The topic of globalization can evoke many viewpoints, both positive and not so positive.
Writing on this topic over three years ago, I often advised manufacturers to differentiate their supply chain strategy efforts on the appropriate response to two different business objectives. The first and most visible today is the need for reducing direct manufacturing costs, most often manifested by a sourcing strategy to lower-cost regions such as China, Southeast Asia, or Eastern Europe. The second, objective is building and supporting revenue growth in new markets, a focus on emerging growth economies. At certain times, both business objectives can complement one another, Asia and China being the best examples. But in many firms today, they often provide a conflict. Both may have to be managed with different deployment strategies.
One of the companies that practices the benefits of how to best balance these two strategies is Toyota. For many years now, Toyota has sourced its final manufacturing sites not just to serve its customers located in a geographic region such as North America or Europe, but also to have the built-in flexibility to serve another geographic market when economic factors warrant. Supplier sourcing, on the other hand, is motivated by product quality and cost considerations, regardless of geographic location.
The latest success of the payoff of these strategies is Toyota’s recent 2008 third quarter results, posting a 7.5 percent growth in profits, coupled with a 9.2 percent increase in revenues. While the majority of North America based auto companies continue to struggle, Toyota was able to reap the benefits of its geographic diversification. Units sold in Russia recorded a 52 percent increase, along with a 62 percent increase in unit sales within China. Toyota continues to benefit from record sales in North America.
Properly balancing a low-cost sourcing strategy and a new markets growth strategy requires the ability to quantify the needs, requirements, and bottom line benefits for both. No doubt, the Toyota culture of lean, superior quality, and fact-based decision making helps them to complement sourcing and growth strategies.
Let’s hear your view…