Global Player and Local Hero
Strategies for successful internationalization.
What will the machine tool and plant equipment world look like in 2030? The quotation above describes a scenario at the end of a long road that multinational enterprises, together with their branches, partners and customers, have before them in the next ten to 20 years. The aim is to achieve global competitiveness through local value creation. Technological change and globalization will be constant companions on this journey. They determine the direction and the context within which the enterprise will act on the global markets.
Technological change is making itself felt in a big way throughout mechanical engineering. For example, users are more and more insistent in their demands for easier-to-use automation that shifts complexity and routine tasks from the user to the software. Rising energy prices and the growing global consensus that CO2 emissions are accelerating climate change are additional technology drivers. Energy efficiency offers the greatest potential for reducing these emissions while at the same time cutting operating costs. Shifting customer markets are also driving technologies and change: large mass-production clusters have emerged in Eastern Europe and Asia. Here, the greatest demand is for the shortest possible cycle times. By contrast, Europe and the U.S. are concentrating mainly on small production runs and flexible fabrication of custom products. This places high demands on flexibility and rapid setup of machines and plant equipment.
To meet these widely divergent demands of customer markets, it is not enough to be present locally with just a sales office. The model of the exporter selling technology in industrial nations and premium products in the growth markets has become obsolete. Manufacturers need to to build competitiveness into their operations. That means recognizing and taking advantage of local mechanisms and potential. In the future, internationally active enterprises will have to adapt to new market conditions much more rapidly and frequently. The ability to change will become a success factor – not only in regard to technology, but strategically and organizationally as well.
Steep downturns and sharp upswings will alternate in ever shorter cycles. This new volatility requires highly flexible models for work times and organization, and thus a great deal of trust among all the parties involved. Long-term supplier relationships, oriented on partnership, will jointly dampen the peaks and troughs. The new rules are also a major challenge for company cultures. The challenge is to embrace and implement fundamental values world-wide while at the same time integrating regional characteristics and systematically promoting cooperation between organizations and people.
A study by the German foundation Deutsche Impuls-Stiftung reveals that successful enterprises will generate their growth mainly in Brazil, Russia, India and China – the “BRIC nations” – in the future. They will only succeed in this by developing regionally adapted products and solutions in each of the BRIC nations. On the cost front, they will keep up only by manufacturing in the regions and building or enabling local intelligence. Additionally, a fundamental change may be observed right now in China, the largest growth market. The People’s Republic no longer wants to be the low-cost workshop for the West, but rather to establish value creation in-country.
This comprehensive reorganization of global value creation chains is creating growth not only in the target nations but in the respective home countries as well. For example, the Federal Statistics Office in Germany notes a positive correlation between outsourcing and new job creation at home in selected industries. The transformation from a multinational enterprise with all the central functions in the home country to a global enterprise with regional production, development and service capabilities close to the market impacts a range of activities.
The „5Locals“ system developed by the local Bosch Rexroth Management in China illustrates the main steps.
The growth regions are not only customer markets, but to an increasing extent procurement markets as well. Local purchasing and a network of regional suppliers are essential for ensuring flexibility, supply capability and competitiveness.
In a globalized value creation context, services like engineering and commissioning must be transferred to the foreign subsidiaries. Local commissioning depends on professional, rapid and locally coordinated commissioning teams that are familiar with local industrial conventions. These teams are not only familiar with the local features, special technical aspects, and machine functions, but are also aware of the local customers’ fundamental expectations.
Increasingly, the challenges for the machine tool industry presented by the growth markets are differing from those in Europe and the U.S. And these challenges are not static, but rapidly evolving. Over the long term, appropriate responses can only come from regional development capacities embedded in that country.
This is a long-term challenge since, particularly in the growth markets, fluctuation at management levels is high. The only solution is ongoing human resources development that offers the local employees a perspective. Rexroth has been present in the major global markets for over thirty years now, and can staff virtually all management positions with local managers.
More and more, local value creation is becoming the prerequisite for selling machines and plant equipment in Asia and South America. Local factories offer an enormous opportunity to learn about the challenges on site first-hand and to integrate these in solutions optimized for the region.
The globalization of value creation, therefore, cannot mean founding another controlled foreign subsidiary that adopts existing one-to-one. On the other hand, the local unit should not act entirely independently and thus forfeit the advantages of scale. Finely tuned interaction of the local units and the parent company will be decisive. If the globalization of value creation is successful, then the machine tool and plant equipment industry will continue to grow in the coming years and thus secure and create jobs both at home and abroad.