The Dow crossed 12,000 for the very first time on Wednesday and this was a major milestone. The stock market is not an area of expertise for me but I have been studying too many global sourcing decisions to not at least start taking some interest on the impact the stock market has on sourcing decisions. CEO’s are responsible for the companies performance and performance is about increasing revenue or reducing costs. The consumer market is doing well and consumer confidence is up and oil prices are down in the last 10 weeks. But an important driver of the DOW is the company earnings numbers. I could not find a single report that speculates as to whether lower costs and global sourcing is leading to better corporate performance. That’s interesting because it is the CEO/CFO who seem to be pushing sourcing folks to find better deals- anywhere in the globe.
Sandy Springs,Atlanta
I was on the elliptical machine at my gym which has nice LCD TV’s attached to the machines. Had been watching CNN when a fascinating story about outsourcing town hall came up. Tried to locate the story from the CNN website but it seems to have lost out to other momentous events of the day. Nevertheless, USA today has the story which is about a month old. More details appear at the Atlanta Journal.
New cities like Sandy Springs,Atlanta are outsourcing all town functions to private company CH2MHill save fire,police and judiciary. Why not fire,police and judiciary also? – after all companies have security contractors handling security all the time? I guess it is a question of "core competence" of the town hall. Their core competence is governance and that is why people elect the Town officials in the first place. The Town Hall managements do not see garbage removal,pothole filling, parks and gardens as "core competence" areas. For example just parks and recreation means getting lawn mowers,managing their maintenance and spare parts. Luckily Atlanta does not have to deal with snow which would mean managing salt and sand inventory as well!
When the organization is a public body and outsourcing is to a company I guess the phenomenon is called "privatization" and opens up a whole new set of issues. The initial rationale is that the cost/efficiency is better from a Private Company whose "core competence" is doing certain things like say "filling potholes". If the company does this for several towns then the economies of running a crew and materials probably work out. .. Why only new towns are trying this ? Apparently due to legacy labor union problems according to the news report…and privatization has its own problems as as Atlanta realized with its water supply- the contractor did not collect payments and gave poor service till they had to terminate the contract with United Water Services. Once again highlights the need of staying on top inter-organizational relationships…
Consumer Data Privacy and British Channel 4 TV Sting Operation
At a recent talk at the North East Supply Chain Conference on Global Sourcing (I will report with photos of this great conference at Marlborough MA soon), the audience had a great deal of interest in the privacy and IP protection regime and culture in India. I emphasized India’s democracy and free media. Quite simply no other low cost country in both English speaking and so raucously democratic. You" see what you get" in India and you do have the option of going to the media who will willingly lap up your story – if your story has any elements of interest.
But since all this probably wastes time for managers and the media needs to generate stories Indian media frequently has "sting" operations. However, I was a bit surprised that Britain’s Channel 4 ran a "sting" operation where an individual offered to get customer data through call centers and then aired the "sting" on British TV. Two important points are of interest- first that the British Television Channel was allowed to operate a "sting" operation in India- many countries would not allow such "sting" operations. Secondly, the TV station did not choose to involve local police as media "sting" operations should (as in the US). Despite this the apex association NASSCOM chief has assured that the guilty will be booked- if the particular individual can be traced.
Going by the enormous number of "phishing" emails and very targeted junk snail mail and junk phone calls- I cannot believe that any data is really private whether or not call centers are overseas. In fact, Indian kids see call center jobs as a career and frequently have college degrees unlike the "McDonald" type status and hourly wage call center worker in the developed world. Frankly, a real call center worker in India has just too much to loose compared to her/his western counterpart. It is not only a career and livelihood but major social disgrace in a very social and contextual culture. I would therefore tend to feel that data is probably more secure in India both because of the social context of the call center worker and the likelihood of real crooks getting hold of the data. Crooks would really have to fiddle around with data in Indian call center customer countries and because of good repatriation treaties between India and customer countries- we can expect some effective deterrence. This customer privacy question , will however continue to alarm sourcers and would need good management and the implementation stage of different projects.
Prescription drugs for 4$ a month?
