Managing in an Unpredictable WorldHarold L. Sirkin
For many months now, I’ve been discussing various factors driving the resurgence of U.S. manufacturing, such as increasing labor costs in China, the productivity of American workers, the abundance of cheap energy here that “fracking” technology has brought about, intellectual property issues, and the fact that manufacturing in the U.S. involves far fewer headaches than managing long-distance supply chains.
In many cases, as I’ve stressed, choosing a location for the next manufacturing facility is not an either-or choice. Many companies will choose to manufacture in China, India, Brazil, and other overseas locations for the African, Asian, and Latin American markets, even as the U.S. and Mexico become increasingly attractive choices for companies making products for North America and Western Europe.
These realities are based primarily on math, the comparative combined costs of labor, energy, raw materials, components, regulations, transportation, and supply chains. You do the math; you make a choice.
What I haven’t addressed adequately are the noneconomic factors that should enter into the equation, such as “surprises.” Or the flip side, if you prefer: stability or predictability.
Whatever else you might think about the economic competitiveness of the U.S., Canada, Japan, and Western Europe, one thing you can count on is that there are few surprises, other than natural disasters and occasional man-made catastrophes (Sept. 11 and the Fukushima nuclear disaster are two unfortunate examples).
Political decisions, as bad as they may seem or be at times, are rarely arbitrary. Policy proposals typically are previewed and debated before they assume the force of law. There are processes to follow; comment periods; hearings; votes; and appeals. As messy as it may appear, it is all quite orderly.
Compare this, as business executives must when they contemplate the location of their company’s next factory, with the rest of the world: “Anti-Chinese Violence Rattles Vietnam,” “Taiwan Concerned Over Mistaken Identity in Protests,” and “Thai Military Seizes Power in Coup.”
Since 1990, dozens of coups d’etat and coup attempts have occurred worldwide, including in Sierra Leone (1992), Pakistan (1999), Honduras (2009), Nigeria (2010), and Egypt (2013), to name just a few. Thailand has been a repeat offender, with coups in 2006 and this spring, which prompted this headline: “Mayhem Threatens to Chill Foreign Investment.”
Meanwhile, Russia continues to stir up problems in Ukraine. China, Vietnam, and the Philippines are jockeying to control various islands in the South China Sea. Turkey seems shaky. And who knows what will happen next in the Middle East?
Not all change is sudden, convulsive, or for the worse. For example, Narendra Modi’s probusiness Bharatiya Janata Party (BJP), promising deregulation and economic streamlining and reform, recently ended years of National Congress party domination in India. But they did so, as you might expect in Asia’s most stable democracy, at the ballot box, not through force.
The point is that global business decisions cannot be made in a cocoon. The material we learn in business school and the experience we gain as we work our way up to the C-suite are critically important.
But executives also need to be alert to the unpredictable world around them and include the inevitable surprises that lie ahead in any plans they make.