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Article | June 1, 2012
The New Waves
As workers in Asia find their wages rising and standard of living improving, they want to buy for themselves more of the goods previously exported to “developed” countries.
As workers in Asia find their wages rising and standard of living improving, they want to buy for themselves more of the goods previously exported to “developed” countries. So for global manufacturers, the previous mindset of “Make it cheaply in Asia and then export it to wealthy developed countries” is being replaced by “Asia is now a part of the market. Use Asian manufacturing for the Asian market, and build new capacity in the Western markets.”
It isn’t just the growth of buying power in Asia that’s driving this change. Also a factor is that manufacturers are recognizing the increasing uncertainties and costs of long supply chains needed to bring products from Asia into the Americas and Europe. The net result: Manufacturers are re-thinking where they will locate production capacity for certain product categories.
Forecasts predict that the demands of these growing economies will absorb much of the production capacity that once fed the flow of exports to North America and Europe. Consequently, new production capacity will need to be built in North America and Europe to feed domestic demand there. “Reshoring” is the current term for moving production back to previously-abandoned countries in order to meet demand in those countries, and to assure a stable, less-expensive supply chain. However, the move won’t be as simple as turning the lights back on and dusting off old facilities. New production will likely go to freshly built or renovated operations, and may be in areas where in-country labor costs are lowest.
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Along with reshoring, there is an opportunity for disruptive reverse-innovation from developing markets to be carried back to North America and Europe as well. Developing economies provide incentives and ingenuity for well-targeted, inexpensive products that are free of the top-down corporate “glocalization” mindset that largely ignores local requirements. One frequently-cited modern example is that of a simple, laptop-based ultrasound scanner for rural clinics in China that was developed by an independent General Electric corporate team. Although less accurate than the poor-selling top-of-the-line units, it was good enough to make determinations about the course of treatment, and it was portable and inexpensive enough to develop a broad market. This “good enough” capability led to the adoption of the scanners worldwide in applications where the larger non-portable units didn’t fit.
Similarly, you’ll find manufacturers in India and China producing locally adapted, low-cost packaging machinery. They’re well-positioned to make the inexpensive, small-portion packages that are common in many of the local stores. This, too, is “good enough” for the markets they serve, and they are gaining share in export markets by being “good enough” for producers in Central and South America and Africa.
Will this pattern be adopted broadly over the older, centralized way of thinking about global products? It may be too soon to tell. What does seem clear is that the waves of change described here are likely to stimulate bright ideas, clever developments and—for the forward-looking—previously unseen market opportunities.
Scott A. Morris ([email protected]) is the director of the packaging program at U. of I. Urbana-Champaign.
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