From the moment I learnt that Walmart will be selling a month’s supply of prescription drugs for $4 – I was intrigued. Apparently Walmart is starting this with 300 generic drugs out of its Tampa, Florida stores and no you cannot mail order. Yes, you can order by telephone and get your friendly retired Uncle or Aunt to pick up on your behalf in Florida. But the good news,particularly for the un-insured, is that Walmart is going to roll the program out nationwide.
What intrigued me was that I had the 4$ figure somewhere at the back of my mind and much before the Walmart story broke. Then I remembered my pharmacy(called chemist) visit in India over the summer. That was one place that you can buy common prescription drugs in retail for a month for about $4. Since the US stories did not mention that Walmart had global sourcing plans and I have just too many US pharmaceutical industry students and friends who would be incredulous at the $4 figure – I went to the local Rite Aid and checked out the Claritin generic (Loratidine 10 mg) selling at $13.99. The package had a "Made in India" label.
So how would Walmart make a profit?? The mystery was solved when I located this report from the Canberra Times, Australia which states that Walmart will get the drugs manufactured out of India. In any event, this is good news for the less wealthy US consumer who is really beleaguered with high drug costs and would have the assurance of the Walmart brand.
Bangalore Summer 2006-with Industry
My Bangalore trip in the Summer of 2006 went off just great. I wanted to catch up with all my friends in Bangalore and things were really helped along by my classmate Sunil (below right with co-organizer Smita) who organized a great meeting at the Leela Hotel. The Leela is awonderful hotel but charges a preposterous $700 a night if you need to stay there. Anyway couple of undergrad friends showed up along with a group of really motivated entrepreneurs who wanted to expand their provider activities. Some more photographs are here.
Sunil is on the right with co-organizer Smita
Ford cuts workforce and might form alliance with GM
I have been rather glum over the weekend with the news that Ford motors is cutting its workforce including 10,000 white collar workers and 75,000 hourly workers whom they have offered to buy out. Ford motors is not only an institution in the US but is revered for ages, worldwide. My father, for example, argued with his mom about replacing the family ‘s old Chevvy with a new Ford in the 1930’s British India. My grandfather apparently stayed out of the debate and the only color "black" Ford cost Rs.4000 or less than today’s $100. Henry Ford not only gave us the modern assembly line but many elements of management theory and I believe brilliant marketing for his time. To build a car market he gave us an affordable car that did not take a man’s entire yearly wage to buy.
So what went wrong ? I have earlier discussed the auto industry on this blog because it happens to be a major research bed for all kinds sourcing and B2B research. Just for nostalgia – I went to Google Scholar and typed "Auto Industry". All the gurus came up Clark and Fujimoto (1991); J.H. Dyer (1996); Abernathy (1978);Womack,Jones and Roos (1990);Susan Helper (1991); Marie Sako (1992). In other words these scholars had been studying the American and Japanese auto industries with the active support of Auto executives who did not bother with the research. Today on NBC ‘s morning show the irony was that somebody mentioned that the re-structured Ford Motors will look like a "Japanese Company."
Some cheery news from the stock market point of view is that Ford and GM might form an alliance or might merge but that will be another blog post. For now, one can only hope for minimizing the human impact of what has been a "management" problem.
Europe going strong in Biotech R&D and Pharma research
A recent report suggests that contracted biotech and pharma research is the largest chunk of subcontract work in Europe and is growing at a (spectacular by Europe standards) rate of 5%. Intriguingly this piece suggests that low costs in Asia are less attractive to companies in this sector than doing new product research in their home country. A few angles of the report makes sense. For example, pharma companies consider locating research at locations where there is access to market and large markets. Availability of good researchers and researcher networks make locating bio research in such countries worthwhile.
What the report leaves out is the intense secrecy that surrounds bio and pharma research and development. Quite literally any contractor (domestic or foreign) is frequently physically barricaded from the user. Thus say a scientist wants a compound to use in development work. Big Pharma gets the scientist to tell the requirement to an internal person who does the entire co-ordination and contact with the supplier scientists. As one of my pharma contacts revealed – "scientists love to talk and share" and this is too risky when IP is involved and pharma IP in form of patents is the only protection this industry has in its attempt to recover money particularly for so many failures it must sustain before coming up with a new drug success.
