Magnus Penker

At the moment many Swedish manufacture plants are bought by BRIC players which are an interesting phenomenon as the interest is increasing meaning that there are reasons beyond low interest here. Historically European countries like Sweden has had a low interest which has lead to investments in automated manufacturing plants competitive with labor intensive manufacturer in the BRIC area, we can find examples like Flextronics. However, in recently bought manufacturing plants it is different. Indian Bahra Forge bought Kilsta plants in Karlskoga, Sweden to manufacture crankshafts, Suzuki Metal bought wire manufacturer Garphyttan and Indian Kemwell bought two pharmaceutical factories in Uppsala. Why?

It seems like access to raw material, skilled operators, localizations as well as sustainability and environmental issues play a role here. Taking a financially point of view it seems like the interest gap between west European countries and the BRIC region plays a important part in the managerial decision making process as high tech plants cannot be replaced with low cost labors in BRIC, nether access to raw material, leading to comparative advantages in relative lower interest (even if it is increasing in absolute terms), skilled operators, knowledge workers as well as local and secured access  to raw material in a stable region.

How can we use the comparative advantage as a west European nation? First of all, we can compete on the global market with high tech production, skilled operators and industrial knowledge workers. Internally within the EU market there is an opportunity for entrepreneurs here; Supply and development of global talents, training, R&D, as well as building and developing infrastructure.

PR has, generally spoken, changed over time and become more complex as the possibilities of interacting and building relations has exponential increased over time. Old truth might still be truth but often simplified approaches not possible to apply other than as isolated events.

Today building relationship impacting specific target groups is a holistic challenge, not a isolated task. All stakeholders have to be mapped, outlined, and analyzed based on previous actions, current beliefs and values and future expectations. Due to Internet and a flattened world the speed and number of possible point of connections has dramatically increased and continue to increase meaning that PR become a complex discipline whereas relations, primary and secondary stakeholders interest, power, urgency and legitimacy has to be understood over time, not as a snap shot. Transparency, social and environmental issues are also interlinked in all analysis today – as most people see responsibility as a prerequisite doing business.

As PR become more complex, faster, as well as integrated, holistic approaches as well as dynamic tools is required doing a good job. One of the recently awarded PR blogger having this approach is Doktor Spinn, have a look at his blog http://www.doktorspinn.se/

Michael E. Porter Harvard University professor, explains in an new video post, why business leaders must focus on shared value – creating products and services that benefit not only the company but also society. Or as like to put it, make the pie bigger… Responsible and smart entrepreneurs understand to create value through actions beneficial for all, without a working society and environment there is not much business to do. It is time for a new definition of CSR who has been focused on the wrong ideas instead of seeing the real rational behind a sustainable world the focus has been doing good without understanding why – a lose cannon without a captain. No good out of that… See the movie and enter a new dimension of why to do good, how to do it, and what it will lead to.Click on the picture to see the video post cast from Harvard  Business Review…

Today I will share a recent happening but before that some words about trust. Trust can be one-dimensional, two-dimensional or transformational meaning that ether you have trust or not in your business partners (one-dimensional) or you can have both trust and distrust at the same time (two-dimensional) and an evolving trust, the transformational trust theory, meaning that trust is build up in three steps:

1. Calculating whether do to business or not with a person or an organization
2. Developing knowledge about your business associate
3. Developing mutual identification

Recently I used odesk.com (the world’s leading network for freelancers, very competitive pricing) to find skilled people for a project. We applied game theory by asking +20 people giving them a chance to do a micro-delivery before selecting three of them going further with the larger project. The same project, the same task. This way we mitigated the risks, reduced the costs (even if three person did the same job) and finally increased the capacity being able to scale up with higher speed. At the first thoughts  it seemed crazy to ask three people to do the exactly same task. However, this way we

1. could in a secure way select the right people (without knowing them, taking references or even being sure who they were)
2. do it faster (quicker to find and start up than other free lancers) with less risk of delays or bad quality (=game theory applied on development)
3. deliver cheaper than if it was made locally in-house or by sub contractors or freelancers

Basically what we did was to add game theory to the existing trust theories – meaning:

1. Instead of only play with safe cards, take a chance of finding new possibilities on the global arena. Skilled and motivated people in other parts of the world, ready to take chance.
2. Make it in small portions with redundancies (three persons doing the same task) to mitigate the risks (= give the same small task to several people in the same time. Still cheaper since the fees are approx 10% of equivalent local services)
3. Evaluate, motivate, build trust and relationship
4. Build common a ground and eventually identity

By the way, ODesk freelancers actually get better paid that if you go through offshoring companies paying less salary (classical offshoring companies cut approx 70-80% of the fee, while ODesk take 10%). Moreover the freelancers constantly get ranked by their clients building the freelancers reputation and brand towards better assignments and finally increased compensations still profitable for all involved.

