Feb 1, 2008

Western Competencies Surge as Supply Chains Falter

“China has been the world’s factory and the anchor of the global disconnect between rising material prices and lower consumer prices,” said Dong Tao, an economist for Credit Suisse, to the New York Times. “But its heyday is over. We’re going to see higher prices.”

This has to be welcome news for American manufacturers. Maybe offshore price competition will ease a little in the short run. The $64,000 question is what’s the best way for Western branded manufacturers to respond? Most manufacturing executives would redouble their R&D efforts. That’s just going to intensify competition.

My vote is for more attention to distribution.

American businesses know U.S. business systems intimately. They have an advantage in cultural as well as linguistic fluency. They have long and deep relationships with wholesalers and retailers. We’re not talking competition on Internet time here. Well into the future, Pacific-based corporations – even those with U.S. subsidiaries – will be disadvantaged in the nuts and bolts of overseeing how their products are marketed by trade partners.

What’s more, end customers are showing resistance to the low-price pitch when it’s attached to bland, shoddy or possibly unsafe products. Now is the time for mature Western manufacturing enterprises to step it up, and differentiate in a space where their ultra-low price rivals simply cannot: on-time deliveries, in-store training, more flexible returns procedures, and above all by putting superior knowledge of the end customer to work in the retail sales environment.

Customers will respond positively.

What is more, U.S. legal precedent now allows the possibility for manufacturers to set prices for their goods at the retail point of sale (see prior 360 Degree View post: Signs of a New Distribution Era Emerging). In other words, a branded manufacturer can work on distribution differentiation selectively with a few quality retailers, every party assured that a store down the street will not undercut them.

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