In a recent column published in Le Figaro, Jean-Pierre Robin echoed a column by 2008 Nobel Prize of Economy Paul Krugman in the New-York Times. In his article Krugman was dealing with Apple’s industrial model, based on outsourcing. At the opposite of ventures creating wealth through jobs in their own country, Apple has based its strategy on outsourcing in China. It has actually created far more jobs in China than in the US, which seems logical given the manufacturing intensity required for bringing its products to the world. Although the explanation given for such a strategy is often that of the hourly wage of Chinese workers, Krugman argues that it is only secondary. Far more important is the network of companies around the manufacturing plants, so Krugman. This symbiotic development of suppliers in the immediate neighborhood is a blessing in terms of supply chain excellence: short distances, quick reaction times. Everything is at hand to promote an outstanding “node” for your manufacturing needs. Chinese plants have long had a competitive advantage in terms of price but also in terms of reaction times.
The parallel made by Jean-Pierre Robin is extremely interesting. He compares this Chinese “model” with the German industrial model that has been acclaimed by our European governments since the crisis started. Keep the following figure in mind: in Germany some 18% of the GDP comes from the industrial sector, compared with just more than 11% in France and 13% in Belgium. Although Germany has undergone “desindustrialization”, it is not as bad as in France.
According to J-P Robin, even if this model works well it remains non imitable. The peculiarities and the excellence of the German industrial model are based on a similar network of specialized small and medium companies (SMEs) which doesn’t exist in other countries. We may want to counter-argue that such a network also exist in other sectors in Italy, but the conditions are very different and the efficiency of the model was “killed” by 10 years of 0% growth under the Berlusconi era.
In conclusion if it seems that the German model cannot be reproduced elsewhere, I’m wondering what is left to come out of the crisis.
If you’d remember only one example of the German operational proximity, it should be this one. The Porsche plan in Leipzig (where the Cayenne and Panamera models are built) has only 60 minutes worth of stock as far as the assembly parts are concerned. Not bad at all.
Posted in Strategy.