Supply Chain Integration: More Talk Than Action?

If you read these findings from a recent Deloitte Consulting study on the subject, it makes you wonder:

1. Despite globalization, most supply chain optimization is done locally;

2. Supply chains are not fully equipped to support accelerating innovation;

3. Flexibility is becoming more difficult to achieve in the face of shorter product cycles, increased customer demands, the pursuits of lower-cost locations and the race to new markets;

4. While managing risk is a priority, current fragmented supply chain initiatives are increasing potential risk;

5. While customer service is a priority, fewer than 8% of companies have a high level of collaboration with customers on key initiatives.

Click here to read more.

Personal Bankruptcies Up

America's middle class has been waiting for a strong economic revival for four years now. By December 2004, there were still fewer jobs than at the start of the recession in March 2001. Family incomes had fallen for three years in a row through 2003 and wage growth fell behind inflation in 2004.

At the same time, families experienced sharply higher costs for education, energy, housing, and health care, putting household finances in a bind. Importantly, many families faced rising costs for the debt that they have piled up amid a comparatively weak labor market. With higher interest rates, this debt could quickly become more burdensome. Starting in June 2004, the Federal Reserve began to raise interest rates.

The combination of modest income growth and rising costs has already taken a toll on America's middle class. By 2003, the personal bankruptcy rate reached a record high. Across the country, a number of states showed disproportionately high incidences of personal bankruptcy. The divergence in personal bankruptcies shows that economic distress is more closely connected to slow income growth than to other factors. Recently, personal bankruptcies have become more closely associated with job loss than in the past, and they have remained sensitive to the lack of health insurance coverage. The situation since 2003 suggests that further increases in personal bankruptcies are possible as prices have risen further amid a continuously weak labor market.

Source: Center for American Progress

Read Full Report in PDF

Offshoring is Not Good for Economic Development

I am really tired of hearing economists, business executives, policy makers, and even some economic developers, defend offshoring as a "good" thing. Take a look at this Newhouse News Service article and tell me that offshoring is not the single biggest threat to economic development that we have faced in a long time.

Earlier this week I suggested that we find a way to index prosperity to productivity and innovation growth. I am more convinced than ever that we need to move in that direction.

What am I saying? I'm saying that we need to take the triple bottom line more seriously than we ever have. It's a game with many companies. They don't take it seriously enough. Here is one way to go. Companies should be required by the SEC and IRS to meet certain prosperity measures (growth in U.S. employment and payroll) to qualify for certain securities transactions and tax deductions and credits. In short, a company is allowed greater tax benefits if it grows its employment and payroll bases in the United States, and just the opposite occurs when they offshore their business and jobs at the expense of U.S. jobs and prosperity.

In addition, state and local governments should be forbidden to give economic development incentives, tax exemptions, and tax credits to any business (domestic and international) that fails to meet the federal performance measures I've described above.

And we should urge other nations to do the same with their businesses. If they don't, then they should lose certain trade privileges in the U.S. market. Guess what? The right balance among productivity, innovation, and prosperity will be achieved.

This is a big step, but that is what it is going to take.

Your thoughts are welcome. I'm looking for a solution here before this situation reaches the point of no return.

What is Strategic Management?

According to Wikipedia:

Strategic management is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity, usually performed by the company's Chief Executive Officer (CEO) and executive team.

It provides overall direction to the whole enterprise. An organization’s strategy must be appropriate for its resources, circumstances, and objectives. The process involves matching the companies' strategic advantages to the business environment the organization faces. One objective of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organization’s goals, policies, and action sequences (tactics) into a cohesive whole.

Now, are we using strategic management in economic development?

Europe Still #1 for Business Investment

Western Europe still the most attractive economic zone for 63% of investors; Central and Eastern Europe increasingly viewed as a “low cost” competitor for China, says Ernst & Young survey.

The recent E&Y press release says this...

"The survey found that Europe is still on a par with its competitors as a viable zone for investment and is standing up to the dual challenge of the United States and China in attracting foreign investors.

Despite a slight reduction in the popularity of Western Europe as an investment destination among executives surveyed, it scored 63% on the global scale of attractiveness, (down 5% on last year) and remains ahead of Central and Eastern Europe, with 55%.

