Executive Insight

Prediction - More Manufacturing to Return to the US

85 percent of manufacturing executives see the possibility of certain manufacturing operations returning to the U.S., with 37 percent citing overseas costs as the major factor. Nineteen percent cited logistics and 36 percent stipulated other reasons, including economic/political issues, quality and safety concerns, patriotism and overseas skills shortages for highly technical manufacturing processes.

The survey, conducted by executive search firm Cook Associates, polled nearly 3,000 manufacturing executives primarily in small- to mid-sized U.S. companies in October and November 2011. Participants consisted of C-level executives (CEO, CFO, COO) and key functional Vice Presidents (Operations, Manufacturing, Supply Chain).The survey data was supplemented by written comments submitted by individual executives.

The survey identified low-volume, high-precision, high-mix operations, automated manufacturing and engineered products requiring technology improvements or innovation as the primary forms of manufacturing returning to the States.

The executives polled reported that wage inflation in traditional overseas venues, especially China, is changing the value proposition for American manufacturers. Cost was once the primary driver for moving manufacturing offshore, but now companies are “re-doing the math and thinking more about staying at home”. Also, because logistics are complex to begin with, the financial argument has to be compelling and “the dynamics are changing”.

In order to stay competitive in a slow economy, respondents report greater focus on quality and customer service as differentiators, both of which are better managed domestically. They also said that skill sets for certain manufacturing functions are not readily available overseas -- China specifically and Asia generally are unable to meet the demand for skilled workers. Finally, patriotism was cited as a factor as executives looked for a return to a ‘Made in America’ mentality in the U.S.

Source: Cook Associates

Graphic: Council on Competitiveness

The Upcoming “Asian Decade” – Carlos Ghosn

As a prelude to the upcoming World Economic Forum's Annual Meeting held in Davos, Switzerland January 25-29, 2012), Carlos Ghosn, Chairman and Chief Executive Officer, Renault-Nissan Alliance, looks ahead to the “Asian decade” and comments on new business models, competitive innovation and cross-sector collaboration.

The Threat and Consequences of Employee Unsatisfaction

In uncertain times, employees keep their head down; worst still they become passive-aggressive. So says the UK’s Chartered Institute for Personnel and Development (CIPD), commenting on a continuing poor employment climate in the country.

This - coupled with statistics we already know about low levels of employee engagement in the US workforce (see infographic from Rypple below) - highlight the particular human capital challenges facing corporate leaders until the economy begins to pick up in a sustaining way.

Corporate leaders face the challenge of proactive organizational engagement or run the risk of organizational mediocrity born of unsatisfaction. It’s straightforward organizational behavior theory 101.

CIPD’s Commentary on the UK Employment Climate

The UK Workforce May Turn "Passive-Aggressive"

The UK will shed 120,000 jobs next year and many of those who remain in work will feel bitter, a respected economic forecaster is warning.

The Chartered Institute for Personnel and Development (CIPD) predicts that 2012 will be the toughest year for the UK jobs market in two decades.

It expects total unemployment will reach 2.85 million - becoming the first time the jobless total will have been at that level and rising since 1991.

What's more, many people who keep their jobs are likely to see their motivation tested through job insecurity and below-inflation wage increases.

This will result in a "tetchy, passive-aggressive mood" in many workplaces, according to the CIPS's chief economic advisor Dr John Philpott.

He told Sky News: "Employees may not on the surface show difficulty, but there'll probably be a lot of underlying tension, anxiety and indeed resentment because of limited pay increases.

"That may show up in reduced commitment, motivation and lower productivity.

"There is a big task facing employers to counter that, especially as this isn't the first year of troubles in the jobs market."

The CIPD says it expects 120,000 jobs will be axed in the public sector over the next twelve months, with the private sector unable to offset these losses.

However, this forecast is based on a "relatively benign" outcome to the eurozone crisis.

The latest official unemployment figures showed that 2.64 million people were out of work, with 1.6 million claiming jobseeker's allowance.

A Department for Work and Pensions spokeswoman said there had been an unwelcome increase in unemployment since the summer but added that the latest figures showed some signs the labor market was stabilizing.

Rypple’s Statistics on Employee Engagement in the US

 

This too will pass, but not by osmosis. It will require proactive and sustained organizational strategies to re-kindle the morale and confidence of many corporate workforces.

