Global Business Locations – FDI, Cluster, Park…

The impact of 2011 economic slowdown on the development of Airport Business Parks

December 22nd, 2011, by: Natalia Gimpel

The Aviation industry is feeling the impact of the current global economic slowdown. That is having an immediate effect in the logistics sector; the airfreight volumes have fallen sharply and are not expected to recover soon. This has an impact on developments centered on logistics. Many plans are halted waiting for better times. Despite of that, other plans are based on a more diversified portfolio than logistics alone, and we still see major developments in progress in places like Berlin Brandenburg, London Gatwick and Zurich Kloten.

The vision of Dr. John Kasarda, as he lays down in his book “Aerotropolis, the way we will live next”, is not yet in full deployment, but there is a strong trend to select business locations on their connectivity by air, as we did in former days by ships, railroads and cars. Many of our current Metropolises originated from those junctions.

Airports try to arrange transport to the final destination of business travelers in a hassle-free manner, but success is limited and congestion always a risk. So more and more companies chose to shorten the total trip time by setting up operations at, or very close to, the airport. By modeling these locations as business parks we create a successful business environment, further enhanced by themed clustering. This also encourages Business Service providers to set up at these locations.

The outlook for air travel remains positive, of course motored by developing economies, but also Western airports expect continued growth. In the Far East there are good examples of newly constructed airports with room for economic development integrated in their design, in Europe we also find that at Berlin Brandenburg (new airport with integrated business area’s) and Paris Charles de Gaulle (as the result of the visionary design made decades ago). Places like Copenhagen, Amsterdam and Munich have ample room for similar developments. In the USA Detroit and Dallas-Fort Worth also focus on developing the airport as the motor for wide spread economic development.

If projects meet market’s demands, there is a huge interest in business locations combining excellent connectivity by air with good business environments.

 

By Ruud Storm, Founding Partner at Global-Arena.com and Captain Boeing 737 NG at KLM

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Social Media is becoming increasingly important for Economic Development Promotion, said IEDC and DCI

September 22nd, 2011, by: Natalia Gimpel

According to a recent survey presented at the International Economic Development Council  (IEDC) Annual Conference this week in Charlotte (NC), USA, more Economic Development professionals are embracing Social Medias to promote their business locations at regional level as well as at national and international level.

The survey, which involved 307 professionals in the Economic Development sector, was carried out by IEDC and Development Counsellors International (DCI). The findings indicate that a growing number of economic development agencies are implementing Social Media. 63% of the professionals confirmed that their organization is using social media since less than one year, while 30% of them said that they have been using social media for 1 to 2 years now. A good number of the professionals recognized that social media will become increasingly important in the coming three year.

The results in numbers:

  • 57 % of the 307 interviewed responded that their organization use social media within their communication efforts.
  • 77% of the staff members managing social media are full time and have other responsibilities.
  • 41% use social media to communicate frequently or very frequency at regional level, while 30% uses social media with the same frequency to communicate nationally and internationally.
  • LinkedIn and Facebook, in this order, are considered the most valuable social media to communicate inside and outside their regions.
  • Social Medias are used, within the region to communicate: organization news (28%), Project wins/ Expansions/ Retentions (21%), support for local businesses (19%), and local events (18%).
  • Economic Development organizations that were mentioned as using social medias in the most effective way are: Indy Partnership, Metro Orlando Economic Development Commission, Metro Denver Economic Development Corporation, and Gwinnett Chamber.

Global Arena recognizes these findings in its own experiences. The fact is that more economic development organizations (EDOs) and investment promotion agencies are looking for new ways of promoting their business locations online. From our personal experiences offering Location Marketing Solutions, we can say that American economic development agencies having taken a proactive step in this matter during the past 12 months. European and Asian investment promotion agencies (IPAs) are still holding a step back regarding the importance of promoting their business locations online.

In the context of IEDC and DCI survey results, Global Arena encourages IPAs worldwide to take the leadership and spread the word regarding what the regions and business locations have to offer to investors. If IPAs and EDOs don’t communicate the competitiveness and business advantages of their regions for investment attraction, who will?

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What ED professionals could learn from Israel’s invention tension, growth and competitive advantage

September 1st, 2011, by: Natalia Gimpel

The engine for Israel’s competitive advantage and growth is not technology, it is creativity. So says Mr Margalit founder and chairman of Jeruzalem Venture Partner.

