A Repositioning Strategy in the Wake of Outsourcing

March 1, 2005
Outsourcing occurs in three successive steps: manufacturing, product variation design and basic R&D. It is great when outsourcing arrives. Flowers and

Outsourcing occurs in three successive steps: manufacturing, product variation design and basic R&D. It is great when outsourcing arrives. Flowers and tax breaks are thrown at the feet of multi-national corporations (MNCs) in appreciation of the new jobs they bring. But what happens when outsourcing moves on?

In the last decade, high-volume manufacturing out-sourcing has plowed a path to Asia. Countries like Mexico and Ireland were once attractive landing places with their low-cost labor and tax incentives. Companies such as Lambda, Artesyn Technologies, TDI and Tyco (then Lucent) took this path. However, costs steadily rose during the following years to the point that industries moved on to China. Again, today we are seeing a similar rise in costs in China. So the cycle will continue in much the same way it occurred in the U.S. textile industry over the past 40 years.

Unfortunately, this path, if left unmanaged, leaves a devastating wake of people without jobs, engineers with unused expertise, universities without support and communities without a core livelihood. Of course, this is the time for government to assist in fostering new creativity and business growth. This is happening in Ireland.

Some of the power electronics manufacturing prosperity that Ireland enjoyed in the past decade is now gone. The multinationals' assembly activities have moved on to new pastures. With a significantly increased focus on higher value-added employment, the government is funding R&D and higher education at an unprecedented level. Due to power electronics being on the government dashboard for 10 to 15 years, the industry has benefited well from these R&D supports. Further, industry stakeholders are working diligently to make sure it stays on the dashboard.

Ireland has an outstanding level of technical and business expertise and leadership derived from the staffs of Power-One, TDI, Artesyn, American Power Conversion, Nortel Networks, Analog Devices, Intel and others. This group has joined together with the indigenous companies and the universities to begin the execution of suggestions put forth in a work commissioned by the Irish government. This very definitive report on Irish industry, entitled “Ahead of the Curve”, was drafted by 200 leading contributors in Ireland and published by Enterprise Strategy Group in July 2004.

On Oct. 13, 2004, Irish industry, government, investor, and research institute leaders launched the Power Electronics Industry Group (PEIG). Their mission is to “Direct an increased portion of government support into the power electronics industry; enhance the corporate relevance of MNCs' Irish subsidiaries' R&D activities; grow the indigenous power electronics sector; double the output of master's and Ph.D. graduates in power electronics; become the European point of reference for power electronics; and significantly enhance the reputation and perception of Ireland in global power electronics.”

Eoin O'Driscoll, chairman of the Enterprise Strategy Group, believes the initial pitfalls could be “underestimating the difficulties associated with establishing effective business networks involving industry and research institute representatives.” O'Driscoll stressed the importance of developing strong personal relationships between both industry and university groups with the idea to improve understanding of what each party requires from the other.

Rather than one large center of excellence, they believe that establishing “expertise clusters” will be much more effective in spawning new technologies and products. Having been abandoned by a major portion of the MNCs' manufacturing, PEIG views its strength will be derived from the R&D, sales and marketing, and manufacturing design business triangle. The clusters can feed manufacturing ready products to high-volume Asian assembly.

In the early stages of formation, PEIG will struggle to sort out what resources will knock down barriers in the power electronics industry in Ireland. To be entirely successful, the four stakeholder groups — industry, government, educational institutions and the investment community — must find a unified path to effective enterprise development. The hope is that Ireland and PEIG can be a model for strategic development and expansion of core industries in other countries.

Arnold Alderman is president and founder of Anagenesis Inc., a technical marketing company. He is also board chairperson of the Power Sources Manufacturers Association, an international power-supply industry association that cosponsors the APEC Conference.

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