Mario Andretti and Creative Content
Mario Andretti is a familiar name to racing car ethusiasts and to video gamers. My only exposure to car racing has been at the Australian Grand Prix about a decade ago when my client Southcorp Holdings kindly invited me to sit in their box at the Adelaide Grand Prix. Frankly, I was a little upset with a couple of crashing cars (luckily no major injuries) and have maintained only a mild interest in auto racing since. However, when I read that Andretti is a big name in video gaming and more importantly is now available in a cell phone version; my interest revived.
More interesting from this blog’s point of view was that the entire game for the Verizon platform was developed overseas. According to this article creative content outsourcing is becoming big business. Apparently GWE (Global Wireless Entertainment) started by asking their vendor, Paradox Studios to research Mario Andretti and took about six months to get the game developed. Development involved an alpha stage where more detailed specifications were drawn and then a beta stage when a playable racing car game became available. Both launch time and cost for the new game in a new platform (mobile) was drastically reduced by getting the creative folks in Mumbai (Bombay) to work on the project.
Creative Content outsourcing has its own unique challenges, including the need to keep up good and regular communications with the developers and creative folks overseas, good natured experimentation and the ability to move with a team you really have not met. Also the question of good intellectual property management is important. Nevertheless creative content outsourcing does seem to be the emerging as a frontier in global outsourcing …
Lord Ganesha made in China
Today is Ganesha Chaturthi the festival to celebrate and glorify Lord Ganesha the Hindu God of beginnings, success and " the remover of obstacles." Lord Ganesha is one of the most familiar icons of Hinduism and Homer Simpson once dressed up like the beloved elephant God in "The Simpsons" during Apu’s wedding to chuckles from most Indians.
One would expect that both India and China being low cost countries would at least manufacture what is culturally dear to them. So when I heard that there are lots of decorations and Ganesha idols made in China being sold in India – I decided to research this. Apparently this is going on since at least 2002. Globalization is indeed funny you can actually order various replicas from this Made-in-China site online.
I for one had protested to a New Delhi shopkeeper, this summer because he was selling me a Taj Mahal replica-Made in China. When I asked for a Taj Mahal replica Made in India, the Shopkeeper assured me that the Chinese quality/price combo was unbeatable and I had to reluctantly agree.
Best wishes to all global beings on Ganesh Chaturthi – may Lord Ganesha remove obstacles, bring success and a new beginning irrespective of His "Made in " label !
Advertising is always outsourced
Advertising has always been outsourced by business. Typically advertising agencies are the providers and Marketing and Sales Departments are the outsourcers though frequently the CEO is deeply involved. Advertising agencies are engaged to create creative advertising for media like print, TV , outdoor, film and now web. The reasons that advertising is not created in-house is because this is a "outside" firm activity and is aimed at prospective customers. Institutionally, advertising agencies,or at least their creative departments, are free wheeling and need to be so if innovative and "new" campaigns are to be created. In-house advertising agencies are not common as companies do not see advertising as their core competence and at the same time since agencies maintain good confidentiality of "in-process" campaigns there is really not much risk of revealing your hand to competitors.
So this is a function that has always been outsourced and now is being globalized. Advertising and its components can be split up into parts that can be outsourced and this article gives a good sense of what these elements are.
Advertising agencies across the world pitch for work in the $280 billion industry. Various elements of the advertising agency work from market data analysis, creative copy writing, to cleaning up an artwork, editing an ad film, creating multiple mock ups pf packages and concepts can all be globally outsourced.
The opportunities this presents for US advertising agencies is immense. For example, if an account manager is able to get a clear idea of a project it is very possible to get large numbers of good workers working on the account "pitch" phase of the project. Quite simply if you put 10 offshore people on the job you should come up with 50 alternatives that are pdf-ed from India and you make a 5-7 alternatives presentation at the pitch stage to the client. The client gets more options and at your same level of internal people (say with a 2-4 member creative team onshore) you pitch for many more projects. Similar for analytic work.
I am unsure though as to how easy it is to actually globally outsource final creative work, or the film shoot or the media plan and media buying. Clearly these activities are best done if you are customer facing and are able to pick up what is "really" happening in your market and are able to adapt more specifically to your market situation.
This leaves US advertising and marketing professionals with the task of not only learning all elements of the advertising business to be able to manage global outsourcing but also to be able to adapt materials at short notice to customers. Clearly a lot of skills.