The goal of this blog is to help American manufacturers become more competitive. That’s why its title refers to the 17 percent gap between the cost of U.S. manufactured goods and the landed cost of goods produced in low-wage countries – the gap U.S. companies have to deal with if they’re to remain competitive.
Of course, when you frame the problem this way, it can seem like there’s no solution. How can U.S. manufacturers possibly compete against countries where the average wage is under one dollar an hour?
I recently posed this question to Demetria Giannisis, President and CEO of the Chicago Manufacturing Center. CMC is a member of the Manufacturing Extension Partnership, a national group devoted to helping small and mid-sized manufacturers become more competitive by providing government subsidized (but not totally free!) consulting services. Her answer surprised me.
“They have to know they can grow,” was her immediate and emphatic response. On this topic, she contrasted what she termed “lifestyle companies” – companies where the owners are comfortable with the status quo – with companies where the people on top are emotionally committed to growth.
Beyond commitment, it’s also important to “understand the industrial mechanisms of growth.” Typically, this means something in the neighborhood of a 20 percent reduction in costs, coupled with a 20 percent gain in revenue. Cost reductions often require looking at the big picture. “It’s a given that they’re lean,” she says, ” talking about successful companies. For this reason, improvement on the cost side of the equation means looking beyond the factory walls to the extended value chain and finding opportunities there. To grow sales, she says, many companies find success working through partners. This is a particularly successful strategy for expanding into the growing markets in Europe and Asia.
I asked her specifically about captured companies locked in a supply chain with only one or two customers. “The lack of diversification in itself is a signal that companies have to think about growth strategies,” she said, while acknowledging that “it’s difficult to focus on being in the business while working on the business.”
This is an area where consultants can help. In my own opinion, just allocating a day or two to sit and strategize in a room that’s shielded from telephone and e-mail messages is a good first step, so long as the time is genuinely focused on new opportunities and not rehashing the past. With the help of an organization like CMC, which has a long string of documented successes, it’s virtually guaranteed that growth-focused time will be well-spent.