Securing employment
Globalization has become synonymous with the erosion of jobs in high-wage economies. As companies seek to optimize their value chains and extend growth, many have sought to outsource production capacities to emerging economies. The world's most successful companies have, however, understood that internationalization and job creation at home are not diametrically opposed. A study by Roland Berger Strategy Consultants demonstrates that emphasizing so-called Systemhead functions can ensure long-term sustainable growth in established economies.
In a joint study with the Federation of German Industries (BDI), the Bavarian Business Association (vbw) and the Cologne Institute for Economic Research, analysts from Roland Berger Strategy Consultants surveyed several thousand German companies. The questionnaire set out to prove the underlying hypothesis that while production capacities might be easily transferred to economies in which labor costs are cheaper, knowledge-based functions had to remain close to home for a company to compete successfully on the global market.
The study revealed that contrary to public perception, the country's leading companies were heavily invested in domestic job creation in areas that required highly specialized knowledge. These areas – including R&D, production planning and control, sales management, marketing and design and high-quality manufacturing – were identified as 'Systemhead functions.' Nearly 43% of the employees in the most globally competitive companies worked in one of these areas, while the figure stood at only 21% for the entire survey sample. Over 20% of employees worked in R&D and construction processes. Small wonder then that every fourth Euro a Systemhead company generates in revenue comes from unique products that distinguish its selling proposition.
In a joint study with the Federation of German Industries (BDI), the Bavarian Business Association (vbw) and the Cologne Institute for Economic Research, analysts from Roland Berger Strategy Consultants surveyed several thousand German companies. The questionnaire set out to prove the underlying hypothesis that while production capacities might be easily transferred to economies in which labor costs are cheaper, knowledge-based functions had to remain close to home for a company to compete successfully on the global market.
The study revealed that contrary to public perception, the country's leading companies were heavily invested in domestic job creation in areas that required highly specialized knowledge. These areas – including R&D, production planning and control, sales management, marketing and design and high-quality manufacturing – were identified as 'Systemhead functions.' Nearly 43% of the employees in the most globally competitive companies worked in one of these areas, while the figure stood at only 21% for the entire survey sample. Over 20% of employees worked in R&D and construction processes. Small wonder then that every fourth Euro a Systemhead company generates in revenue comes from unique products that distinguish its selling proposition.
In its most recent edition, Roland Berger Strategy Consultants' executive magazine 'think:act CONTENT' examines international market leaders to prove whether strategic emphasis on Systemhead functions had the same employment creation benefits in other established markets (US, Japan, Spain) as in Germany.
Creating local jobs and global growth
Nintendo, arguably one of the world's leading gaming companies, creates 99% of its value in Japan. The largest part of its workforce – designer, technical staff and managers – continues to work in Kyoto in effectively structured teams focused on the development of original content and products in hardware and software. Its strategy to keep its core processes close to home, while using comparative advantage for cheaper hardware assembly in China has paid off: In a difficult macroeconomic climate, Nintendo continues to prosper, increasing its sales by 90% in 2007 and creating jobs in Japan.
Another company that specializes on integrated solutions that demand close cooperation between research, development and design to assure cross-functionality is Apple. Long dismissed as a relict of the 1980s, the company has turned itself around, investing heavily in the minds of its employees: Apple doesn't produce a single one of its iPod components itself, but all of its 451 parts were developed and designed in Cupertino. The United States' economy is profiting: $80 of the value added of every 30 GB Video iPod stays in the US; $70 of its added value in sales and distribution remains in the US. Japan, China and Korea's economies only profit from the production of its parts – and to a much lesser degree.
Creating local jobs and global growth
Nintendo, arguably one of the world's leading gaming companies, creates 99% of its value in Japan. The largest part of its workforce – designer, technical staff and managers – continues to work in Kyoto in effectively structured teams focused on the development of original content and products in hardware and software. Its strategy to keep its core processes close to home, while using comparative advantage for cheaper hardware assembly in China has paid off: In a difficult macroeconomic climate, Nintendo continues to prosper, increasing its sales by 90% in 2007 and creating jobs in Japan.
Another company that specializes on integrated solutions that demand close cooperation between research, development and design to assure cross-functionality is Apple. Long dismissed as a relict of the 1980s, the company has turned itself around, investing heavily in the minds of its employees: Apple doesn't produce a single one of its iPod components itself, but all of its 451 parts were developed and designed in Cupertino. The United States' economy is profiting: $80 of the value added of every 30 GB Video iPod stays in the US; $70 of its added value in sales and distribution remains in the US. Japan, China and Korea's economies only profit from the production of its parts – and to a much lesser degree.
Inditex, parent company to Spanish fashion retailer Zara, has embraced the Systemhead technique of creating strong international alliances, but keeping its design and most of its production local. The company produces over 40% of the collection, which it updates twice weekly, in Spain and Portugal, creating between 5,000 and 10,000 jobs a year for the local economy.
Think like a Systemhead
Companies that embrace a Systemhead strategy will emerge leaders in developed economies, creating both growth and jobs over the long-term, the study suggests. Governments and enterprises need to cooperate to support the creation and growth of knowledge-intensive sectors to maintain this competitive advantage. Each firm must closely review its value chain to capitalize on newly emerging comparative advantages. Investing in the development of integrated solutions to bridge the gap between products and services and satisfy the needs of the discerning customer can be one way forward. Governments, the study argues, should assist companies in developing the necessary networks they need to increase their R&D capacities and invest in the creation of the types of jobs that will create long-term, sustainable growth.
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Think like a Systemhead
Companies that embrace a Systemhead strategy will emerge leaders in developed economies, creating both growth and jobs over the long-term, the study suggests. Governments and enterprises need to cooperate to support the creation and growth of knowledge-intensive sectors to maintain this competitive advantage. Each firm must closely review its value chain to capitalize on newly emerging comparative advantages. Investing in the development of integrated solutions to bridge the gap between products and services and satisfy the needs of the discerning customer can be one way forward. Governments, the study argues, should assist companies in developing the necessary networks they need to increase their R&D capacities and invest in the creation of the types of jobs that will create long-term, sustainable growth.
If you have questions or comments on this or any other story, please do not hesitate to contact us:
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