Niche Manufacturing to Thrive

Come January 23 - 25 2006 at the Muscat Inter-Continental Hotel, Mark Eaton will present on Lean Enterprise at PEIE’s annual Smart Manufacturing Conference. In this in-depth, no holds barred interview, Eaton, a veteran design engineer, and former Director of the UK’s Department of Trade and Industry’s Manufacturing Advisory Service, shares with us his thoughts on a range of manufacturing issues.

PM: How do you see manufacturing changing over the next 20 years?

Obviously, it is now possible to theorise about the worldwide impact of the growth in the Chinese economy and the stress it will place on global competition. I would also anticipate the continuing rise in the importance of brands in high-end manufacturing, both at the business and national level. I foresee the consolidation of low-end manufacturing into fewer, more specialised manufacturers who will offer flexibility and extremely high levels of productivity.

I also predict that increasing globalisation will have the impact of increasing the number of Small and Medium Enterprises (SMEs) who chase low costs around the world, but are currently prohibited by the extreme costs involved. Within a little more than 20 years, I anticipate we will need to find new ‘emerging markets’ as the costs in China, India, even Eastern Europe will begin to reach a level where it is uneconomical to outsource to them. Throughout this period, niche businesses will continue to thrive by providing differentiated, flexible services at higher costs.

PM: Which emerging technology do you think has the most potential to change manufacturing?

You can't answer a question like this without first referring to the impact of the wireless communications and the continuing growth in the Internet, on all aspects of manufacturing - from machine measurement through to supply chain planning. A secondary technology that will have an impact will be RFID (radio frequency identification) with its applications in everything from product tracking to national security.

In terms of the new sectors that will impact on manufacturing, these are unequivocally micro/nano technology and bio-processing, all of which will make a major impact on the world. Due to the investment barriers to entry in the market, these will make it difficult for companies to break into in the medium term unless they consider their entry strategy in the very near future.

PM: What about the issue of knowledge transfer from academia to industry?

The amount of research capability in academia far outstrips that is available in industry and there is an urgent need in many economies to make this research more accessible to industry; also to significantly simplify the process of working with academia. I have been deeply impressed by the Fraunhofer Institutes (http://www.iis.fraunhofer.de/index.html) that originated in Germany and how they are both accessible to industry and focused on the commercialisation of research.

PM: Should universities become more responsive to the needs of manufacturing?

I would agree that for many manufacturers the processes of accessing and then forming a relationship with universities has been very difficult - often caused by the different needs of the organisations concerned. There have been a number of attempts to simplify the process of getting access to universities and making them more responsive, including introducing layers of intermediaries. But there are still some major problems to overcome before universities are as responsive as they need to be to support industry effectively.

PM: What type of involvement would you like to see manufacturers have with universities?

Universities are fundamentally clusters of knowledge. Virtually no manufacturer could afford to have research capabilities as big as those held within even a single university. I would be delighted to see universities starting to become an integral, but outsourced, part of the R&D functions of organisations. I don’t just mean large manufacturers. This may mean that different funding models need to be used such as deferred payments or universities taking a percentage of future sales without requiring funding upfront.

PM: What are the common principles that guide the best manufacturers?

The most prevalent measures of success in manufacturers around the world appear to be having an appropriate culture that supports the aims of the business: whether that is to be the most innovative, lowest cost, fastest turn-round etc. For many manufacturers, relationships with customers and suppliers are also key and the formation of effective partnerships is going to be a major source of competitive advantage in the coming years. In addition to these internal factors and skills, governmental policy and regional trading conditions need to be monitored and reacted too accordingly and the best organisations are adept at keeping close to the external factors that affect the internal operations of their business.

PM: Anybody can buy the latest, greatest equipment, but manufacturing isn’t a purely mechanical system. It's the "people systems" that determine a plant's productivity. How does a manufacturer build the necessary “people systems”?

For all but the most automated factories, people are the essential variable that will make every product, fix every problem and identify every improvement. Without ‘people engagement’ no business can hope to be a success. But how you engage them is recognised as one of the most difficult issues faced by senior management and changing culture one of the most difficult and time-consuming change processes. There is no general solution to how you build the necessary people systems. It is a function of where the business culture and systems are today and where the business managers want business to move to and then planning the improvement roadmap. Wherever the organisation starts from the solution will include such things as policies, procedures, management style, measurements, communication and reward/recognition systems.

PM: We all think that the faster a plant can make a quality product, the less that product costs to produce. Those savings can be applied to new features. That's how you become more competitive, sell more products, increase profits and ultimately improve job security. Is this how manufacturing works in the real world?

