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Thursday, 11 July 2013 01:18 - - {{hitsCtrl.values.hits}}
From red oceans to blue oceans
Up first was Malaysian Blue Ocean Strategy Institute Operations Director Ravi Fernando, who spoke on how the adoption of the blue ocean strategy could improve the competitiveness of Sri Lankan companies.
“All those with businesses lose some market share and have to reduce margins in order to be more competitive and in terms of addressing the issue of being competitive, you could just try to be better at what you do or simultaneously start focusing on creating more powerful market space that you can dominate for a decade or more.”
He explained that the blue ocean strategy is about setting yourself apart from the competition. It’s not just a matter at being better at what you do; it’s about being different at what you do. Sri Lanka’s ranking in Global Competitiveness Index when adjusted for sustainability drops down a further 10 points to number 78, he revealed.
Global GDP growth increased from US$ 22 trillion to US$ 60 trillion over the past 20 years and it is projected to double over the next 10 years. “Our economy operates by stealing the future, selling it in the present and calling it GDP – this has led to an impossible situation, exhausting the planet’s resources and the regeneration capacity is too low. The planet cannot deliver what has been projected for the future,” he stated grimly.
The planet has to change its trajectory, Fernando said, and start moving in terms of business and manage resources in a whole new way, which is what sustainability is all about. The challenge of sustainability will affect even the survival of organisations. It is in this backdrop that the blue ocean strategy was launched with Samsung Corp in 1998. The strategy is about creating new market spaces and building low cost with high value in them.
Toyota was able to do this successfully, he noted, with the creation of fuel efficient car. General Motors also entered this market but backed out when oil prices came down. “The one who grabs that market space first is the one who will make the most amount of money. Toyota created a new market space, understanding its relevance and trajectory.”
“Any company that wants to take sustainability on must embed sustainability into corporate strategy – they can’t function as two separate departments. Those companies that have embedded it take the next step of differentiating themselves from sustainability.”
In the real world, nations take positions in terms of how they take on and dominate market spaces. Apparel earlier made in UK and now is made in China and the same goes for apparel design, which has moved from Italy to Spain.
“A nation needs brands behind it to show people that they have taken over that particular space. What spaces has Sri Lanka taken in the global marketplace and where have you created a market space for the nation? A breakdown of exports shows that we have created a market space but that we haven’t created one that is high value and low cost in order to retain that space,” he explained.
One sector that Sri Lanka could focus on is ecotourism. Sri Lanka is not on the top 10 nations for ecotourism but Dubai is – how did Dubai get there? Fernando questioned. Other countries include Costa Rica and Laos. Sri Lanka has yet to create a market space for it.
He stated that most countries that will have physical water shortages within the next 13 years are in the Southern Hemisphere but Sri Lanka isn’t one of them, which is one of the country’s biggest competitive advantages and it needs to be leveraged.
The other sector that Sri Lanka could enter is nanotechnology by creating the position of sustainable nanotechnology, he added. “We are the ninth largest producer of titanium and produce the purest graphite in the world. However, we need a vision to take us to that marketplace.”
What is first required is a very clear vision, followed by an alignment of creativity and innovation – this is where the blue ocean strategy comes in with its low cost and high value. It also needs strategic differentiation and leadership with sustainable mindsets that have understood the irreversible trajectory that the world is moving towards.
“I feel that sustainability is the biggest opportunity for Sri Lanka as we cannot always play with the big markets in the world. We need to dominate some niche markets with high value. Green is the new blue ocean for businesses,” he stated.
Enhancing productivity in the apparel sector
MAS Intimates Financial Controller Jehan Jayasuriya focused on the need to enhance productivity in the apparel sector. While this sector was once driven by factor conditions, specifically the cheapness and availability of labour, with GDP rising today, these factor conditions do not hold true to what they used to be. “We are now moving to the efficiency and even innovation driven stage,” he noted.
Using MAS Intimates as an example, Jayasuriya pointed out that the generic simple briefs that were once produced have now been replaced with more value added, higher complexity products, a transition from cost value to value focus.
Output and input used to be the conventional definitions of productivity, with the term output being viewed as quantity but today, this concept needs to change, he said. Now, it’s about output in terms of value that a company can get from its overall process. “Our thinking needs to shift from quantity driven productivity to value driven productivity.”
