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Knowledge Economy Forum IV Logistics and Integration into Global Supply Networks Global Industrial Context. Prof. M.J. Gregory Institute for Manufacturing. Overview. Industrial ideas Global context Emerging capabilities Working in networks Implications. Industrial Ideas.

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Knowledge Economy Forum IVLogistics and Integration into Global Supply Networks Global Industrial Context

Prof. M.J. Gregory

Institute for Manufacturing

  • Industrial ideas
  • Global context
  • Emerging capabilities
  • Working in networks
  • Implications
industrial ideas
Industrial Ideas
  • Products – ARM – Microcircuit design
  • Production – Zara – Fashionable clothes
  • Distribution – Dell – Personal computers
  • Services – Rolls-Royce – Aero-engines
arm microchips marketing design production distribution service
ARM – microchipsmarketing>design>production>distribution>service
  • ARM designs used in 75%of mobile phones
  • Close to global customers and OEMs
  • ‘Fabless’ business model
  • Substantial process knowledge
zara clothes marketing design production distribution service
Zara - clothesmarketing>design>production>distribution>service
  • Spanish clothes maker Zara owns all production capability
  • Products in own shops change every 2 weeks
  • Production can be flexed to respond to demand
  • Competitors can’t follow!
dell personal computers marketing design production distribution service
Dell – personal computersmarketing>design>production>distribution>service
  • Dell pioneered large scale direct selling.
  • Their model allows on-line customisation of products
  • Production and delivery status can be tracked by the customer
  • On-line diagnostics and after sales service minimise support costs
rolls royce aeroengines marketing design production distribution service
Rolls-Royce – Aeroenginesmarketing>design>production>distribution>service
  • Responding to customer needs
  • Rapid growth in market share
  • ‘Totalcare’ service model ~60% of revenues
  • Implications for design and production
innovation value chain business models
Innovation, Value Chain & Business Models

Innovation can occur within and between each stage along the value chain


but the stages often have different ‘owners’ and the interfaces and interdependencies between them are often poorly understood.

and the context is changing rapidly
…and the context is changing rapidly
  • Global demand for products is rising
  • ‘Disintegration’ of stages in some value chains
  • Value-adding opportunities at each stage


  • Globalisation is changing industry configurations
  • Industrial capabilities are evolving rapidly
usa they say
USA – they say…
  • Growing economy
  • Strong in research and some production
  • Emphasis on education


  • Falling share of production
  • Economic imbalances
europe they say
Europe – they say…
  • Increasingly ‘high-tech’
  • Spectrum of large and small businesses
  • Good global connections


  • Some countries thought to be inflexible
  • Intense competition
japan they say
Japan – they say…
  • Continuing strength in production
  • Capable global networks
  • New investments in local production


  • Ageing population
  • Rigid structures
india they say
India – they say…
  • Growing capability in software
  • Highly educated population
  • Growing interest in manufacturing


  • Infrastructure limited
  • Production has not been a priority
china they say
China – they say…
  • Growing production scale and capability
  • Dominant position in some products
  • Growing R&D
  • BUT
  • Imbalance between production and services
  • Shortages of energy
globalisation the case of china
Globalisation – the case of China
  • China is emerging as an industrial powerhouse
  • It has received massive inward investment
  • Industrial development has been systematic
  • ‘High-tech’ capabilities are increasing rapidly
  • Growth impacts global industrial structures

Average annual growth rate was more

than 10% between 1980 and 2004

Source: Chinese National Statistics Annual Report (2005)

foreign direct investment
Foreign Direct Investment

Billion US Dollars


new workshop of the world pearl river delta
New Workshop of the World- Pearl River Delta
  • 70% of the world’s photocopiers
  • 60% of the world’s microwaves
  • 160,000 people in single factory for running shoes
new workshop of the world yangtse river delta
New Workshop of the World - Yangtse River Delta
  • 30% of the world’s ties
  • 70% of the world’s
  • lighters
  • fastest growing car production location
domestic appliances galanz
Domestic appliances - Galanz
  • Largest microwave oven production base in the world
  • Annual production capacity of 15 million units 11,000 employees.
  • Turnover $700m
  • 70% of China market,
  • 40% of global market.
clothing meters bonwe
Clothing - Meters/Bonwe
  • Virtual company in Garment Industry
  • Grown dramatically from a shop into a regional brand and into the leading national brand
  • Over 1000 retail outlets in China
  • Sales of US$250 million in 2003.
so how do they do it
So how do they do it?
  • Cheap labour
  • Foreign Direct Investment
  • Natural resources

But also

  • Systematic development of infrastructure
  • Strategic development of industries
  • Increasing focus on innovation and service!
so what are the underlying patterns
So what are the underlying patterns?
  • Attraction of ‘service-oriented’ business models
  • Networks a source of innovation*
  • Competition increasingly between networks rather than firms
  • Increasing role of ‘contract’ production!*

...all of which require new skills and capabilities

networked innovation p g
Entrepreneur spotted a rotating sweet!!

Healthcare professionals designed the product

Production outsourced

Leading P&G brand Crest distributes.

Networked Innovation – P&G
contract production hon hai marketing design production distribution service
Contract Production - Hon-Hai marketing>design>production>distribution>service
  • Global electronics production capability
  • Developed strongly from component production
  • Value capture through economies of scale and flexibility
  • Moving to design and service
and is extending its scope
..and is extending its scope

For example Hon-Hai’s strategy reads:

  • ‘Focus on global logistic capabilities …’
  • ‘Expand production capacity …’
  • ‘Achieve further vertical integration …’
  • ‘Maintain technologically advanced and flexible production capabilities…’

‘… will leverage off its manufacturing expertise and continue to move tirelessly into new areas of related business’

and as for brand
and as for brand…
  • We have no brand
  • but, our quality is the “brand”
  • our technology is the “brand”
  • our people are the “brand”
and then the odms
..and then the ODMs…

Original Design and Manufacturing businesses

  • Execute the whole manufacturing cycle
  • Ask you (the brand owner) if you would like some
  • Sell the surplus under their own brand and
  • Develop proprietary design, product and process technologies!
qci quanta computer inc
QCI - Quanta computer Inc.

Established - May 1988

Market Cap - US$7B

Revenue (04) - US$ 10.14B

Employees - 25,000

modern manufacturing involves
Modern manufacturing involves

“The full cycle from understanding markets through R&D, product design, production, supply and services within an economic and social context”

and is increasingly

Global, Connected, Multi- partner, Multi-business

b q china
B&Q China
  • B&Q is the leading DIY chain in China
  • It commissions designs, outsources production, distributes, sells and services
  • These activities are orchestrated from the UK
implications for emerging economies
Implications for emerging economies

Need to

  • Understand the ‘maps’, capabilities and trajectories of key industries
  • Identify points of entry – potentially via major multinational businesses
  • Anticipate local demand and changing global context
which needs need a better understanding of
which needs need a better understanding of
  • Value creation and appropriation – which requires knowing what it is and how it can be captured
  • Partner identification and evaluation - which requires sophisticated ‘due-diligence’
  • Production ramp-up - which requires sophisticated technical capabilities
  • Management of dynamic relationships - while making sure they don’t eat your lunch!
  • The structures and dynamics of global industries are changing rapidly
  • Product supply chains rapidly evolving to networks of knowledge and services
  • Many opportunities to access global networks


  • Visibility of capabilities & trajectories essential
  • Product-service systems an emerging theme