The Land of the Smiling Curve ?

Thailand has made a name for itself over the last decades for efficient manufacturing, in particular in electronics and automotive assembly. The country is known for a dedicated and attention-to-detail workforce. Most if not all of industrial activities today are manufacturing or assembly. AEC 2015 is offering exciting opportunities and serious challenges. What should Thai manufacturers do in this context ?

Smiling curve, downloaded from rieti.go.jp

The concept of the smiling curve was developed in 1992 by Stan Shih, the founder of ACER (Taiwan). He highlighted the fact that margins in manufacturing were getting squuezed and that manufacturers need to move out of pure assembly and look for more added value if they want to remain profitable. A company can either go for the R&D and innovate in developing components that other companies need (think Samsung selling to Apple), moving towards the left on the curve. Or they can focus on service and product design (think Apple), at the right hand side.

The total "cost" of an iPhone assembled by FOXCONN for Apple is 179 US$. Out of this, 6.5 US$ is the cost of labor, the Chinese added value. The rest, 172.5 US$ is made up of raw material and compenents, all of which are imported from other countries (Korea, Japan, Germany, the USA and other countries). The iPhone's real added value is in the hands of the component designers and suppliers (172.5 US$) and the dealers, retailers and Apple itself (equivalent to 321 US$ for an iPhone sold at 500 US$) (info from presentation at KMAP 2012 by Prof Jay Lee, based on Xing and Detert, 2010).

With neigbouring countries, with significantly lower labor costs, opening up, pure assemblers will clearly be challenged. Not in the short term, because established supply chains, economies of scale and experience will continue to provide an advantage over new and smaller startup operations. But if the Thai assemblers stay with their current business model, they will definitely lose their competitive edge in the 5 coming years.

Thailand is known as the land of smiles but maybe the challenge, with AEC 2015 around the corner, will be more about the dangers of remaining stuck at the bottom of the "smiling curve" ...

Emergency ! Is there a project manager in the room ?

Project manager is probably one of the least exciting titles to carry on your namecard. Really, what is there to manage about a project ? It's much cooler to identify yourself as being in business development, or at least have "innovation" in your job title. Yet two recent events in the news reminded me of the value of project management.

Apple brought out the iPhone 5 but the improvements of the phone were completely overshadowed by the talk about the disastrous map application that replaced Google maps. Not just some difficult-to-identify bug but real issues that make the application nearly useless.
4GS was awarded the contract to recruit and train security staff for the London 2012 Olympic games. 16 days before the opening ceremony, the company informed the organizers they were still missing more than 1700 guards. PWC made an audit after the fiasco and reported that the company did not realize the scale of the work, and listed numerous errors, including bad management.

These are not small projects. They are immensely important for the companies, their stakeholders, and reputation. These projects were in the works for years, with hundrerds of people involved in each company. Was there any project manager in charge ... ?

Here is a reminder of a few basics of managing projects towards success:

- milestones or deadlines are there to be met: if you do not reach your objective at a certain stage in the project, you need to change something  for the project to get back on track ... action is needed and just continuing and hoping for the best at the next milestone makes no sense;

- a no-go means we don't go; Steve Jobs was notorious for dictating design changes when the curve of a button or the sound of a click was not to his liking. These were critical elements (for him) and compromise was not allowed. If a customer-critical requirement is not met, the project manager needs to make sure the product is not launched hoping customers won't notice.

Project management is not very exciting, and only comes in the news when something goes wrong. Project managers deserve credit for all the projects that we don't talk about: those that deliver on time, budget and quality in a complex world.