Product Exports Breed New Opportunities, Roland Berger Says

“How to Export Products Rather than Jobs” was the subject of a recent World Trade Week presentation by Wim van Acker, managing partner and director of North American operations for Roland Berger Strategy Consultants.

He said that key considerations for businesses seeking growth in today’s global marketplace include:

* Selection of markets and production locations
* Supply chain management and sourcing, and
* Protection of intellectual property.

“U.S. companies need to successfully sell their products to North American market ‘winners’ in addition to selling in overseas markets,” van Acker said. “To build profitability, businesses must reduce costs by sourcing and producing in low-cost countries as well.”

Speaking at a conference in Grand Rapids, Mich., the Roland Berger executive noted that companies in Michigan are faced with a variety of adverse economic conditions.

“A number of the state’s major corporations are losing market share, many local consumers are losing purchasing power and the state is losing out on new investment opportunities,” he said. “Other regions both in the U.S. and elsewhere around the world are becoming increasingly more attractive as low- cost production locations.”

Although North America will remain one of the largest automotive markets through 2010, he predicted that cost pressures and globalization will make it more and more important for U.S. companies to develop global manufacturing footprints.

To operate successfully in today’s global marketplace, he said that companies will need to develop “hub-and-spoke” networks to optimize their global “footprints” and value-added processes.

A typical “hub-and-spoke” network includes a global “lead” center for research and development; regional “hubs” for pooling, sharing, and managing various key functions; “local spokes” for just-in-time manufacturing and assembly operations at nearby customer plants; and shared service centers for engineering, drafting and overhead functions.

The rush to individual countries such as China poses opportunities as well as problems, he pointed out. While sales growth for “traditional” Chinese products such as clothing, footwear and watches is relatively stable, high- technology products and industries today are growing at a phenomenal pace by comparison.

Many large global companies are establishing sourcing offices in China to take advantage of the country as a low-cost supply base. Companies are achieving double-digit percentage savings on exports to the U.S. and to the European Union for products such as capacitors, cable and precision-machined castings.

Low productivity levels, however, remain a major issue in China, he said. Though increasing, productivity rates in China are expected to remain far below productivity levels in most western or even eastern European countries for the foreseeable future.

In addition, intellectual property issues in China are a major concern for many western companies. For example, a recent study by Roland Berger Strategy Consultants in China showed that 56 percent of all vehicles in China are equipped with counterfeit components, van Acker said.

As another study by Roland Berger Strategy Consultants showed, automotive parts suppliers often feel they are under-supported by original equipment manufacturers when asked to locate facilities to new locations, such as China or India, van Acker added.

For example, customer support was less than expected in areas such as commitments to production volumes, allowances for investment recovery, long- term agreements and pricing guarantees. Local cooperation, information sharing, logistical support and cooperation on local product development issues also were “underwhelming,” he noted.