Having invested in, worked with, sold and project lead Indian IT projects, I can state that Offshoring is here to stay. But not in the hands of Indian large companies, and nether to be used as a strategic tool by waver European business leaders.

De Jure, outsourcing and offshoring, is about creating a flexible organization in terms of capabilities and knowledge, but it has been perceived by many buyers and seller as low cost labor. Indian IT Companies has had 40-60% profit now being challenged by Chinese companies pushing the margins by offering even lower prices and more talented staff. Generally spoken, Indian IT companies have not made their homework; they are now on a commodity market moving from oligopolistic characteristics towards monoploistic competition, not being differentiated through earlier R&D and innovation work, leading to diminishing margins and at the end not being able to sell large volumes due to too high labor cost compared with other emerging markets.

De Facto, offshoring and outsourcing is increasing and it is driven by global supply and differentiation. Services like www.odesk.com where global talents offering their services for a 1/5 of the Indian price list, with high degree of transparency and direct connections with the producers, are changing the industry value chain cutting the middle man in Europe as well as in India and China. The new kind of values chain establishing is build upon personal trust, transparency and reputation on micro level serving as the building blocks of new networks acting as global player. This new network of global talents, in conjunction with established and innovative flexible companies, are lean and mean organization moving fast using cloud technologies as their ecosystem challenging the thinking of large monolithic systems with ton of ITL documents.

At the end of the day, the Indian dinosaur has been challenged by its own people and the people of the non-triad countries cutting the industry value creating and striving for more flexibility, lower prices, more trust and more social responsibility.  Most likely, in the direction of the tangent, we will see clusters raising up around the world, geographical or virtual, creating comparative advantaged on the global market through innovation work, R&D, skills and knowledge but also, and maybe most important, through reputation and trust.

Are we facing a boom, a double dip, or a potential break-down of the global environment? No one can know for sure? The degree of uncertainty is higher than for a long time. We probable has to go back as far as the industry revolution to experience the same degree of uncertainty. Can we learn from history? Yes, but there are also differences making the assumptions and risk mitigation harder and less likely to be based on past experience. A connected world, 3 billion people demanding same level of standard as the Triad regions in terms of consumptions, energy, and experience and education, have changed the fundamentals of our world system. It is faster, less predictable, scared resources except from brain power which has an increased supply.

What now? Should we believe in faith or actively taking control over our situation as entrepreneurs, investors or as employed?

A strong tool for handling uncertainty is scenarios planning – which is a way of painting possible future scenarios comparing and contrasting possible strategic decisions towards. Several of the world leading experts in scenario planning are working for Shell, who also publishing their results/scenarios in publicum. For inspiration, have a look at their work with Shell’s new world scenario recently published on their site.

A method for identifying, elaborating and describing scenarios (based on Wikipedia http://en.wikipedia.org/wiki/Scenario_planning) can be outlined in 13 steps:

1. Decide on the key question to be answered by the analysis
2. Set the time and scope of the analysis
3. Identify major stakeholders
4. Map basic trends and driving forces
5. Find key uncertainties
6. Check for the possibility to group the linked forces into two
7. Identify the extremes of the possible outcomes of the (two) driving forces and check the dimensions for consistency and plausibility.
8. Define the scenarios, plotting them on a grid if possible.
9. Describe the scenarios in text, choice powerful names
10. Assess the scenarios. Are they relevant for the goal? Are they internally consistent? Are they archetypical? Do they represent relatively stable outcome situations?
11. Identify research needs
12. Interate
13. Use scenarios ion your strategic decision making process

Driving back and forth to you job in Munbai is like smoking a packaged of cigarettes, and nothing become better. Indian government spend 17 dollar per capita and year in infrastructure while China spend 116 dollar. The Indian mentality is pretty much having a back-up plan for the back-up plan while China is straighter forward, which both impact business life as well as infrastructure and the sociality in general. In an interview, published in CIO.com, we could read the other day that a director from AT Kearney’s predict that Most Indian providers will be sidelined or subsumed while the fate of seemingly stalwart U.S. players will hang in the balance.