As the new star of foreign investment, China’s impressive growth and the potential of China’s domestic market is attracting a number of investors. China is now the leading country and the third-placed global zone for foreign investment. In twelve months, China’s attractiveness has increased to 52% from 37%, allowing it to leapfrog the USA and Canada (45%).

Other key findings:

31% of international investment is directed towards Central and Eastern Europe, more than France, Germany, Spain and Belgium combined.

Within Europe, Poland and Hungary are challenging the traditional supremacy of Germany, the UK and France, particularly due to their competitiveness in terms of labour costs.

In terms of job creation by new establishments, 6 countries in Central and Eastern Europe figure in the European top 10, headed by the UK, Poland and France.

The most dynamic sectors in Europe in 2004 were automotive, with 11.6% of international investment in Europe and hi-tech, with 10.9%.

Central and Eastern Europe represent a viable alternative to China for the automotive, consumer goods and heavy industry sectors.

Decision makers overwhelmingly view the service and software sectors as the future drivers of the Western European economy.

Business leaders remain sceptical regarding an improvement in the attractiveness of Europe over the next 3 years (37% against 45% in 2004). "

E&Y Biotech Report

"Nearly 30 years after the first biotechnology company opened its doors, the sector is reaching a new level of maturity and globalization. In 2004, the global biotech industry posted impressive growth and raised record amounts of venture capital.

EY’s latest report, Beyond Borders: Global Biotechnology Report 2005, continues the tradition. The report offers a strategic view of biotechnology at a global level, as well as insight into major regional markets, including the Americas, the Asia-Pacific region, and Europe. It brings together leading luminaries and analyzes key trends, including:

Coming of Age—The US biotechnology sector is maturing rapidly, driven by a remarkable surge of new biotechnology products that started in 2003 and continued through 2004. Capital markets are maturing, as well, in what promises to be a positive development for the sector.

Products, Products, Products—The biotech industry’s growth and maturation are driven by its product successes. Biotech companies now market approximately 230 drugs, including 13 therapeutic antibodies. The sector has an impressive pipeline of drugs in Phase III trials or awaiting regulatory approval. In 2004, a new challenge has emerged, as regulators increase their focus on product safety. How will these trends affect biotechnology’s movement toward profitability?

Global Solutions—Biotech hotbeds are emerging in the Asia-Pacific region, particularly Japan, India, and China. Korea and Singapore are creating niches in areas such as stem cell research and manufacturing, helping the global industry meet challenges such as restrictive public policy and drug pricing pressures.

Capital Markets — Biotech companies raised US$16.9 billion in capital in the U.S. and US$3.4 billion in Europe, surpassing 2003 totals. Yet, the industry is challenged by disappointing IPO evaluations, and early-stage companies struggle to find the capital they need to thrive.

Report Release—Beyond Borders 2005 was released June 21, 2005, at the BIO Convention in Philadelphia. Over 18,000 biotech investors, journalists, policymakers, and scientists from more than 60 countries attended the June 19–22 conference."

Read more here.

Haves and Have-nots in Japan

Japan likes to think of itself as one giant middle class. But wrenching economic and social shifts are splitting the nation into ranks of haves and have-nots. Read this clip from TIME Asia Magazine:

"This increasingly distinct divide between rich and poor is so vivid in the national consciousness that it has been given a name: kakusa shakai (a society of disparity). It isn't hard to find statistical evidence of the phenomenon. In a land once noted for its armies of workaholic salarymen, part-time employees now account for 30% of the labor force.

In February, the government announced that the number of people on welfare rose 60% over the last 10 years, reaching 1 million citizens for the first time since the program started in 1950. And according to recent findings by the Organisation of Economic Co-operation and Development (OECD), 15% of Japan's households today are living in poverty (defined as having incomes that are half the national average or less). That compares with an average of 10% of households below the poverty line for all 30 OECD countries. In wealthy Scandinavia, the average is less than 5%. Japan's rich-poor divide is particularly worrisome, warns a January OECD report, because of the "lack of movement between the two segments of the work force, trapping a significant portion of the labor force in a low-wage category from which it is difficult to escape."

So, I guess the U.S. is not alone in having a divided society along economic lines. What else is new? It's a global reality and one that current business and economic policies have created.