If you think about it, Israels technology sector cannot rely on its own market (the army) nor on its neighboring countries and markets for its growth. Companies have to be global by design. Some say that Israel’s success depends on a well funded scene of hyper smart elite entrepreneurs that can rely on a broad well educated mass of workers. To continue its growth Israel’s technology sector and entrepreneurial scene had to solve two problems; First, it had to become less dependent on ties with the army and; second, it had to transform its technology focus from clever technology to customer focussed innovation that moves global consumers.

Going forward, in the current economic climate, Israel must also be able to deal with less foreign funding for their entrepreneurial scene.

What is most interesting is that Israel’s entrepreneurial scene shows the power of FDI coming from leading global corporations buying startup companies. A lot of major Cities are focused on developing intellectual capital and talent but they lack focus on funding that was so instrumental to Israel’s technology success.

What do think are great examples of Cities that have balanced talent supply, technology transfer and venture funding?

To read more about this topic, please visit the article Israel: Invention tension, by Tobias Buck, published in Ft.com.

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Tackling the challenges in the Sales Operation Process

August 5th, 2011, by: Natalia Gimpel

A recent McKinsey&Company article, called Freeing up the Sales force for Selling, highlighted the vast amount of time that sales people spend dealing with internal systems, managers, processes and mandates.  These internal demands minimize the amount of time available for the customer and, consequently, for selling. The authors propose optimization of Sales Operations to correct the imbalance.

As deal complexity increases, efficient Sales Operations will improve sales productivity.   However, although the authors noted increasing deal complexity, they didn’t mention the role that organizational structure plays in diluting the time available for sales to spend with customers.

There are several situations that cause problems for sales. You have a problem if:

  • If the customer is an international organization and you are working in a multinational company. 

There will be internal fights about sales credit. (“We sold it in the UK, so we should get the commissions.”; “We have to support it in Singapore, so we need commissions.” “We proved the concept at the lab in the USA so..”; They would have installed it in the datacenter in Germany, but..”)

There will be internal fights about the price: “In Malaysia, they spend only US$10000; why should they get such a great price?” “In Argentina, that customer is simply a very loud and troublesome SME (Small-Medium Enterprise).”

There will be internal fights about support. (“Why did you let them buy the new XYZ38K, Rev 2 processor? That’s not supported in Botswanna.”)

  • If the customer wants a cross-Business Unit solution and you are a strong Business Unit company. 

Business Units (BUs) will have incompatible metrics. For example, if the customer want to buy product as a service (e.g. utility priced), the product BU won’t be able to recognize sales revenue; a rather massive show-stopper. Conversely, the services BU will discover that their (internal payment) isn’t counted as revenue by the product BU, so they can’t meet the customer requirement. The Finance organization won’t approve a non-standard solution. (Note: Financial creativity in Finance has been frowned upon since the Enron debacle… unless you’re a global bank.)

  • If your customer has no money.

Although this should be a show-stopper,  HQ staff, devoid of customer contact, will generate processes and procedures to ‘help’.  In one personal example, the approval process required endorsement by 18 people in 14 countries. As I said at the time: “This is a labyrinth, not a process.”

Remember the fundamental feature of a large corporation:  “There is an infinite supply of HQ staff who tell you exactly how to do something that they’ve never done themselves.”

Customer demand for a complex solution will rarely match established processes, procedures, structures and mechanisms of the selling organization. The successful sales person must be nimble and his organization must establish a (maze-free) way to bypass normality: sales and management must be empowered to commit for the good of the company as a whole.

 

By Dan Martin, CIO @Global-Arena.com

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Understanding Operational Efficiency in High Growth Markets

August 3rd, 2011, by: Natalia Gimpel

A relentless focus on operational efficiency has been a feature of the last business decade. Organizations addressed the challenge by converting work into commodity packages that could be out-sourced or off-shored. Beginning with routine, easy stuff, there was rapid growth in labor arbitrage – moving work to low-cost locations. The immediate and positive impact on the cost line accelerated efforts to commoditize increasingly complex work packages. The snowball effect accelerated the process: companies scrambled to move more and more work to cheap and cheaper locations.

In my opinion, it wasn’t the snowball effect, it was the lemming effect.