Sources:  Sky News, Rypple 

Evaluating Executive Pay for Performance Alignment

Investor feedback on the issue of pay-for-performance has indicated a preference for putting the focus on long-term alignment, board decision-making, and pay relative both to market peers and to absolute shareholder returns. As a result, Institutional Shareholder Services ("ISS"), a leading proxy advisory firm, has just published a white paper titled "Evaluating Pay for Performance Alignment: ISS' Quantitative and Qualitative Approach." This white paper unveils a new approach to evaluating pay-for-performance in publicly-traded companies. It comprises an initial quantitative assessment and, as appropriate, an in-depth qualitative review to determine either the likely cause of a perceived long-term disconnect between pay and performance, or factors that mitigate the initial assessment.

The quantitative methodology utilizes two components:

• A relative evaluation -- primarily, rankings of CEO pay and performance relative to peers over three years, and
• An absolute evaluation -- CEO pay trends relative to shareholder return trends over five years.

Both are considered from an investor's perspective in evaluating the efficacy of top executive pay packages on a long-term basis. For the relative evaluation, peer groups are designed not for pay benchmarking or stock-picking but rather to compare pay and company performance within a group of companies that are reasonably similar in terms of industry profile, size, and market capitalization. The evaluation focuses on disclosed pay and equity grants, since they represent the pay and award opportunities the board determines should be provided to its top executive each year, and should be aligned with the company's performance trends – or if not, should be appropriately performance based, as ISS' qualitative analysis will address.

The quantitative methodology, described in detail in the white paper, is designed to identify outlier companies that have demonstrated significant misalignment between CEO pay and company performance over time. Extensive back-testing has also validated that this approach generally aligns with shareholder opinions as expressed through say-on-pay votes in 2011. The follow-up qualitative assessment, applied to companies with apparent pay-performance disconnect, is designed to uncover mitigating factors (such as rigorous performance-based award opportunities that are designed to drive improvement) or potential causes of the misalignment, such as problematic pay benchmarking practices.

ISS concludes that while most investor portfolios have yet to fully recover from the 2008-2009 market collapse, top management pay levels resumed their upward trajectory in 2010, and controversy about executive compensation continues to rage. Congress and the SEC have put the onus for monitoring it squarely in the hands of shareholders, who demonstrated through the first broad say-on-pay votes that a critical determinant of their votes is pay-for-performance alignment. Institutional investors, in particular, are approaching their responsibility carefully, recognizing that effective incentive programs are a key ingredient in the recipe for value creation. But where pay packages are clearly inefficient -- where they are providing wealth opportunities to top executives that are misaligned with shareholder return trends over time -- investors will communicate dissatisfaction.

ISS' new quantitative methodology combines two analytical perspectives – pay and performance relative to a comparison group of companies, and pay relative to absolute shareholder returns – to detect significant long-term disconnects. The comparison groups are based on a transparent methodology that reasonably accounts for company size, market cap, and general industry categorization -- not for the purpose of benchmarking pay (or picking stocks) but to evaluate whether pay is generally commensurate with market peers and performance. Extensive back-testing has validated that this two-pronged approach addresses what concerns investors. Qualitative overlays will determine whether pay-performance disconnects are being addressed with appropriately performance-based awards. While shareholders are not interested in micro-managing executive pay programs, they have a huge stake in ensuring that they are efficient and effective. ISS' robust, transparent pay-for-performance methodology will facilitate investor evaluations of this critical aspect of corporate governance and shareholder value.

Read: Evaluating Pay for Performance Alignment

Source: Institutional Shareholder Services Inc.

The Arrogance of "Unlimited" Growth

Historically, it's not an uncommon problem - IBM came to it, McDonald’s has come to it, and Apple came to it. Big companies start off with verve and energy and aspiration and incredible values outside the marketplace that fuel their growth, they grow to the point that they’re no longer in tune with what really moved the enterprise forward in the first place.

Insightful perspectives on Starbucks from Harvard Professor Nancy Koehn:

http://bigthink.com/ideas/41670

China: Climbing the Great Wall of Trust

New research from Harvard Assistant Professor Roy Y.J. Chua investigates the difficulties for foreigners doing business in China, and what they can do to overcome the challenge.

Key concepts include:

• Foreign businesspeople must learn their way around Chinese cultural customs and the importance of personal relationships and trust in order to be successful in that country.
• For companies doing business in China, one solution might be to consciously hire executives of Chinese ancestry in key roles or placing more emphasis and attention on cultural sensitivity.
• The researchers believe that similar dynamics are likely to rule in any business situation that mixes partners from different cultures or countries.