Measuring Success In A Global Economy

Here is an important issue for economists, business planners, and economic developers alike: How do we measure success in the global economy?

Many experts hint that we have been fumbling our way around in this arena with no clear measures that deal with all the "new stuff" associated with globalization and rapid technology change. It feels just that way to me.

Here is a clip from a recent Industry Week article that lays out the problem, although no solution is offered, other than we need to work on it:

"We've never in history been so sophisticated in our use of benchmark metrics, economic statistics and trending indices as we are now. But we desperately need to learn how the twin game-changers of the 21st century -- globalization and information technology -- and new management practices, such as lean, have changed how we should interpret these numbers -- or whether we're collecting and analyzing the right ones. The data may not look different on the surface, but once-familiar and easily interpreted trend lines increasingly result in unexpected outcomes. Rising productivity is supposed to lift personal income and create jobs, but it hasn't. Raising short-term interest rates is supposed to lead to higher long-term interest rates, but they haven't."

"Most business and public policy leaders agree that the manufacturing sector is undergoing (or has undergone) structural change. But we continue to rely on old methods and metrics to measure progress and success -- and to set national policy and management strategy and to provide insight into future trends. The quicker we're able to adjust how we collect and interpret the data about the new economic reality, the sooner we'll be able to capitalize on it. Let's get started."

Here is my suggestion. There are three core components to the "new economy": 1) innovation; 2) productivity; and 3) prosperity. Of the three, prosperity is the one we need to worry the most about. We're doing ok on productivity and innovation, and yes more of each is needed, but the real problem in our new economy model is declining prosperity. We are not becoming more prosperous as a result of our economic policies and economic development strategies. We're losing ground. Hopefully Wal-Mart will realize that sometime soon. By the way, Wal-Mart has been soaking up as many economic development incentive dollars as General Motors.

I think we need to find a way to index prosperity to both innovation and productivity, and create incentives to increase prosperity (per capita personal income, median household income, and individual wealth creation) as a result of productivity and innovation gains. Right now, prosperity, except for the "rich minority," is declining at the expense of business productivity and innovation. There is a price for killing off all those jobs and exporting the rest overseas.

So, that is the nugget of the idea. More to come once the spirit moves me again on this topic.

Strengthening Undergraduate Science Education

Math and science achievement have everything to do whether local economies grow and succeed in the "new economy." Here is an initiative that can help.

The Howard Hughes Medical Institute (HHMI) is encouraging teamwork, collaboration, mentoring, and dissemination as it searches for innovative undergraduate science education proposals. HHMI also is seeking programs that broaden access to science for women, underrepresented minorities, and nonscience majors.

Each university selected will receive a 4-year grant ranging from $1.2 million to $2.2 million. Universities may propose programs that provide undergraduate research opportunities and broaden access to science for majors and nonmajors. The grants may also support new courses in emerging fields such as computational biology, genomics, and bioimaging; mentoring programs; current and future faculty development; laboratory equipment; and cooperative programs with elementary and secondary schools.

Read more here.

Return of the Sale-Leaseback

Three decades ago, the sale-leaseback environment was clearly positive for buyers. However, today’s “perfect storm” of low interest rates, stock market uncertainty, a flood of investors, and available debt financing has created a sale-leaseback atmosphere that clearly favors sellers.

What’s the best way to stay the course, or better yet, ride the winds ahead of everyone else in this changing environment? Begin by taking a closer look at the available sale-leaseback properties, changes in lease terms and structures, the impact of today’s interest rates, and the advantages of sale-leaseback financing in the current market.

Sale-leasebacks have played a role in many economic development projects across America. Looking for some new ideas on how to make them work in today's financial environment? Read this Commercial Real Estate Investment article.

Hwang Woo Suk

He's not a politician, a tycoon, or a pop star. But these days, Hwang Woo Suk may enjoy more popularity and respect in South Korea than the hottest celebrity. He is a pioneer of embryonic stem cell research -- and a national hero. The Korean government even issued a postage stamp in his honor in February that juxtaposes an image of growing stem cells with silhouettes of a man rising from a wheelchair, walking, and embracing another person. Read more in a recent Business Week article about his work.

Point: It's important to know the real people behind the new industries taking off across the world. Does your area have a connection to Hwang or his work? It should if it hopes to move along the stem cell curve.