At the end of the day it will be about innovations and disruptive technologies, like Scott Anthorny writes on his Harvard Business review blog yesterday; The ease with which a company’s core business grows can mask the need to invest in innovation. Growth inevitably slows. Indian companies should be investing in innovation now, even though they appear not to need it. If they don’t, they will ironically leave themselves open to disruption from Western companies who find disruptive ways to compete domestically.

The winner of the global war for wealth will be the most innovative companies in the most well structured and supportive environment, the long term moment of the winner will most likly be:

bureaucracy and corruption => transparency

too low tax and quick fix => sustainability in environment

cost cutting => innovation

transaction => relation

Over the last decade it has been a lot of discussions about pricing based on value. However, there are several issues related to that and not an easy task. To begin with your company must be committed to really go for value creation meaning down prioritize other activities that might be short term valuable for the organization but not long term value crating for the customer. Let´s give an example:

Assume that you are running a consultancy company and to differentiate you develop concepts and best practice charging for results in the deliveries. Since all my portfolio companies are charging based on value created I have notices the trade off that has to be made compared with traditional consulting business selling heads. Here are some very tangible tradeoffs:

1. All contracts has to limited in time, otherwise you do not create sustainable value. The contract might very well be extended or complemented, but always with the objective of doing yourself redundant.
2. No contract should be less than 2 years.  In my experience. everything sustainable take two years to create.
3. You should share your risk with the client, otherwise you do not believe in your work. It can be a success fee, monetary, options or shares. But must certainly, you should not get fully paid if you do not deliver expected value to the client.

Now you might wonder why paragraph 1-3 are tradeoffs? Well they are because in traditional consulting you try to sell the same consultant to the same customer as long as possible expanding with more consultant creating a dependency where your people know more about the customer than the customer itself. Selling on value is diametric to selling heads; you might have to say no to a deal because you know that you will not be able to create the value. You might even be force to say no because you know that you will only compensate for the clients incompetence and not developing sustainable changes in the business. It is hard but true. On the other hand, you will probably be better off in margins and interesting assignments. The other route to take is selling heads on a global market with global supply and global demand, where the competition is perfect and the only discriminator is price, volume and location.

However, there is another major issue as well… But that will be my next post, until then have a nice summer holiday…

Staying a few days in Gothenburg (Sweden) gave me the insight that the wheels are rolling again, thanks to Volvo and the deal with Chinese Geely and Volvo Car. Volvo is the engine of Gothenburg, close to all people have a relationship to the old traditional car manufacturing industry. Me too. Volvo Group had a fantastic quarterly result, and the deal between the sister company Volvo Car and Geely gave hope and expansion possibilities. However, something else happened, beyond that the money flows in the system again. Something cosmopolitical. Global capital has hit Gothenburg in a good way, at least for now. Volvo people I talk to tell me that they expect many Chinese people in the Volvo Car factory and the headquarter this autumn, just after the deal is finally closed with Geely. But it is not the usual jargon that you might expect from a Gothenburg citizen (which, by the way, is very funny and facetious). When talking to my old friends, business contacts and people general it is with mixed feelings they talk about Geely and Volvo. The deal can give new opportunities, new challenges, as well as potential trouble at the global arena.  One example of progress in the bilateral connection between Sweden and China is that Volvo Construction Equipment increased it export to Chine with 50% in the last year.

When standing on the main street (Avenyn) in Gothenburg late last evening, you could feel the atmosphere in the air. Excitement, curiosity, entrepreneurship and adrenalin. It is like when you graduated, you needed to pass the last exam and then the world was open to you. At least for a while… People are back in business again, the town have just graduated and passed with an A in globalization!

I keep my finger crossed, go for it!

Idag är många företag i Sverige ägda av utländska bolag/aktörer och spelplanen har förändrats, det är viktigt att förstå samspelet och vad som krävs och förväntas. Mina kollegor på Cross Culture kör ett jättespännande lunchseminarium (kl 12-13.30, World Trade Center) den 8:e som bl a omfattar

* Vad bör man tänka på när man ska rekrytera personal internationellt?

* Vad förväntas av mig som chef? Måste jag anpassa min svenska ledarstil?

* Hur kommunicerar jag med min chef som sitter i ett annat land?

Anmäl dig till annika.berge@lexicon.se, 08 566 107 51 och hälsa från mig.