In an East Asian version of cutting deals on the golf course, Chinese executives often take partners to teahouses to discuss business and negotiate deals. The problem, according to these executives, is that foreigners are rarely invited.

The perception is that foreigners can't appreciate the culture. In practice, it means that foreign businesspeople are at a disadvantage compared with peers of Chinese ethnicity and it's a gap that might make foreigners less competitive compared with someone who is local. To the extent that one can speak the language or demonstrate a certain level of understanding of culture, this might help.

Chua and his colleagues investigate two types of trust: cognitive trust, which is based on confidence in a partner's technical competency, and affective trust, which is based on a shared concern for a partner's welfare and personal interests. Cognitive trust is trust from the head; it's a very rational way of assessing ability and reliability; affective trust is trust that comes from the 'heart.' This type of trust involves considerable emotional investments.

Read more about the study and its findings...

Source: Harvard Business School Executive Education

Americans’ Confidence in Leaders Hits New Low

Not only in politics but across the board in eight different sectors of national life, Americans have lost confidence in their leaders over the past year. Overall, some 77% say that the country now has a crisis in leadership and confidence levels have fallen to the lowest levels recorded in recent times.

Those are among the key findings of a nation-wide poll, the National Leadership Index (NLI), released last week by the Center for Public Leadership at Harvard Kennedy School. The survey is the seventh annual measurement of public attitudes toward 13 different sectors of American life, ranging from business and non-profits to politics and religion.

While it may be understandable that in these hard times that so much frustration and anger is directed at Washington and Wall Street. But the levels of unhappiness have reached a point where they “threaten the coherence and stability of our society," said David Gergen, professor of public service and director of the Center for Public Leadership. Fortunately Americans still like to believe that the problems can be solved through better leaders. “But we don’t have much time—these results should be a fire bell in the night for leaders in every walk of life,” Gergen added.

In only two sectors measured in this year’s report—military and medical—did the leaders receive above-average confidence scores. Ratings for the remaining eleven sectors fell into the below-average range or remained in the below-average range. Wall Street and Congress stood out as the sectors in which Americans have the least confidence—indeed, the confidence rating for these two was barely above "none at all."

Additional highlights from this year’s National Leadership Index:

• For the fourth year in a row, Americans’ confidence in their leaders is significantly below-average.
• The belief that we have a leadership crisis is at its highest level since 2008.
• Confidence in the leadership of eight sectors declined during the past year: medical, nonprofit & charity, the Supreme Court, education, business, the Executive Branch, Congress, and Wall Street.
• Confidence in Congressional and educational leaders decreased for the second straight year.
• Confidence in Congressional and Supreme Court leadership fell the most precipitously during the past year.

Read the Report

Source: The Center for Public Leadership

Outsourced: Training for an Indian Call Center Job

Every month, thousands of Indians leave their Himalayan villages and coastal fishing towns to seek work in business process outsourcing, which includes customer service, sales, and anything else foreign corporations hire Indians to do. The competition is fierce. No one keeps a reliable count, but each year there are possibly millions of applicants vying for BPO positions. A good many of them are bright recent college grads, but their knowledge of econometrics and Soviet history won't help them in interviews. Instead, they pore over flashcards and accent tapes, intoning the shibboleths of English pronunciation—"wherever" and "pleasure" and "socialization"—that recruiters use to distinguish the employable candidates from those still suffering from MTI, or "mother tongue influence."

In the end, most of the applicants will fail and return home deeper in debt. The lucky ones will secure Spartan lodgings and spend their nights (thanks to time differences) in air-conditioned white-collar sweatshops. They will earn as much as 20,000 rupees per month—around $2 per hour, or $5,000 per year if they last that long, which most will not. In a country where per-capita income is about $900 per year, a BPO salary qualifies as middle-class. Most call-center agents, however, will opt to sleep in threadbare hostels, eat like monks, and send their paychecks home. Taken together, the millions of calls they make and receive constitute one of the largest intercultural exchanges in history.

Read Andrew Morantz's personal account of his experiences: My Summer at an Indian Call Center

Source: Mother Jones                                  

 Compare: Outsourced, the movie. It doesn't seem so fictional.