Angel Investors: Some Examples

A recent Inc. Magazine article describes several examples of angel investment groups across the country. Here is one that I thought was interesting.

Investors' Circle
Brookline, Mass., San Francisco

The oldest organization on our list has a funky combination of loose structure and social activism. The website defines the group as a "national network of early-stage private investors who seek financial, social, and environmental returns on their investments." Though members are scattered across the country, "ethos holds us together," says chairman and CEO Woody Tasch. Applicants submit business summaries to the website; the up to 60 that are approved by the staff each month can get circulated, for a fee of $350, to the members nationwide. From there, any number of things can happen. Often the member who has the best combination of proximity to the company and experience in dealmaking will lead a group of members to invest.

An affiliated professionally managed fund, Commons Capital, serves members who don't have the time or deal experience to invest individually. Alternative energy is an important category for this group. Investors' Circle also supports localizing the food supply chain; hence its support of the Farmers Diner, a Vermont restaurant that gets most of its food from nearby farms and is planning to expand to a national chain of diners that do the same thing for their local agricultural communities.

founded 1992 members: 130 total invested: $100 million companies funded: 163 www.investorscircle.net

REITs Pay Big Dividends

I have been doing some research on real estate investment trusts (REITS). Click on this link to see how well REIT investments have performed in comparison to other investments and benchmarks. The answer is "extremely well." What role are REITs playing in real estate investment and development in your area? Would be interested in hearing about this issue.

So You Want to Encourage Manufacturing Investment in Your Area?

Here are some clips from a very informative article by Michael Evans about manufacturing investment. It appeared in the July 1 issue of Industry Week. This does NOT bode well for your plans to grow your local manufacturing sector!

"I suggest that at least some of the answer lies elsewhere -- in the data relating to manufacturing construction. Since 1980, manufacturing construction -- that is the building of new plants and the expansion of existing plants -- has fallen from 10% of total nonresidential construction to 2%. Relative to the index of manufacturing production, it has plunged from 0.8 to less than 0.1.

There have been two major periods of decline in these ratios: 1982 through 1985 and 1998 to the present. The earlier decline can easily be explained by extremely high real interest rates and an overvalued U.S. dollar. Yet during the past seven years, interest rates fluctuated in a range from fairly to remarkably low, and the U.S. dollar has generally been near or below its equilibrium value. Hence, there is no likelihood of a reversal of this declining trend such as the reversal that occurred in the late 1980s and early 1990s once interest rates and the dollar's value returned to normal levels. There is no mystery about what happened to manufacturing construction. It went overseas."

Preparing Kids for the Future Economy

There is a delightful article in the the July 2005 issue of Fast Company Magazine about how to prepare kids for the economy of the future. Here are a couple clips to tantalize you into reading the full article.

"Already we're seeing signs that the workplace of the future will bear little resemblance to today's centrally administered hierarchies. Work will be more ad hoc, on the fly, and responsive. Successful employees won't be afraid of new situations without rules. They'll be expected to use their knowledge, imagination, independent judgment, and critical thinking, while leveraging disparate resources -- from information to communities -- to construct the best solution that's aligned with core principles. The rapid and dynamic demands of problem anticipation, identification, and solution will put a premium on continuous learning.

So what does this mean for our kids? It means they should be self-managing independent thinkers as well as good empathizers and collaborators. Rather than constant external stimulation or structured activities, they need uncluttered time in which to let their imaginations unfurl. Kids well armed for this new world will benefit from immersion in the rights and obligations of teamwork and community endeavors, balanced with the self-expression that comes from learning how to write. Above all, this vision of the future calls for kids who are deeply literate, with all the sense-making capabilities that attend passionate reading."

How does this strike you? Consistent with your way of raising your kids? I will add an activity to this list that is quite consistent with what the author suggests. Meditation!

Nano-REITs

Many economic developers have nanotechnology on the brain. If you are one of them, you might want to look into how the real estate needs of these budding companies is going to be met. REITs, or real estate investment trusts, have been around for a while. Check out this article in the National Association of Real Estate Investment Trusts.

A number of industrial REITs, especially those on the West Coast that target the high technology and bioscience markets, have not only dabbled in the construction of facilities for nanotechnology, but staked out a claim with certain institutions through venture capital investments.

