Historically, since the industrial revolution, it has been largely Northern European minds - latterly joined by American and Japanese efforts - which have been at the forefront of technological progress. This the natural course of events, given its birthplace of 'the Enlightenment' movement and oits associated scientific method; firstly from individuals, then shared interest societies and later academia and manufacturer's laboratories efforts. So brought forth: physics, materials science, steam-power, chemistry, modern biology, electricity, electro-mechanical engineering, radio and radar; and so associated innovations such as: the train, the wire-transmitter, the motor-car
The 19th and 20th century stories saw the US adopt and scale-up European innovations, WW1 and WW2 seeing a brain drain from Europe into the USA. Its own new insights made via military (DARPA), space (NASA) and directed academic research (eg MIT, Caltech, Stanford etc); with of course the rise, fall and rise of California's Silicon Valley closely tied to both local PE financing and broader Wall Street interests. However, it is the emergence of 'Earth Science' as an academic discipline by which the US seemingly desires to influence global ecological issues, through industry and elsewhere.
[NB 'Earth Science' no doubt seen by the BRIC and CIVETS countries as US 'soft-power']
America and EM 'Middle-Ground' Value M&A -
Yet simultaneously US 're-industrialisation' appears under-way, a renewed interest in the innate value of physical manufacture, seen by the re-birth of GM and repatriation of previously 'off-shored' activities. This ironically enabled by the 'de-leveraging' aftermath of the 2008 financial crash, as the now much reduced US cost-base gains productivity competitiveness versus EM nations that have had to absorb often heavy inflationary economies as part of their own success stories.
Yet as inferred in the last post, and well recognised by a recent FT column, this also apparently puts the USA and EM countries head to head regards the manufacturing of 'mid-value' component, assemblies and completed goods. That is unless a new era of global expansion can absorb much of this new productivity, which on a regional basis, might be the case.
But more likely is the inevitable reality that US companies, buoyed by large cash cushions and the massive QE tranches, will seek to merge with, or even outright acquire, any listed or privately held indigenous EM producer that is gaining regional might - whether across: agriculture, construction, energy, transport, IT, consumer goods, defence, etc. Simply history repeating, as seen back in the mid 1990s when AGCO purchased Brazil's Iochpe-Maxion and Argentina's Deutze-Argentina. The attraction for uS companies all the more when any EM company has a strong vertical value-chain, with direct or even possibly a monopoly-like access to secondary (materials processing) and primary (materials extraction) activities.
Given this picture, set against the need for EM investors – whether privateer or SWF – to seek partial and stock-swap exits, investment-auto-motives believes that there is little likelihood of the BRIC and CIVETS nations creating any obvious “EM solidarity-front” against the USA.
Though EM's Seek Their Own Way -
However, given the rising Asian (and ASEAN bloc) influence globally and a willingness for the BRIC and CIVETS to increasingly seek-out their own destinies, it may be the case that such countries remain hesitant of overtly strong US industrial relations; preferring to retain a broad international relations philosophy. This may be the case given that a century ago such an overt reliance on industrial promises (such as Fordlandia regards Brazilian rubber, hemp and hardwoods) failed to materialise with the impact of economic crisis of the time.
So improved EM-US relations by virtue of expectant (QE and other stimulated) global growth, and the inevitable M&A attractions that follow. But also a likelihood of EM nations seeking to cast a wider net and seek-out industrial learning and collaborations from within the EM stable and those other countries that offer high-value products and services, but also able to properly understand and satisfy the real mass-populace needs of the BRICs and CIVETS and others.
Euro – EM Alliances in 'High Value' and 'Low Value' Arenas -
It was this point upon which the previous web-log hinged.
Firstly, the ability for European corporate and political leaders to recognise the potential for both exporting advanced technologies and services, so as to accord to EM hopes into tomorrow. So spanning a plethora of assisting solutions from proven nuclear power to farming methods to mass pharmaceutical, and so much more that can be 'trickled-down' as feasible.
Secondly, of perhaps equal importance, European firms should look to directly or collaboratively – amongst themselves or with EM partners - serve-up evolutionary technical solutions that can be nigh on immediately applied to the 'real world' status quo in the near and mid terms.
Given that the BRIC countries have effectively already absorbed much of what the west has proffered, often by way of joint ventures with local companies to the financial benefits of both, it is perhaps time for Europe to look to the CIVETS and beyond so as to understand how the typically 'low order' economic pillars of such countries can be improved technologically to help 'democratise' individual, familial and group productivity and so create broader incremental, broader wealth creation.
Identifying the “Low Hanging Fruit” -
This means evaluating at 'ground level' how things have evolved thus far, and how the local populace has itself evolved available, relatively low-cost, 'everyman technologies'.
Herein European corporates could learn from the positive educational influence that established charities (eg Oxfam) and NGO's have had in war-torn or famine-deprived areas. Whilst such places are invariably 'inactive' with less than a fully sustained economy, and should not be directly compared to lower tier EM nations, nonetheless cross-cultural learning has been exchanged between westerners and locals. Such instances give rise to a kind of 'thesis' vs 'anti-thesis', leading to a combined and sustainable 'hypothesis' directed towards everyday functions, including importantly civil and transport engineering. Thus showing how local people's can create and commercialise for themselves when provided with learning and materials in the right manner.