Gender Equality and Development

The lives of women around the world have improved dramatically, at a pace and scope difficult to imagine even 25 years ago. Women have made unprecedented gains in rights, education, health, and access to jobs and livelihoods. More countries than ever guarantee equal rights in property, marriage, and other domains. Gender gaps in primary schooling have closed in many countries, while in a third of all countries girls now outnumber boys in secondary school. And more young women than men attend universities in 60 countries. Women are using their education to participate more in the labor force: they now make up for 40 percent of the global labor force and 43 percent of its farmers. Moreover, women now live longer than men in every region of the world.

Despite the progress, gaps remain in many areas. Women are more likely to die—relative to males—in many low- and middle-income countries than their counterparts in rich countries—especially in childhood and during their reproductive years. Primary and secondary school enrollments for girls remain much lower than for boys in many Sub-Saharan African countries and some parts of South Asia, as well as among disadvantaged populations. Women are more likely than men to work as unpaid family laborers or in the informal sector, to farm smaller plots and grow less profitable crops, operate in smaller firms and less profitable sectors, and generally earn less. Women—especially poor women—have less say over decisions and less control over household resources. And in most countries, fewer women participate in formal politics than men and are underrepresented in the upper echelons.

The World Development Report 2012: Gender Equality and Development argues that closing these persistent gender gaps matters. It matters because gender equality is a core development objective in its own right. But it is also smart economics. Greater gender equality can enhance productivity, improve development outcomes for the next generation, and make institutions more representative.

Building on a growing body of knowledge on the economics of gender equality and development, the Report identifies the areas where gender gaps are most significant—both intrinsically and in terms of their potential development payoff—and where growth alone cannot solve the issues. It then sets forth four priorities for public action:

• Reducing excess female mortality and closing education gaps where they remain
• Improving access to economic opportunities for women
• Increasing women’s voice and agency in the household and in society
• Limiting the reproduction of gender inequality across generations.

Policies need to focus on the underlying determinants of gender gaps in each priority area. In some priority areas—such as excess female mortality in infancy and early childhood as well as in the reproductive years— improving service delivery (especially of clean water and sanitation, and maternal care) is of primary importance. For other priority areas—such as gender gaps in earnings and productivity—policies need to tackle the multiple constraints that originate in the workings of markets and institutions to limit progress. Policy makers will need to prioritize these constraints and address them simultaneously or sequentially.

Gender Outcomes Result from Interactions Between Households, Markets, and Institutions

While domestic policies are central to reducing gender inequalities, development partners should focus on complementing these efforts in each of the four priority areas, and on supporting evidence-based public action through better data, evaluation, and learning. This will require a mix of more funding, efforts to foster innovation and learning, and broader partnerships. The funding should be directed particularly to supporting the poorest countries in reducing excess female mortality and gender gaps in education. Investments are needed to improve the availability of better gender-disaggregated data and support more experimentation and systematic evaluation. And the partnerships should involve the private sector, development agencies, and civil society organizations.

Source: The World Bank

Read the Report

Brazil Overtakes UK as Sixth-Largest Economy

Brazil's economy is now bigger than the UK's, say economists, booming on the back of exports to China.

Brazil has overtaken the UK to become the world's sixth-largest economy, according to a team of economists. The banking crash of 2008 and the subsequent recession has relegated the UK to seventh place in 2011, behind South America's largest economy, which has boomed on the back of exports to China and the far east.

Russia and India are expected to benefit from a surge in growth over the next 10 years and push the UK into eighth place. Like most economies, India is struggling with high inflation and slowing growth, but its highly educated workforce and skills in growth areas from IT and services to engineering will push the economy into fifth place. After a decade of selling oil and gas to Europe and other parts of Asia, Russia will be at number four.

The only compensation for ministers concerned by Britain's relative fall is that France will fall at a faster pace. Nicolas Sarkozy can still boast that France is the fifth-largest economy behind the US at number one, China, Japan and Germany, but by 2020, the Centre for Economics and business Research (CEBR) forecasts it will fall past the UK into ninth spot. Germany will also slip to seventh place in 2020.

Europe is expected to suffer a "lost decade" of low growth following a credit binge over the past 20 years. Paying back debts over a short timescale will restrict growth and prevent many countries, including the UK, from clawing back output lost in the banking crash for many years.

China is forecast to grow by 7.6% and India by 6%. But other recent star economies with closer links to the EU or commodity prices are likely to face an economic slowdown with Turkish growth slowing to 2.5% from 7.1% this year, Saudi Arabia at 4% after 6.1% this year, Russia 2.8% after 3.8% this year, and Brazil 2.5% after 2.8% this year.

Source: The Guardian

Tales from Three Booming Economies

Source: The BBC