Mission West Properties Inc. (AMEX: MSW), a Cupertino, Calif. REIT that specializes in R&D properties, for the past couple of years has been involved with the San Jose (California) Bioscience Incubator and Innovation Center, which provides well-equipped space for scientists and start-up companies to create new technologies and explore innovations in numerous fields including nanotechnology

What Young Workers Really Want

Here is a clip from a post by David Batstone at Right Reality Blog:

"Managers frequently vent to me their frustration with a new generation entering the workforce. A hospital director in the Midwest put it this way: "I give my young workers instructions how to complete a task, and they have no qualms telling me that they don't want to do it that way."

The 20-something worker indeed has a unique approach to authority. They do not as a rule show disdain, or even rebellion, but tend to elevate their own opinion to an equal plane with a boss or supervisor. In that regard, they are accustomed to having a voice that counts. Titles and hierarchy mean much less to them than it did for earlier generations.

The threat of losing their job is not quite as daunting to this generation, either. They have grown up in an affluent era, so perhaps they take financial security for granted. Yet it is also the case that they are not willing to sacrifice their lifestyle and personal identity for a paycheck. For that reason, managers who are using the old carrot-and-stick approach with this crowd do not find much success.

Above all, younger workers are less likely to channel their passions into a job. They are apt to see work as a means to an end. The work week gets them to the weekend, and that's when the fun begins. They are wise to the transitional economy. They know that employers will not show them loyalty over the long-term - they have watched their parents pass through an uncertain career. So they see the job as a short-term contract that can be renewed, by both parties, as long as both parties are satisfied. This generation serves as its own free agent."

Sound familiar? It does to me. What do you think?

Green Money Journal

Have you thought about socially responsible investing (SRI)? It's very consistent with economic development (ED) when you consider that SRI is about advancing communities and local economies. The Green Money Journal is one place you might want to start in exploring the connection between SRI and ED.

Is Economics Really a Science?

That is the question raised in a recent article by Hazel Henderson, an well-know economist and futurist. She claims that economics is not a science, rather it is a field of advocacy, much like law. She claims that economists have misled the public by claiming they are scientists. Read the article and see what you think. Henderson is "out there," but nevertheless an interesting personality and source of original thoughts. Go here.

Immigration and Economic Development

BusinessWeek correspondent Brian Grow spoke with him about the emerging trend of companies big and small targeting the booming illegal immigrant consumer market -- and whether mass deportation, which some politicians have suggested, is a viable economic solution.

Here is a small part of the interview:

"Q: Why are companies waking up to the largely untapped opportunity to target the undocumented?

A: This is by definition a segment of the economy that has almost purposely been pushed underground by our neglect of immigration policy. We know we need these workers. Nevertheless, we haven't brought [this issue] out of the shadows, so it hasn't been on the radar scope for most companies. But now they're turning around and realizing that these workers are everywhere, and they're not only consuming in the mom-and-pop stores, they're increasingly going and buying all types of goods and services.

Companies are also seeing it as a hugely growing segment of the population. The other element is that they're a group that has traditionally paid cash and been outside the credit system. If you're able to bring them into a creditworthy capability, that's even a bigger impact. For example, we estimate that if undocumented families were allowed to buy houses, they've got the capability to buy more than $75 billion in new mortgages."

Read more here.

Amy's Kitchen Heads to Oregon

With a profit margin of just 3%, the California-based organic frozen-foods company decided Medford, Oregon's lower costs were a key ingredient for its new plant

With the lure of up to $1 million a year in cost savings, the Berliners (owners) chose Medford, Ore. -- a small city of fewer than 70,000, located just 27 miles north of the California border. Andy Berliner expects to break ground on the Medford facility this August. The plant will start with about 350 employees, and the Santa Rosa operations will continue as usual.

More here.

Michigan Works on Global Auto Industry

Domestic automakers, who have long made their home in Michigan, are downsizing in Michigan and other US locations. Michigan officials have stepped up international business development efforts to try to replace their losses.

This quote from a recent news article says it all: "Michigan is increasingly turning to foreign automakers and suppliers as Detroit's Big Three - GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group - downsize and lose market share in an increasingly global marketplace."

Read more here. (Free registration required.)