Corporations obviously have a necessary profit-motive and beyond extra-curricula charitable programmes cannot devote great time, resources and effort undertaking work which freely gives away knowledge and materials. So direct comparison to an NGO is obviously flawed. But the approach used by NGO's and charities should be reviewed by European corporates to better understand how they might add value to 'underling economies', and in return gain financially from the small individual amounts of wealth creation, which en mass start to become over time an increasingly important contribution to a company's EM operations balance-sheet and bottom-line.
The Commercial Imperative within CSR -
As seen in various studies and exercises, and popularly conveyed by 'Freakonomics' and 'Poor Economics' books, NGOs have now come to recognise the importance of the economic imperative. With total or near indifference demonstrated by recipient peoples when an item or service is given freely; either under-appreciated for its innate worth, or if of economic value, simply sold to obtain monies. This then highlights the importance of intrinsic value and the vital importance of value creation.
Indeed, most EM countries beneath the CIVETS standing (but above war/famine destitution) are by their very nature avidly commercial, albeit in low-order goods and services, adapting where they can. Necessarily so without the 'safety-nets' of social security, education and healthcare. Yet many of the activities undertaken to earn a living take a toll upon the social perception and eventually self-perception of such people. The millennia-old existence of the caste culture in India (and elsewhere), with what has for many millions become an inescapable vicious circle, forced to do socially exclusive tasks and, formally or not, so labelled. Whether this be scavenging from rubbish tips, collecting and sorting (recycling) rubbish for minimal gain, hunting discarded coal heaps for burnable 'slack', obtaining the contents of underground sewers to extract tiny amounts of precious metals, re-cooking scraps of previously disposed food, etc.
So in an age where the success of western-focused Corporate Social Responsibility is now broadened to Sustainable and Ethical Investment across the world, and where the 'real-world' limitations of NGO's and charities have become obvious, there appears a growing imperative that it is the profit-motive mindset of the corporate world that is best equipped to potentially provide such peoples with the chance of escape from destitution.
Whilst undoubtedly European companies must attend to the B2B and B2C needs of their primary clients in the 'advanced' and first and second tier EM countries, the regions with prime economic power, they should also look to what may be achieved in the myriad of aspirational nations that sit beneath the CIVETS within the bounds of the possible (itself contracted by innate political and cultural power-bases, self-interests and often associated corruption).
Within those countries with an historically stable industrial base, depending upon the specific national industrial policy, it is often the case that aspects of family and community care are at least partially catered. Typically healthcare, creche and schooling provided for employees by state-owned companies (typically infrastructure orientated, eg Indian Railways) with an interest in developing the next generation, or by large private or semi-public conglomerates (with a myriad of inter-connected activities, eg India's TAFE), or ex-state companies that have been privatised but maintain the 'social promise', and lastly, by those companies with high-value specialist interests that must attract well educated employees and offer internal social welfare initiatives to do so.
Yet for most such structured, often life-long, employment is absent and unobtainable.
Beyond Economic Traps -
Major urban centres and their more hive-like economic activities typically draw-in people from surrounding provinces and seek base-wage employment in various arenas. But often these jobs are short-term and thereafter such people must either a) return to his/her village, b) find another similar base-wage job (so not able to better circumstances) or c) seek their own path as 'ghetto entrepreneur'.
Given that point a. creates an economic to-and-fro, and point b. creates an economic merry-go-round, it is the last, point c., which offers the best long-term route to economic success for the individual and his/her family.
[NB it must be noted that those who seek their own way are often subtly or overtly intimidated, harassed and physically abused for not joining the interests (ie groups/gangs) of the local 'big-men'. Themselves self-believed big-fish in little a pond, but in reality nothing more than tiny fish within a far bigger pond].
Corporate Catalysts -
Corporations, of western and EM origination, have of course been catalysts in developing local economies, the automotive sector a shining example of how initial FDI into a specific location for a vehicle or components factory can create a flourishing local economy.
But such attraction is limited to very specific locations where the investment into a factory can be recouped. Initially, that optimal site must be the compelling function of export business model which sends cars, vans, trucks to neighbouring countries, or by virtue of its low cost base, able to underpin cost-effective long-transit of those products to advanced economies. But in order to underpin long-term satisfaction for both the investing company and recipient government, that country and locale must usually proffer a dual-aspect attraction; the export model over time conjoined with a growing 'in-market' indigenous demand which itself is created by a sound national economic agenda. This typically based upon a mixed basis of multi-sector FDI and greater commercialism of state-owned enterprise.
Successful manufacturing stories to date have been Ford pick-up trucks in Thailand, Suzuki small cars in India or latterly the surge of mixed vehicle plants in Indonesia.
There have been many other instances where the manufacturer has born the risk and cost of investing elsewhere, but political, economic and social problems have undermined business projections, and so such a plant is either 'drip-fed' to maintain a presence for the long-term, or simply closed altogether.