There are factors that work on their own in driving productivity in the apparel sector but they work best when they happen together. The first of these, Jayasuriya said, is product design. Conventionally, when reviewing productivity in apparel, one would not think of design but design is becoming a critical part of productivity. Designing products that can be produced more easily on the shop floor is one aspect of it.
“Design builds into productivity – design for aesthetic appeal drives value in the minds of the end-consumer. Through this, the price premiums you are able to command in the market are higher and end up being more productive for the industry. The Nike athletic track kit for the London Olympics is an example of this sort of innovation and was able to derive better price points in the retail segment.”
Technology too has contributed greatly towards productivity. The first purpose built eco-manufacturing plant is an example of how technology worked towards creating resource efficiency – this plant uses 40% less energy and 50% less water than a usual plant of its size.
“People are the biggest factor that drives productivity and in our view, it is the culture that drives the people,” he noted. Jayasuriya then drew on the example of MAS Rapid, a collaboration built on strength of partnerships across the value chain, built on lean principles that revolutionised the industry through crashing lead times by 80%. It looked at productivity as a value chain concept and seamlessly integrated systems under the project. “Lean is not a factory floor concept. It is one that needs to spread across all activities and it is only when you inculcate lean thinking across the value chain that you will see a real change.”
“Productivity in the Sri Lankan apparel context is no longer about quantity output but should focus on value. Productivity does not start on the shop floor; it starts at the drawing board with design. Invest in technology and adopt it quickly. Invest in your people which are the single most powerful tool to drive productivity. Productivity should be looked at as a value chain concept and lean principles should be inculcated into the value chain to derive its true potential.”
Creating value in supply chains
Dipped Products Managing Director Dr. Mahesha Ranasoma used his own company as an example of how competitiveness can be enhanced through productivity in order to compete in the global playing field. Dipped Products creates hand protection gloves, operating in more than 70 countries in the world, mostly in the EU, North America and South America. “This particular industry is a very competitive one because it’s not a very high value product – a red ocean of sorts,” he admitted.
The gloves are manufactured mostly in East Asia where rubber is grown and competition varies as different countries have varying cost structures, labour structures, etc. Challenges faced in the global market include cycles of economic turbulence leading to more and more price sensitivity among customers, and given that most markets in the industry are in Greece, Spain and Italy – economies that are doing badly – it is a challenging time to develop new markets, he stated.
The varying safety regulations in countries also impact the industry as it affects demand. The other challenge is the volatility of raw material and lower cost bases of other countries versus Sri Lanka in relation to energy cost, environmental regulations, overall social cost with doing business etc.
“Value creation in the supply chain is extremely important coupled with innovation. We cannot create our market space in the background of challenges without innovation. Innovation doesn’t just limit itself to innovating products – service delivery innovation, the processes that we do with value additions, and innovation of business models are undertaken where we look beyond competition and excel in what we do,” he explained.
Ranasoma added: “Ethical manufacturing involves managing your risks, clearing the agenda for stakeholder engagement and the communities who are impacted by various aspects of the end-to-end supply chain, and care for environment.”
“In a nutshell, in meeting the global challenges of very stiff competition, we work on innovation, value creation in the end-to-end supply chain and promote the theme of ethical manufacturing of which sustainability is a foundation.”
Fruit and vegetable sector of Sri Lanka
Hayleys Agriculture Holdings Managing Director Rizvi Zaheed, assessing the fruit and vegetable sector of Sri Lanka, observed that the biodiversity of Sri Lanka offers tremendous opportunities for producing a range of fruits and vegetables which are not being utilised at the moment for a number of reasons. He noted that very little value addition is made to fruits and vegetables, most of which are exported in their fresh form.
“Regional markets have grown over the last decade and Sri Lanka is becoming very well known for exotic fruits and vegetables. There is also an enormous opportunity for processed fruits and vegetables for which the markets are primarily in Europe and Asia, and while the US is also a potential market, market logistics are a bit of an issue although some companies are exploring this possibility,” he stated.
There is also sustained demand; therefore, there isn’t the issue of seasonality although Sri Lanka’s own weather cycles may impede supply. Zaheed added that there is already an entrenched global agricultural chain and it is hence easy for an intelligent marketer to plug in to these globally linked supply-chains.
“The potential is enormous. The EU imports fruits and vegetables worth over 20 billion euros every year which creates a lot of opportunities and Sri Lanka is well positioned to tap into the potential of this industry,” he said.
