Having a foundation in business for long term growth

I was just listening to yet another Harvard Business Review interviews on their blog. Hearing their content is a relief from the endless reading I do on their site. The topic was having a foundation in your business.

Apparently, many companies in the USA provide services that compete on a global market. But, the cost for those services is somewhat high. Countries with less expensive labor can grow their business presence like weeds by capitalizing on their lower labor costs. This works for a while. But, what people don’t always think about is that labor costs are not static. Labor costs in China have gone up a lot, and will probably continue to do so. Currency rates in India have made labor a lot cheaper. The cost of labor is very unpredictable in a global market place making it foolish to bet on long-term cheap labor. The real estate market is equally unpredictable making your office or industrial space something that can really fluctuate in cost.

The moral of the story was that companies in stable places like Germany, America, or other wealthy countries may not always have the cheapest price, but there is an element of refinement. The workers have been doing the same work for a much longer time, and management structures have been in place much longer making them more stable. There is an element of efficiency in what these companies do which can often rise over time. Many American companies are using robotics and other high tech means which make them able to successfully compete against the Chinese whose labor costs are much higher than a few years ago, and who do not have the means to use robots.

In a sense, it seems like some of the poorer countries are hitting a growth ceiling. Maybe that ceiling is temporary, or maybe not. For them to grow to the next level, they will need to learn about efficiency, and building long term relationships, developing higher and more consistent quality standards, and a lot of other things as well.

I tend to think that China will make it even though they are having growing pains. India and the Philippines I am not so sure about. India thrives on doing everything in the most inefficient way humanly possible, and shows no inclination to break out of this moronic way of life. It will be impossible for them to ever become an economically comfortable country with this attitude. I call it inverse optimization!

(1) Developing countries with rising labor costs need to master the art of efficiency if they are to survive in the long run
(2) Developing countries need to understand that their real estate and labor expenses can fluctuate in either direction overnight!
(3) America is using robotics & successfully competing against Chinese manufacturing = a growth ceiling for China?

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