  • Efficiency is not the same as effectiveness.

Is it wise to do the wrong thing the cheapest way? Instead of embarking on an effort to reduce the help desk cost per call, would it be better to invest in an engineering effort aimed at eliminating defects that lead to help desk calls in the first place?

  • The location may be low-cost, but its people won’t want to remain low-paid.

Off-shore locations have huge retention challenges: annual turnover of 40% is ‘good’. This means that two people must be hired to handle each job. If labor movement is easy, the situation becomes even more difficult. For example, a multinational enterprise recently decided to place a shared service center in Poland because of a large, highly educated, and English-speaking workforce. That workforce emigrated before the center was finished and workers had to be imported from Romania. It is always a mistake to ignore the drives of human initiative.

As business activity in the low-cost locations increases, costs become less low; companies respond by moving to the newest low-cost location. Carried to an extreme, companies discover that their only core competency is job movement.

  • Organizations rely on people who are social. 

No matter how many Emails, Tweets, Skype calls and Video Conferences are read, written, heard or viewed, people work best when they are close to their colleagues. As work is commoditized, employees come to be viewed (and sometimes view themselves) as replaceable automatons devoid of unique and valuable capability or wisdom.

It may not be trendy to say, but business success (especially innovation) depends on teamwork and social cohesion. As the song goes: “People need people”.

Compartmentalization has an insidious underside. Near-term cost advantages are easily visible; long-term negative impacts take longer to surface. This often means that the person who took the ‘hard decision’ to move work to a low-labor cost destination is promoted before the long-term implications of the decision becomes clear. Others, working to clean up the mess, may even find themselves blamed for the mess.

These challenges can be ameliorated if companies deliver on the promise that “our people are our most important asset”. A company achieves great results when a team of people work together toward a common objective. An article (“Here’s something to write home about!” by Thorsten Amann) in April 2011 KPMG’s High Growth Market Newsletter, explains one way that companies can create value by (literally) mobilizing their executive workforce.

In the coming years, success will depend on shared effort of teams of human beings that can work together. After a long walk, eh, sprint through the wilderness, the business world is beginning to change: the pendulum has begun a return journey.

By Dan Martin, CIO @Global-Arena.com

 

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Strategy Challenges

July 12th, 2011, by: Natalia Gimpel

A recent article entitled “The perils of bad strategy”, written by  UCLA professor Richard Rumelt, presents several hallmarks of a bad strategy:

  • Failure to face problems
  • Mistaking goals for strategy
  • Bad objectives
  • Fluff

The hallmarks reflect a management tendency to make plans based on aspiration rather than facts on the ground. Strategy is long-term but business leaders are measured in the short-term. As the country manager of a large technology firm told me:

“When I took this job, I made an annual plan and presented an annual report. Then they asked for six month updates, quarterly updates and now monthly updates,” Hans noted.

“What have you done for me today?” I replied.

Financial results defined by burgeoning spreadsheets, proliferating MBAs and clueless analysts have created an environment that makes it difficult to define and implement an effective strategy. Moreover, the marked financial advantage of global supply chains has elevated cost reduction to a corporate mantra.  Although a company with billion dollar expenses has e ample opportunity to reduce costs, it is management’s task to know when the consequences of austerity outweigh the cost savings. Let’s face it, cutting fat improves competitiveness. Cutting muscle is more problematic. Some companies, bereft of common sense, continue by removing individual genes from DNA particles.

Rumelt also identifies “an inability to make decisions” as a major reason for so much bad strategy. This analysis is accurate. But, isn’t it management’s job to make decisions?   Management has abdicated responsibility and embraced strutting. Strategy has become Shakespearian:

Tomorrow, and tomorrow, and tomorrow,
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death. Out, out, brief candle!
Life is but a walking shadow, a poor player,
That struts and frets his hour upon the stage,
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

 

By Dan Martin, CIO Global-Arena.com, also founder and owner of Dan Martin International.

 

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12 Tips to succeed in High Growth Markets

May 26th, 2011, by: ruud.storm

At the Annual Investment Meeting Dubai 2011, where our CEO, Peter Storm delivered a key-note speech on future FDI developments, we met with many CEO’s of multinational companies and high-ranking government officials from Emerging Countries, or, as they prefer to call themselves, High Growth Countries. One of the topics we discussed was the large variation in success achieved by multinational companies expanding into High Growth Countries and Regions.  I think that this exchange of ideas is worth sharing, so I’ll try to summarize the conclusions in this article.

