Notes from a session at Brainstorm 2006 led by C.K. Prahalad, University of Michigan.
1.5 B new consumers. Quality at 1/50th the cost. 10 developing countries can account for a doubling of the market opportunity for multinational corporations.
Ties between the developed and developing counties are becoming so strong (R&D and call centers, the ends of the value chain, are moving to India; rise of Brazillian ethanol), changing the nature of these organizations. How will this effect the composition of leadership? Some, like McKinsey have made a change.
The 10 hubs for R&D, manufacturing, product development have footprints beyond themselves in the developing world. A series of hubs, each catering to a significant portion of a similar or contiguous population. This could reflect the future structure of multinationals. Regional structures may be convenient for travel, but risk needs to be distributed across the network.
Getting global quality at 1/50th the cost with the ability to localize:
| 175 | Local Markets |
| 20 | Marketing and Product Development Network |
| 15 | Manufacturing and Logistic Networks |
| 6/8 | R&D Network |
You could not have the price of consumer electronic falling so low without this structure already happening.
Lingering questions:
- what should be the composition and role of top management?
- Business processes may become the next source of competitive advantage, so if you want this kind of hub structure to work, internal information becomes critical -- so IT backbone may be the source of advantage
- The question of who is us changes. Is IBM an American company? or a global company with no nationality of it's own? Is nationality a dated idea?
- How do we come to terms with multiple cultures working together as co-equals?
- When you disperse the resources of a company, what is the glue? How do you get values that work across multiple cultures? Intercultural project management skills will become critical for managing this kind of organization.
The rise of the middle class is obvious. Not in our terms of purchasing parity, as consumers. The real beneficiaries will be the developed countries with the companies who can figure out how to compete in this landscape.
There are 3,000 companies that are less than $20B in sales that are all multinational. These micromultinationals arise from information arbitrage, not cost arbitrage. Lots of small companies are like in the silicon valley, but taking advantage of this global innovation arbitrage.
Discussion
Africa is very difficult. South Africa could become a hub. My hope is Nigeria becomes a hub, which creates a market opportunity of 200M relatively educated people. Egypt as well. Extraction, energy and consumer goods as verticals.
Esther Dyson comments that Russia retained their IT talent. In Africa, there is internal and export markets. CK says the hubs are not going to be selling inside.
Matt Mahoney asks about the role of entrepreneurs. CK: can't work without a total ecosystem. 80 factories supply Unilever, but they act as a hub. When large companies start R&D networks, some spin off. They will be trained by coming to the US but also staying within a hub. Degrees matter less, but short term training programs do.
The issue of US Visas came up, again, and CK says that every University president is complaining and beleives the situation will change. We still have a Just In Case, rapid reaction to disruption, and have the ability to adapt (e.g. autos, chips and other historical points).
