Random thoughts on "close-to-home-shoring" based on my travels last week…

Last week I had the opportunity to travel first to New York and then Monterrey, Mexico, and speak with a number of people to explore perspectives on the current economic situation we find ourselves in.

Early in the week I sat in on a lecture given by Clay Christenson (from Harvard Business School) to a number of senior supply chain executives at a gathering at the new 7 World Trade Center in New York.  Sitting on a clear day with a 360 view of Ground Zero and the New York skyline, Clay shared with us some of his thoughts on the role of innovation and what he called the “Church of New Finance” in the current economic downturn we are struggling to get our way out of.  He pointed out that this is the longest comeback from any economic recession for some time, and that we continue to struggle with employment.

An explanation offered by Christensen was what he coined“The Church of New Finance,” in which business school professors act as the high priests that indoctrinate their MBAs into a belief system of complex, ratio-based financial metrics as the only correct system of measurement.

The Church of New Finance has created a paradox in which the financial economy prospers with good balance sheets and income statements, while the real economy in terms of jobs creation languishes. There’s currently $1 trillion of capital available, which remains unused. When faced with short-term measures of profitability, companies won’t invest for the long term in disruptive innovations, which would create jobs growth.  Instead, they prefer to invest in sustaining and efficiency innovation which drive short-term gains based on financial internal rate of return metrics, but in fact don’t drive a lot of growth for important innovations that fuel the greater economy.  This got me thinking…..with all of this capital sitting around unused, companies should be seeking long-term partners for disruptive innovation.  And to do this, don’t you need a partner you can trust, especially when it comes to developing joint technologies with shared intellectual property?

Later in the week, I traveled to Monterrey, Mexico to speak to a group of executives at Xignux, a large private manufacturing company of cable, food products, engineering services, and power generation equipment.  Although these four businesses don’t seem to have a lot to do with one another – that was sort of the point of why they fit together.  Each business has its own cycle of growth (with food being the most stable), which in fact provide a solid basis for profitable growth.  A private company like Xignux has the luxury of not having to report to publicly-traded shareholders, which allows them to invest in disruptive innovations that can provide a solid basis for growth, without having to fall victim to the high-priests of the church of new finance… Xignux is making solid inroads as a trusted supplier to utilities, manufacturing, and energy customers in North America, South America, and Asia, because of their ability to demonstrate real growth, innovation, and dependable cost management capabilities in the face of a complex environment.  Many Americans who have previously ignored Mexico (including our president who has visited Mexico once in his six-year presidency) are recognizing that they have a valued partner who is next door, that is on a solid footing with a new government that is on track to drive out crime, control inflation, and provide a stable environment for the supply chain.

Finally, on my trip home I sat next to a sales manager for a large US distributor of wiring harnesses and cable, who was returning from Monterrey back to Milwaukee.  Jim (the manager’s name) told me that he too was seeing more growth in Mexico, as they were expanding their sales offices to support customers in a growing economic region.  He also noted that on his recent visits to China, he has seen newly contracted apartment blocks sitting completely empty, with yet more construction going on….a sure sign in his opinion of a coming housing bubble about to explode. Like me, he also believes that US and Canadian companies will be taking a much closer look at Mexico as a source of “closer to home shoring”.  Not only do Mexican business people speak English (for the most part), but they have a strong business work ethic, respect legal intellectual property laws, and are willing to do what it takes to be competitive.  And their buildings don’t tend to collapse suddenly due to cheap construction…

Random thoughts perhaps…. but even I’m able to start connecting the dots…