Why are some companies more successful than others in establishing a market position in Growth Markets? Or  another way of putting it is: Why are some very well established companies not able to reach the same position in High Growth Countries? In this last statement you find the key to the mistake most commonly made: What works well in Established Markets, will also work in the New Markets. Said that, bellow you will find 12 Tips to succeed in High Growth Markets divided in 3 different areas: market entry, corporate control, and product development.

Market Entry:
•    Unless you are amongst the likes of Gucci, Ferrari or Prada, a brand name in the Western World is of little significance in an High Growth Country
•    When you enter a market early, a good branding policy and overall presence can give the perception of a market leader, also when you are not a world player
•    Branding and presence should preferably be done by staff originating from the market you are trying to penetrate, connecting to your potential clients is essential.
•    Set long term goals and do not expect positive returns any sooner than in your other markets
•    Expect economic downturns to be steeper than you are used to, but also the bounce-back will be stronger. Many companies gave up on the first local crisis because it looked so severe, keep thinking long-term

Corporate Control
•    Make sure that local management consists of local managers that you assign a coach from your international management. Give your local management team long term goals and a mandate to adept to rapid changing market conditions. Small, agile marketing teams with “room to manoeuvre” prove to be best performing in Growth Markets.
•    On Head-Quarter level, have a dedicated Director for High Growth Markets. Flexibility is the key to success here, long established Sales & Marketing routines will limit you too much.
•    As Mr. Kleisterlee, who just stepped down as CEO of Philips put it: “We only see significant growth possible in Emerging Markets, and we have to reflect that approach in our Board as well, I expect at least two members from Emerging Markets to join the Board of Philips soon”

Product Development
•    Set up R & D centers in the region that you want to penetrate, staffed by local employees. This gives you a strong connection to your potential clients
•    Set up brands that are perceived as local brands, consumers in High Growth Countries do tend to take pride in buying locally developed and produced products.
•    Include not only your product in “localizing” efforts. Packaging, Advertising and choice of Sales Channels are equally important to success
•    Consider to “downgrade” your product portfolio to serve market needs. Achievable products creating a quick win for their users will precede more complex and capable ones.

I hope this summary adds to your considerations and discussions in relation to how to succeed in High Growth Markets.

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Develop Talent in the High Growth Countries

May 24th, 2011, by: dan.martin

The only constant about modern business is change. Whilst change may be inevitable, it is not easy. In the past several years, the entire way that companies operate has been transformed. Things that used to be core competencies like manufacturing, design and sales have been outsourced. One major computer manufacturer notes that more than 75% of the computers that they sell are never touched by any of their employees: manufacturing is outsourced while sales and maintenance are provided by partners. A long, long time ago help desks were staffed locally; now they usually located (in a galaxy) far, far away.

Making this all work requires people. Traditionally, many of these people, especially in emerging markets, were expatriate managers. In a recent posting of McKinsey Quartely, called “Beyond expats: Better managers for emerging markets”,  Jeffrey A. Joerres, CEO of Manpower, introduced the concept of ‘reverse expatriation’ – and the coming end of the traditional western expatriate manager because:

  • It’s not scalable.

Increasingly different parts of almost every company’s value chain are done in different places. Simply speaking, there are not enough skilled people to sustain the expatriate tradition.

  • It’s not effective

High Growth market contributions are expanding so quickly that the knowledge and expertise necessary to productively manage the effort is more likely to be locally grown than externally injected.

  • It’s not smart

Limiting opportunity for local staff is a sure way to create an employee retention challenge. Many companies in emerging markets face employee turnover rates in the high double digits. Continuous replacement of trained and experienced employees with brilliant, but naive newcomers is not a recipe for success.

Joerres proposes formal mechanisms to bring the skills of the emerging market manager into the larger corporation.  The basic approach is to rotate local managers through corporate offices and functions.

I believe that it is equally important to rotate people from traditional offices through high growth market locations because people must be in a position to learn from each other. Companies will want to institutionalize their core values throughout their organizational domain whilst simultaneously discovering and embedding new approaches to, for example, improve execution.

