Professor Ann Vereecke Vlerick Leuven Gent Management School Manufacturing in Western Europe Survival of the fittest Lessons learned for Flanders Professor Ann Vereecke Vlerick Leuven Gent Management School Universiteit Gent

Headlines in the business press downsizing rightsizing relocation delocalisation restructuring outsourcing going footloose

Added value of the industrial sectors Industrie stabiel in termen van bruto toegevoegde waarde, Maar werkgelegenheid is gedaald, en we verwachten dat die nog zal blijven dalen; nu nog amper de helft van 30 jaar geleden. Niet enkel in Vlaanderen. Je ziet hetzelfde in andere geïndustrialiseerde landen (Frankrijk, Duitsland) Fourth level Fifth level

Deel van de verklaring ligt in de stijging van de arbeidsproductiviteit. Deze hebben we vooral in de industrie gezien, waar kapitaal meer en meer arbeid is gaan vervangen. We produceren dus meer (of toch minstens even veel) maar met minder mensen

Markets in emerging countries are growing By 2004, China was among the world’s top5 markets for many goods World’s largest market for steel and machine tools Largest for mobile phone subscribers Second largest for electricity transmission equipment Fourth largest for cars and trucks By 2010, China will be the largest producer of cars in the world Chinese are buying 70% more cars in 2009 than in 2008 Tweede deel van de verklaring zit in het verschuiven van de markten. We weten allemaal waar de groeimarkten zich op vandaag situeren. Om een voorbeeld te geven: China... Kasra Ferdows, Sept 2009

Lessons learned from a Flanders DC research study Global Plant Networks

The board room of a global company What is the optimal location for our factories? Which factory should play which role? .... ?

1995-1996 study 2005-2006 study Research set-up Company A: globalized by establishing greenfields Company B: global player after merger Company C, D: acquired by globalizing player Company E, F, G, H: rationalization by closing down some plants Zeer dynamsich beeld dus van de voorbije 10 jaar: Bedrijven zijn getransformeerd door fusies en acquisities. Sommige namen zelf het iniitiatief, anderen hebben het ondergaan. Wat betekent die dynamiek nu op vlak van productie? Welke transformatie hebben deze bedrijven ondergaan? Wat kunnen we daaruit leren? In total: 59 plants in 1995-1996; 82 plants in 2005-2006

Evolution in number of plants vergelijking van het aantal fabrieken in deze 8 bedrijven: evenveel gesloten als er nieuwe zijn gebouwd; een even groot aantal is er door acquisities bijgekomen.

Plants by City in 1995 A E B F C G D H De transformatie is ook heel sterk te zien in de geografische scope van deze 8 bedrijven: van eerder europees naar zeer globaal. Plants by City in 1995 A E B F C G D H

Plants by City in 2005 A E B F C G D H Een aantal onder hen zijn geëvolueerd van europese naar globale productienetwerken, met fabrieken in bijna alle continenten Plants by City in 2005 A E B F C G D H

The strategic role of the plant Low-cost input factors Technological know-how Market Reason for exploitation Contribution to strategy high low © Ferdows, HBR 1997 Model Ferdows geeft inzicht in de verschillende types van fabrieken; Neergeschreven in 1997, maar blijkt zeer nuttig om te kunnen voorspellen welke fabrieken kans hebben om te overleven.

The strategic role of the plant product development Low-cost input factors Technological know-how Market Reason for exploitation Contribution to strategy high low © Ferdows, HBR 1997 process development logistics quality assurance maintenance production

Reason for exploitation input factors skills & know-how market Reason for exploitation Level of strategic role low source contributor off-shore outpost lead server medium high expert market- master brain © Ann Vereecke Based on Ferdows, HBR 1997

1995 strategic role - 1995 mkt mstr lead contributor source offshore server offshore labor Skills & knowhow market none

Status strategic role - 1995 Survivors by 2005 ? labor Skills & knowhow market none Status strategic role - 1995

18 plants left the networks input factors skills & know-how market Reason for exploitation Level of strategic role low source contributor off-shore outpost lead server medium high expert market- master brain -3 -2 -1 -4 no role © Ann Vereecke 2009 Based on Ferdows, 1997

42 plants added to the networks input factors skills & know-how market Reason for exploitation Level of strategic role low source contributor off-shore outpost lead server medium high expert market- master brain +7 +2 +1 +21 +4 +3 other role © Ann Vereecke 2009 Based on Ferdows, 1997

1st set of conclusions The market was and still is the main driving factor of factories Server and off-shore plants are flexible assets in the multinational plant networks Lead plants have a safer future.

Status strategic role 1995 Belgium labor Skills/knowhow market none Status strategic role 1995 Belgium

Network position of the plant Degree of communication between plants daily, weekly, monthly, less frequent Exchange of innovations between plants Product, process, managerial innovations Visits to and from other plants Number of days spent by manufacturing staff people

Network position of the plant receiver plant innovations isolated plant active network player innovations mfg staff hosting network player mfg staff innovations

Network position of the plant - 1995 receiver plant innovations isolated plant 11 26 8 4 active network player innovations mfg staff hosting network player mfg staff innovations

Surviving plants? receiver plant isolated plant active network player innovations isolated plant 11-2 26-7 8-0 4-1 active network player innovations mfg staff hosting network player mfg staff innovations

Surviving plants in Belgium? receiver plant innovations isolated plant 1-0 5-3 5-0 2-1 active network player innovations mfg staff hosting network player mfg staff innovations

Conclusions The market was and still is the main driving factor of factories Server and off-shore plants are flexible assets in the multinational plant networks Lead plants have a safer future. Network players have a safer future. Isolated and receiver plants are vulnerable

Lessons learned for management For the plant manager Transform your plant into a networking lead plant Tap into skills and know-how Innovate, innovate, innovate Build your network position before downsizing hits you For the general manager Transform your set of plants into an international plant network With a balanced portfolio of plants: Server plants for new markets Off-shore plants for cost advantage Lead plants for creation and transfer of know-how Manage chains, rather than plants Build partnerships with suppliers and customers Outsource the commodities, focus home plants on the challenging tasks that require skills and know-how

Lessons learned for Flanders Innovation is important but not sufficient for a sustainable future of manufacturing in Flanders. Stimulate and support our plants in their transformation towards true network players, that act as sources of know-how for the other plants This will make them critical for the future of the company. Entrepreneurship and internationalization are key Stimulate our companies to transform towards true multinational players. This entrepreneurship will create a new role for our home plants in the international supply chain. However, this takes time... No time to waste !

For more information: ann.vereecke@vlerick.com

References Changing Landscape of Global Supply Chains, Kasra Ferdows, presentation for FDC, Vlerick Leuven Gent Management School, Sept 16, 2009 How to optimize knowledge sharing in a factory network, Arnoud De Meyer & Ann Vereecke, McKinsey Quarterly, Sept 2009 Network relations in multinational manufacturing companies’, Ann Vereecke, FDC research report, July 2007 (ISBN 9789078858065)