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International Perspectives By Michael Diliberto

It Takes a Village

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hese days there is a great deal of debate raging around the topic of manufacturing, with many former and aspiring manufacturing centers looking to attract factory investment from the world’s multinational corporations. At the very moment I am writing this, I am in a hotel in Bangkok, which is seemingly the only place in town where one can escape the barrage of government and private stakeholders extolling the advantages of opening a factory in Thailand. Their reasoning is not unfounded, and it does not take much looking around to realize the fertile ground that may spawn the next global manufacturing powerhouse. I have been thinking quite a bit lately about what that magic set of ingredients might be. Where is the intersection of favorable trade rules, tax incentives, labor costs, and infrastructure; and how might a country create the ideal environment in which manufacturing might thrive? Regular readers of my column know that I run a factory in China, and as an American citizen who has chosen to build a business overseas, I have had no shortage of opinions thrust upon me in both business and social situations. I have spent a long time explaining the reasons that we are here, for they are never as simple or clear cut as popular rhetoric may lead you to believe. why manufacture in China? We are not in China because of the low cost, and in fact, having set up and run a company here for the past few years, I can say the cost advantage that we once enjoyed is quickly vanishing. There are cheaper countries in which one can set up shop. Even now local factory owners are beginning to entertain the option of opening new facilities in lower cost locations. The reason we are here is because this location is extremely well-equipped to support manufacturing. China has become a center of excellence for many products, from simple items like stamped steel to

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high-tech items like the iPhone that I am using to write this article. In my retail fixture business, we build products from wood, metal, and plastic, and often integrate electronics such as lighting, speakers, and video screens. A factory cannot survive as an island unto itself In retail, as with many other industries, speed to market can make or break a company. Although we have a talented team of inhouse designers, we rely on our vendors to give us design feedback and help us in sourcing the correct components. It is the proximity of these vendors and suppliers that make China the most valuable location for so many manufacturers today, including us. For all of the high-tech collaboration and networking technology that we can deploy today, design and manufacturing is still a very hands-on business. Regardless of how perfect we can make a 3D computer model, once we make a prototype there are always changes that need to be made. Showing a prototype sheet metal shelf to one of my

suppliers inevitably leads to a conversation about what I wanted to accomplish, and usually several new suggestions from that supplier about how we might bring that vision to life. The same process repeats itself for our plastics suppliers and electronics vendors. The proximity of so many qualified subcontractors and their willingness to change their output to match our needs is what a true manufacturing advantage is made of. And so it seems that the way to enrich the soil to drive manufacturing growth is to ensure the growth of all of the ancillary and supporting factors needed. A factory cannot survive as an island unto itself; it truly takes a village to support its growth. When closing a factory makes sense Nokia recently acquiesced to this reality as their worsening financials forced the company to close its factory in Romania. As Nokia put it in the official statement, the drive to gain efficiency has forced Nokia to “focus its feature phone manufacturing on those locations with optimal proximity to
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A factory cannot “

survive as an island unto itself; it truly takes a village to support its growth.”

suppliers and key markets…. Nokia’s highvolume Asian factories provide greater scale and proximity benefits.” I am reluctant to blame their current economic situation for these cuts, as it simply is the most sensible thing to do. The hand of the market pushes us to produce our goods for the lowest cost possible at a given quality level; only by moving our manufacturing operations to areas that have a robust support network can we be assured of maximizing our efficiency.

You don’t have to be Nokia to realize the benefit of a robust network of suppliers in close proximity to your factory, and in fact, it is the small- to medium-size manufacturers that stand to gain the most from these regional business relationships. I make lots of parts from injection-molded plastic, however, I cannot afford to purchase and run a complete molding line. Having suppliers nearby gives me the advantage of their scale at a price that allows me to be competitive. Lessons for retail environments So what does this mean for us, the global builders of retail environments? I believe these insights offer lessons for the improvement of established facilities as well as guidance for the selection of our new global manufacturing locations. Established firms in remote areas might need to react to a

collapsing supplier network by internalizing more diverse competencies, while firms considering an expansion would be wise to give heavy weight to the local supplier network in their new potential locations. Regardless of what it is that you make, understand not just your company’s role, but rather the entire ecosystem that is necessary to ensure that you make the ­ right decisions—whether it is a decision to relocate existing factories across the ocean or to add more competencies by expanding your existing facilities.

Mike Diliberto is general manager, China, for Bloomington, Minn.-based Lynx Innovation Inc., an A.R.E. member company. Contact him at miked@lynxinnovation.com.

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