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FDI in the Aerospace sector – prioritizing quality and guaranteed throughput

May 19th, 2011, by: ruud.storm

Airlines are now transporting more passengers at better yields and s they climb out of the doldrums caused by the global economic slump, changes – with relevance for the FDI market – are underway. As an insider of the airspace sector, I want to share with you my finding on the FDI trends within the sector – specifically in the areas of aircraft manufacturing and maintenance and repair organizations.

The Aircraft Manufacture and its risk-sharing partnerships

It may seem that commercial airplane manufacturing is dominated by two global organizations (Airbus and Boeing) surrounded by a handful  of, for the most part, regional aircraft in Brazil, Canada, China and Russia. However, aircraft development and production has evolved. All major players have put risk-sharing partnerships in place – partnerships that develop and build significant components and subsystems. This approach, which means that any component might be built anywhere, generates logical challenges while simultaneously offering significant business advantage. The approach provides opportunity for companies using innovative production techniques to become part of the supply chain of much larger manufacturers. The use of global supply chains makes it easier to rapidly utilize and and industrialize research anywhere in the world. An example is the cooperation between EADS (parent of Airbus) and GKN Aerospace to develop production of complex 3D shapes from powder material.  This was made possible by university research centers that created the ability to create lighter structures with less parts. Another good example is Stork Fokker in the Netherlands.

Maintenance and Repair Organizations (MRO’s)

Airlines are backing off from earlier approaches that pushed manpower-intensive maintenance to low-cost countries. The current preference is to keep maintenance close to the airline bases, in order to increase the availability of the airplanes. Higher wages for staff are one consequence of this change. The higher wages are offset using smart maintenance programs that are defined between airlines, aviation authorities and MRO’s. A smart maintenance program can provide significantly improved efficiency – especially for aging aircraft,. An example: Gol, Brazil’s largest airline, and Delta Airlines TechOps have a defined a cooperative effort wherein Gol will benefit from Delta’s quality standards and efficiency, while Delta benefits from high quality, but low-cost, maintenance performed on the Boeing 737 fleet in Brazil.

Component repair is another booming business as companies focus on very specialized work packages. This relentless focus allows these companies to optimize their specific area of expertise resulting in high quality, rapid delivery. The result are compelling enough to outweigh the logistics of having components sent to and from a remote facility.

The world is getting smaller. As long as an organization can deliver quality products that meet industry demand, they no longer have to be geographically close to their customers. Consistent quality and guaranteed throughput much more important. The aerospace industry is among the leaders in taking advantage of this change.

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FDI bounces back, but in a changing landscape

January 24th, 2011, by: ruud.storm

“FDI will increase, some even envision a growth of 20%” , this can be read in the report “Winning in a polycentric world” by Ernst & Young, in cooperation with the Economist Intelligence Unit. An interesting differentiation is made between the emerging and the developed world, where companies have well developed business models and asset bases, but have to deal with slow growth opportunities. In the emerging markets, this situation is often reversed. Multinational companies should have business models that allow multiple speeds, depending on the location of business. Emerging markets require agility, and fast response-to-markets, where developed markets are more dependent on efficiency and incremental growth. Meeting this range of demands requires a flexibility at Board level that can be met by creating diversity in the Board, both on geographical background and on experience.

One area where this diversity in local approach will become visible is R&D. Currently, most multinational companies concentrate their R&D in the developed world, with only 16% of their R&D investments in emerging countries. Within 3 years, it is expected that at least 25% of R&D investments will be allocated to emerging countries. A clear signal to Multinationals, but also to Agencies attracting FDI.

Another area that will see a different approach in the coming years is the weighing of the local political environment in investment decisions. Right now, the only factors taken into consideration regularly are taxation and economic growth potential. A better understanding of the political environment, and what that might mean for the future of doing business in a certain country will become much more decisive in the coming years. Global Arena is already investigating what independent and comparable parameters can be used to assist our clients in making investment decisions, taking political environment into this consideration as well.

In short, another indicator that globalization is a strong driver for increased FDI, but globalization will not flatten the market to such an extent that the balance between scale and local relevance allows for a generic approach worldwide. Only companies that have a careful strategy on business allocation and a locally centered business approach will have the full benefit of geographic spread of their activities.

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