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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.