The desire of my China based team to primarily use local Chinese suppliers was at the urging of the SAIC partner side of the SAIC-GM JV leadership. No matter how small the part, our Chinese partners wanted to build it locally. China was deep into the process of industrializing automobile production, and they wanted to build as many parts in country as technically feasible and as business rationale would justify. A local supply chain would bring added volume and scale to these new suppliers’ operations, reduce labor, shipping and logistics costs, and develop skills. In addition, every new local supplier employee would gain confidence and pride from building parts for the world’s best-selling Cadillac.
Work Is Work…or Is It?
Not all forms of economic activity are created equal. That is, they do not all yield the same results. While all work can keep you equally busy for eight to twelve-plus hours per day, the level of added value, output, and economic benefits to the enterprise will vary. Industrial manufacturing can create more jobs, economic development, and societal benefits than farming, retail, services, tourism, and even the development of mobile technology apps.
Planting or the plant
A farmer who plants one acre of mangos could make more money and create more employment opportunities if he were to invest in the land needed to plant ten acres instead. If he brings in the right machinery, he could prepare the soil and harvest the fruit in a shorter amount of time, thereby keeping the expense of the additional employees at the most efficient level. However, even if he takes these actions, he must still wait until the one part of the year when he can harvest the mangos. But if he were to invest further in the agro-processing machinery needed to make mango juice and frozen mango chunks for yogurt smoothies, he could make greater profits from other offerings, generate revenue over a longer time period, create even more employment opportunities, and over time build a more valuable business.
Hawking or making
Businesses solely focused on retail transactions are also limited. In developing economies around the world, it is very common to see various goods being bought and sold via street hawkers and in huge crowded bazaars. Actually, you can experience the same type of retail in the US or Europe, except that here they are called farmers markets, flea markets, and swap meets. In nearly all cases, the merchandise is essentially the same between booths, and the key differentiator between one seller and the other is price. These booths are typically staffed with one to two people whose success is determined by how many people they can encourage to stop at their station instead of their neighbor’s. In this highly prevalent form of retail, typical profit margins are thin and only a few people are employed. Unless one of these retail businesses can stand out for reasons other than price, their earnings will bounce between feast and famine.
Cutting hair or manufacturing brushes
Launching a service business is a great way for an entrepreneur to create employment for himself and his partners. But, as the saying goes, you cannot build a vibrant economy based on cutting each other’s hair and cleaning each other’s clothes. The challenge with services is their lack of ability to scale. Service businesses tend to be transactional in nature and do not tend to create adjacent employment opportunities the way the manufacturing sector does. The relationships tend to be more one to one between customer and service provider. Manufactured hairbrushes can be exported and sold to customers all over the world.
Service businesses typically do not carry work in progress or finished goods inventory or make significant investments in research and development (R&D), and given the nature of face-to-face transactions, their opportunities for export are also limited. With the exception of online or telephone customer assistance centers, mass quantities of employees typically are not required to conduct service industry transactions with the customer. In addition, most of the value of a service company walks out the door every night in the form of its employees.
I am not minimizing the importance of service companies. As nations and economies develop, they tend to move from industrial to service firms largely because of the ability to create significant profits with small operations and little start-up cost. This point in time also tends to coincide with the developed nation becoming less competitive in manufacturing due to its rising trend in labor cost. Developing economies with lower labor rates join the global manufacturing sector and prove to be far more efficient from a total manufacturing cost standpoint, forcing the higher-cost legacy manufacturers into other sectors to create value. This is the natural economic progression cycle that has repeated itself in all regions of the world, and now has the potential to create the same benefits on the African continent. This economic trend was first described by Japanese economists as the flying geese paradigm. By this philosophy, manufacturing capabilities and cost advantages flow over time from more developed nations, the lead goose, to lesser-developed nations, the geese that follow in a traditional V-pattern.4
An industrialized economy benefits both the manufacturing and service sectors. The jobs created through manufacturing obviously create more consumers of services such as the previously mentioned barbers and dry cleaners. But it also creates opportunities for entrepreneurs and their companies to provide services to the manufacturing firms. As automobiles are produced, logistics companies are needed to bring the parts to the plant and transport the finished cars and trucks to the dealers. To support this production ecosystem, the services of accountants, lawyers, real estate brokers, physicians, and educators are also required. Industrialization has the potential to benefit all parts of an economy and society.
Off-road adventures in Swakopmund, or building “the jeeps”
Jeep is a registered trademark of Fiat Chrysler Automobiles N.V., but many use the word “jeep” generically to refer to any off-road vehicle. One of my favorite activities while on vacation is driving or riding all-terrain vehicles (ATVs) and utility-terrain vehicles (UTVs) off-road in unfamiliar countries. I’ve had the pleasure to go off-roading in locations including Swakopmund and Walvis Bay, Namibia; Punta Cana, Dominican Republic; and San Nicolas, Aruba. The vehicles of choice offered by the tour organizers were typically Honda FourTrax ATVs, Polaris Ranger side by side (SxS) UTVs, or Polaris Ace single seat UTVs. Riding these powerful machines through the sand, over rocks and gravel, around trees, through forests, through wide fields of mud, up hills, across public highways, and by the oceans was a great way to see the land up close. These simple machines provide hours of enjoyment and memories that last a lifetime. You even remember the vacation mates who rode beyond their capabilities and ended up with minor injuries.
Whether Aruba, the Dominican Republic, or Namibia, when the tourists were in town, it was great business for the off-road tour companies. Twenty or twenty-five off-road vehicles would be lined up and waiting to take the guests on a one- to two-hour tour of the island or local area. Two guides would be mounted on slightly higher-powered versions of the vehicles to serve as chaperones for the group. Their job was to make sure that the group stayed on the course, that no one got lost, and that no one attempted any ridiculous stunts with the vehicle. Also tagging along was a photographer driven by another member of the tour operator’s team, called the paparazzi. His or her job was to film the ride so that the tour company could sell overpriced video files of the experience to us tourists at the end.
It was great work for those