Zaheed went on to say: “There is a lot of access to and application of latest growing and processing technology. We must inculcate innovativeness amongst the farmers themselves. Coordinated supply chains result in high value products – the bigger companies like McDonalds and Subway can be linked to this. Research and development is very important and needs to be done constantly. Partnerships are very important, especially with growers in order to ensure that technology trickles right down to the smallholders so that it is reflected in higher productivity.”
Value added processed fruits and vegetables are in high demand in the EU and developed Asia, he stated. The level of income in Asia is rising and high value added fruits and vegetables are in demand. Lots of information is available now and clever marketers need to tap into this and identify demand and changing trends, he urged. Standardisation, accreditation and compliance are also very important, especially for a food product.
Some final key points he stressed on were constant market focus, value addition and product development, and emphasis on total quality and the supply chain.
Innovation in a knowledge economy
National Science Foundation Chairperson Prof. Sirimali Fernando noted that it all boils down to competition and competition demands that we keep pace with the changing markets and if we are to face this challenge in a knowledge economy.
“Whether it’s creating a new marketplace driving towards an efficiency or innovation driven economy, innovation is key. However, we are not innovating enough and we should have systems in place to support innovation. We have recognised that the Government has a role to play and that is why the NSF has introduced technology grants schemes to support private sector research and this is a source of encouragement.”
International Management Consultant Ranel T. Wijesinha stressed on the need to move beyond the rhetoric as competitiveness is a topic that was discussed at this very same forum 10 years ago, he recalled.
“We were a breakout nation in 1977. Political leaders at the time thought it fit to be a breakout nation. We liberalised ourselves in 1977 and India followed suit 14 years later but where is India now, along with poor Soviet nations like Armenia and Poland that only liberalised themselves after the fall of the Berlin Wall, and where are we? When you talk of a blue ocean strategy, could we have that and sustainable corporate strategy in isolation of policy planning?” he questioned.
Pix by Upul Abayasekara
| Panel discussion |
| Moderated by Management Consultant Sunil G. Wijesinha, the panel consisted of Malaysian Blue Ocean Strategy Institute Operations Director Ravi Fernando, MAS Intimates Financial Controller Jehan Jayasuriya, Hayleys Agriculture Holdings Managing Director Rizvi Zaheed, Dipped Products Managing Director Dr. Mahesha Ranasoma, National Science Foundation Chairperson Prof. Sirimali Fernando, and International Management Consultant Ranel T. Wijesinha Q: If we are to move into the second phase of economic development, we need more scientists and engineers – are you doing anything about this? Sirimali Fernando: There are several initiatives that have been taken. Our numbers are very small compared to what we require. Presently we have about 5,000 scientists but we actually need about 18,000 – this is not an encouraging number and we believe that even these 5,000 are not being used to their maximum. What is happening right now is that there is no direction. They are just doing research in areas that they feel will be useful, irrespective of whether the industry would need it. This is an area we are trying to address by bringing the scientists, who are mostly in the public sector, together with the private sector. Such an exercise was the nanotechnology initiative which has been quite successful and we have seen the results of that. We need to make the scientists engage in more productive research. We are working very hard on increasing numbers but one of the biggest challenges is retaining them as we are not that competitive. We have to create an environment to produce and retain scientists, else we will just keep losing them. Ravi Fernando: If there isn’t a very clear strategic policy in terms of what market spaces Sri Lanka wants to take and dominate, and then an alignment of that with the entire research and development sector in terms of human capital, we are never going to take those market spaces. Sirimali Fernando: We don’t have a good innovation culture both in the State sector and private sector but innovation really has to be driven by the private sector and the State sector can support this. It is not happening very well at present. If the need for innovation can come from industries, the Government can align the research efforts of the State institutions to follow suit. It’s hard for a scientist in the State sector to decide on what research really needs to be conducted. Ranel Wijesinha: I have different views. The US and Korea have innovation ecosystems in place with a very strong focus on research and development and innovation at university level. What does the UGC do for our wonderful universities to do anything? There need to be partnerships, initiatives and research and development initiatives like in the US. Don’t leave the private sector to do things on its own – this is why innovation has not happened yet. It has to be a combination of both, a public private partnership and we don’t have that structure yet. The Chamber should take it on and push for an independent grouping with all our scientists. We also need to focus on reversing the brain drain. |