So, unfortunately for the economically under-developed countries within and beneath the CIVETS, such optimal sites only emerge periodically and when they do, far greater due diligence is necessary by prospective investing companies with necessarily a greater cautiousness so as not to see wealth destruction of their own investor's monies.
Ecologically sensitive large scale industrialisation within poorer communities and countries has been and remains an ideal, providing a powerful boost to local and national economies.
[NB This more feasible than the other ideal of creating service-based commerce in smaller sized towns; which appears less likely given that such services typically satisfy the BPO needs of foreign firms, and require foreign language and literacy skills; skills more abound in larger cities. Hence the success of the manufacturing model beyond big cities].
As noted, optimal manufacturing sites however, for each sector and company, are relatively few and far between. Reliant upon the specific combinational presence of criteria at a location, so far beyond simply the existence of a low-cost workforce.
Expanding Those Corporate Catalysts -
Given this scarcity, the fact remains that for many countries and their communities much of their future prosperity relies upon evolution of the 'real-world' everyday economy. This through gradual improvement of the commercial approaches undertaken by individuals and small enterprise.
[NB whilst new revolutionary “technology disruption” like mobile phone networks can very quickly supplant under-developed older technologies (ie land-lines) such low-cost, rapid-spread instances are infrequent. And though the mobile phone itself has opened up new commercial realms in under-developed regions, it is also recognised that there is typically and understandably great resistance by the poor to the new, preferring traditional 'tried and tested' approaches given their own financial precariousness].
An evolution pathway for economic growth within the bounds of established conditions then appears more favourable and likely to succeed as opposed to radical change.
Thus, from the western/advanced perspective, we see that much of the “lower-tier world” exists in what may be described as a very unfamiliar, very foreign realm. Somewhere between the extremes of near destitution and so accepting western charity, verses on the 'economic cusp' so absorbing the FDI interests.
Appreciating the “Mother of Invention”
It is within this realm that such countries have naturally created mini-economies of their own, seeing value in everyday materials and processes where advanced-country eyes see none, not having been in such a similar situation for well over a century.
It is a realm in which because of economic scarcity, instances of recycling, innovation and re-application are the necessary every-day norm. And importantly it is a realm from which the advanced nations, now themselves within a new norm, have started to re-learn what has been forgotten for decades; often from EM regions.
So, as shown in the last web-log, whilst it is recognised that a skills and technology “knowledge-gap” exists between European / western / triad regions and the BRICS and CIVETS, there could be said to be a far smaller but apparently reversed knowledge-gap regards low cost creativity and application between the poorest nations and the richest.
Aligning European Interests -
Much of what has been stated should be of interest to all multi-nationals, especially those within the triad region from GE to Toyota. But perhaps of greatest appeal to the those within Europe given its own dual speed fracture between 'core' and 'periphery', this dichotomy itself set within the IMF recognised “3 speed world” of today.
In a world that has been turned upon its head, those large and cash / resource rich European firms should now be seeking - in a skunkworks or formalised manner - how expand beyond the innate long-term limitations of 'business as usual', to create new templates beyond the standard business model, to circumnavigate standard orthodoxy and practice; to think anew.
As seen with the automotive manufacturing example, conventional practice has innate business model limitations. So there is a need to create additional 'new perspective' business models which befit very different conditions and 'bottom-tier' entrepreneurial participants, and reap economic and cultural benefits for both advanced and under-developed countries.
Much of the modern world has been built upon the ideal of standardisation and simplification, seen from the Model T to evolved 'Lean Sigma Six'. And such attained and engrained industrial philosophies must still be expanded worldwide to serve all. This well understood by European firms that seek to underpin a Eurozone renaissance along with their broader global interests.
However, conversely, appreciating the very foreign realm of the 'bottom-tier' populace may require a completely revised approach, one ironically more akin to the short handmade fabrication runs of the craftsmen's 'atelier approach'. One in which a great number of small-scale economic actors can be understood, commercially supported and through a kaizan-like approach operationally grown.
Their typically labour intensive business models relaying goods and services with apparent uniqueness and definite local flavour. Those aspirational business people in return providing equity/dividends or interest/re-paid capital (upon limited size loans), or indeed a hybrid of the two financing schemes.
The kids who once made novelty items and toys derived from used coca-cola cans have grown up into necessarily hard-headed entrepreneurs, yet have maintained a creative spirit that draws from both their own surroundings and the wider world.
Europe's present economic sluggishness - itself still in the early phases of structural reform and economic transition – essentially demands that the continent look both within and also far beyond its own back yard. As the US and leading EM nations look to compete and merge upon the industrial middle-ground, so Europe must seek offer both continued 'high-ground' and now also new 'low-ground' industrial approaches, so as to create a 'visible' and 'invisible' trade circularity with much of the remaining world.
If Europe fails to seize the opportunity- itself afforded by ongoing ECB liquidity expansion measures - then in time, America will certainly seek to do so; by re-applying the remnant material of its own 20th century expansionist past.
Given investment-auto-motive's obvious regard to the auto-sector, the next web-log will take a snap-shot view of vehicle-based enterprise with a various functioning, but far from socially, politically and economically matured countries.