Standing up to Asian Competition

Alain-Marie Carron

Manager, SECOR-Taktik

JHKCBA

April 3 2009

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Europe, America and the Rise of the Rest…

We are witnessing the third tectonic powershift over the last 500 yearsThe rise of Europe

The rise of the USA

The rise of the Rest Asia, Russia, part of South America, parts of Africa and the Middle East

The Post American World. Fared Zakaria. 2008

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Emerging Countries Grow Faster

9,7

7,67,3

6,2

5,1

2,9 2,6 2,3

Source: SECOR Analysis; United Nations Statistics Division

GDP Average Annual Growth Rate(in %; 2001-2006)

China Vietnam India Brazil CanadaRussia Thailand Mexico

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90% 78%

10% 22%

2000 2007

95%81%

19%5%

2000 2007

Their enterprises get bigger

Emerging Economies

Developed Economies

Market Capitalizationby number of companies

Emerging Economies

Developed Economies

Market CapitalizationIn Total Value

Gross MarginIn 2006

14%

25%

Developing Countries

Developed Countries

Net MarginIn 2006

8%

16%

Developing Countries

Developed Countries Mondialisation2.0Ernst & YoungMay 2008

Within the 1000 biggest companies in the world

- 5 -

Export to USA : Quebec down, China up

Sources : Industrie Canada, 2007; Analyse SECOR

TCAC 1992 -1998

TCAC 1998 -2007

TOTAL

12,9 % 2,2 %

AUTRES

5,9 % 7,0 %

ÉTATS-UNIS

14,7 % 1,0 %

Exports from Québec(Québec, 1992-2007, Mds $)

27,7

57,6

69,9

Value of chinese exports to the US : + 93% in 5 years

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Demography is a weapon of mass construction

Emerging countries are more than 3 times bigger than us

China + India : about 2.6 billion people + Brazil (200M) + Russia (143M) + Mexico (110M) = more than 3 billion

Main developed areasEurope (400M) + USA (300M) + Japan (127M) = 827millions

…or is it mass destruction ? Africa : 1,7 billion in 2040 ?

The power of demography yesterday : more workers

The power of demography tomorrow : more brains

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More brains, good and unexpansive

China: 2nd investor in R&D in the world (136b in 2006)Asia : from 15% to 32 % of R&D world investment in 4 years30 000 young Chinese will get an MBA in 2008 (1998 = 0)300 000 new engineers each year in China, 400 000 in India (USA = 70 000)Large multinational companies create scores of research centers in China and India

Shortage of talents ? In 10 to 15 years from now, intelligence will be a commodity

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The main engine of growth : hunger

Hunger for compensation1820 : English merchants control Bengal and fix the price for cotton : good for Manchester, but 12 M Bengalis die

1842 : « Unequal » treaty of Nanking, lead to Opium War

Vietnam wars: France 1945-1954, USA 1956-1975

Hunger, for food and comfort3 billion people or more in the emerging countries want to eat, to work, to reach a « western style » way of life

Shall we be prepared to a reverse colonization process ?

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Chinese Competition Is Changing in nature

CIMC is a good example (China International Marine

Containers)

How the worst in class became the NO1 global container manufacturer

Through cost and innovation strategies

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Learn, Improve, Disrupt

Find a competitor’s weak link and break it Standard containers, economies of scale, acquisitions

Blend new technologies and low costs Refrigerated containers, steel vs. aluminium, economies

of scale

Offer variety + new technologies + mass production + low prices

Tank containers and special containers

At each stage, invest in R&D at very little cost Folding containers

Dragons at your door, Ming Zen & Peter Williamson, 2007

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The List Is Getting Longer

Mass production variety and innovation

Build on the brand and technological innovation

Turn a niche market into a mass market

12

Their strong points … or ours ?

Technological Innovation

Research & Development

Make of a niche product a mass product

Variety (at small price)

Economies of scale

Brands (coming soon)

Money is not really a problem

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Their competititve advantages that we cannot duplicate

1 billion 300 millionHuge Market

3 to 4 times less... and relatively low paid

Roughly 300 000 new engineers a year

A lot of well-trained brainpower…

Up to 30 times cheaperVery low salaries

300 million rural dwellers want to move to a cityAn enormous labour pool

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A unique advantage

Mass productionMass productionLow

SalariesLow

Salaries

R&DR&D

InnovationInnovation

VarietyVariety

Low G&ALow G&A

Cost-Innovation

A New Competition

Model

Cost-Innovation

A New Competition

ModelNicheNiche

The FilterThe Filter

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Why this competiton will increase

1- Demographic pressureThey need to give work to their growing population

2 - Fierce local competitionHigh level of entrepreneurship leads to overcapacity

3 - Natural need to growTo get richer and because it’s safer to be big than small

4 - They have the capacityTalents, capital, hunger

They start from zero, with hundred years of frustration to overcome. We are overfed and a little short on

motivation

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Now, let’s deal with it !

We cannot change the reality : globality means

«Competing with everyone from everywhere for everything»

But we can change our reality :Get read of counterproductive attitudes

Never temper with the fundamentals of excellence

Transform our enterprise into a Small & Medium Multinational company

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Excellence here is not enough anymore

Our SMEs have to become Small and Medium Multinational companies

“If you can’t beat them, join them !”

Meet them on their own playing field

Give ourselves the same advantages they have

Develop agile companies

Within 10 years, 1 billion new consumers (and producers) will enter the world market

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SM - M = building the best conditions for success

An SM-M builds an international value chainGets supplies where the prices are lowestOutsource non-essential servicesExports into mushrooming marketsManufactures where costs are lowChange any of those elements when necessary

The name of the game here : orchestrate a network company

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The 4 axes of SM-M

Manufacturing

Operational Excellence

Managerial Skills

Openness to other cultures

Sales and marketing

InnovationR&D

Global Logistics

ITC

UserEnd-Client

Production

LiaisonIntangible

Assets

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Some SM-M in Quebec

Quebec, China Winter bootsQuebec, Ontario, China, Vietnam

Quebec, India, Poland

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Start running and think out of the egg !

Alain-Marie Carronacarron@secor.ca

Thank You

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Sources (some)

Why Mexicans don’t drink Moslon. Andrea Mandel-Campbell. DouglasMcIntyre. 2008The post american World. Fareed Zakaria.Norton. 2008Dragons at your door. Ming Zen & Peter Willamson. Harvard Business school press. 2007Competing in a flat world. Fung, Fung and Yoram Wind. Wharton School publishing. 2008Emerging Markets. Nenad Pacek and Daniel Thorniley. The Economist. 2007The emerging markets century. Antoine Agtmael.Free Press. 2007Globality. Sirkin, Hermerling, Bhattacharya. Business Plus. 2008Made in Monde (How we compete) Suzanne Berger. Seuil. 2005La terre est plate. Thomas Friedman. Saint-Simon. 2006Produire le monde. Hervé Juvin. Gallimard. 2008Staying competitive in the global economy. OECD. 2008The Futurecast. Robert J. Shapiro. St Martin’s Press. 2008