ensure that one of the world’s most alluring, diverse and remarkable spots in the known universe not lose what has been essential to it since volcanoes erupted and shaped this great jewel of the American union. My idea of “surfing” and theirs need to find a happy medium. (When I am here I lean toward theirs BTW…)
This challenge was central to a long and delightful discussion I had with the state’s CIO, Sanjeev Bhagowalia. He has been brought over from a string of high profile jobs in Washington, DC, where he served another local resident and graduate of Punahou High School, Barack Obama, as a federal CIO. Earlier in the day his new boss, Hawaii’s Governor Abercrombie, had started his annual address to the state saying: “Politics at its best is about community.” It was made clear to me that community and tribalism are central to understanding Hawaii’s genius and also its resistance to broadband. The governor has been pushing, with very limited success, to transform the islands into something at least approximating a Intelligent Community. Honolulu has submitted several nominations to ICF, but has never come close to the Smart21 list. The governor and the CIO want that to change. That state is upgrading its information technology systems and spending US$20 million over the next 24 months to encourage innovation. But will this be the secret sauce? The trigger for transformation? Maybe and maybe not. Sanjeev and his team know that somehow, some way, the “Aloha” philosophy, which is central to culture and its economic attitudes, must find its expression in a complex mix of broadband access, capacity building, collaboration and cultural “mining.” There will be no Silicon Valley here. Yet Hawaii is designed to be the “spear” of the new American approach to Asia and its vast opportunities. What will that mean? More technology for the American naval fleet? Already 1 out of every 10 people in Hawaii is a military veteran. (The rest appear to sunburned “mainlanders.” Tourists. Or so it seems.) Hawaii has a brain drain. No urban planning. No beta test communities, except a brief experiment with 100 gbs in one place, which ended. It is challenged, but like most places, it is developing (slowly) the will to transform and seize its destiny. We will see.
A few hours before I met with Sanjeev, I had a chance to meet Manti T’eo’s great-aunt. She is the most lovely, charming woman imaginable. She cannot understand how anyone could have a relationship “online.” Rather than break the news to her that Facebook has allowed many people to befriend perfect strangers (trust me, she knows this because she’s very wise) I asked her about her community. It is a closeknit clan on Maui. Samoans who look out for each other, especially in a crisis. They rally around their own, which is an instinct that in my view is very healthy. Yet, as Sanjeev and his team reflect, it is also the challenge to bringing everyone together to summon the great gift of “Aloha” for the generations ahead.
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