This is a common misconception and the cause of many businesses going out of business. Doing things faster often implies throwing extra effort and resources at it and these carry extra costs. In addition, making things faster that you have not - or cannot - sell means wasting money faster too. Going ‘faster’ often drives people to build bigger batches of products to avoid costly set-up times which would slow things down. This means producing things that cannot be sold immediately which ties up significant cash and space. A better approach is to focus on shortening change-over times so you can run smaller batches and remove non-value adding activities so the business is more responsive. The benefit is that your productivity and flexibility will increase making it easier to cope with what the world will throw at you.

PM: Dell hit in excess of US$45 billion in annual revenue and is growing at nearly 20 per cent yearly. It seems well on its way toward surpassing its goal of US$60 billion within the next few years. To get better faster, it intends to slash US$2 billion in costs. It is indicated that much of the cuts will come from manufacturing operations and the supply chain. Is speed the ultimate competitive weapon?

Responsiveness is an effective weapon for many manufacturers, but not all. It is important for manufacturers to understand the key drivers in their markets – what are the market leaders doing? What do the customers value? The best weapon is to have a clear understanding of the competitive factors that drive the sector each company operates in – looking externally at what is required rather than internally at what is offered!

PM: Do small manufacturers need big-name supporters?

Many small manufacturers have difficulty managing larger suppliers in their supply chain and I believe there will be a continuing move toward purchasing clusters to allow smaller companies to leverage cost savings and improvements in responsiveness from larger suppliers. In wider terms, many smaller companies can be highly successful without big name supporters, especially in niche markets or for markets where the customers are ‘brand insensitive’ - as in they are not worried by brand value. Perhaps, the best big name supporters of smaller companies will be banks and the media and for many these should be the ones to ensure you have a good relationship with.

PM: Whether you're running a manufaxturing outfit with 3 or 3,000 people, you have to hire the best engineers, the best marketers and the best production workers. The products you make, the programs you have, the mission you espouse should make people feel good about working for you. In your view, are corporate values a real motivator?

In the first instance, I would like to challenge the assumption that you always need to hire the best, implying the most expensive. Misquoting Toyota, we get; “we produce excellent results from average people with excellent processes. Our competitors get average results, with excellent people and broken processes.” This statement says that a well organised (and lean) manufacturer will inherently be more effective than an organisation with any number of excellent people but with ineffective processes.

Answering the second part of the question, in a competitive situation where manufacturers are trying to attract talent and there are numerous options for the individual, then the decisions come down to which organisation best meets the personal needs of the individual. Some of these needs will be logistical (closeness to where they want to live, working hours that fit their lifestyle needs etc) and some will be emotional (values of the business, working environment, appropriate opportunities for advancement etc). The most effective manufacturers will aim to achieve the best fit between the needs of the business and the logistical and emotional fit of the individual.

PM: What do you do when the business world as you've always known it simply ceases to be? When new competitors and new technologies explode the industry economics? When everything that worked before won't work - and can't work ever again?

It is difficult for manufacturers to recover from a major fracture in the market and this is where there is a need to have good external scanning processes to try to predict major changes in the market in a timely manner. However, using a metaphor, whilst we have the technology to spot large asteroids that are likely to hit the Earth, there is a chance we will miss one, and one is all it takes! Therefore, in a market where the world has changed, the winners will be those who can evolve fastest, the most innovative manufacturers with the ability to quickly restructure their finances and operations to meet the new challenge.

If we don't have to own it, let's not own it. And if we do have to own it, let's reduce the risk by sharing it. How does this kind of thinking apply to today’s manufacturing sector?

There have been attempts to share resources and workforces (particularly in areas where the skills are difficult to access) and there are manufacturers who have recognised that one company’s waste is another’s raw material but these are in a minority at present. For many companies, forming trading partnerships to share resources will be an effective way of reducing risk, but the key issue is finding the right partner to link with. In the UK, this is being addressed by PSL (Partnership Sourcing Limited - http://www.pslcbi.com) who are a not for profit orgnisation originally established by the UK government and who are now leading the development of the new ISO standard (11000) which will cover how to effectively partner.

PM: If we can't dominate a category, let's get out. Is this smart thinking?

The answer to this is to look at the Boston Consulting Group matrix. If the market is low growth and you hold a low share (what is termed a ‘Dog’), then it may be best to plan an exit strategy, but if the market is growing and the company holds a low share (a ‘Question Mark’), then the organisation has options based on the competitive situation in the market. If the market looks likely to consolidate around one or two major players then it prompts one exit strategy (possibly holding out to be bought out). Lastly, if the market looks like it will support numerous suppliers, it may be prudent to hold your nerve and stay with it. The answer therefore is not simple and will need to be thought through by the business.

Smart Manufacturing Conference & Lean Enterprise Workshop

Make Oman your destination for manufacturing innovation! Would you like to increase your business competitiveness? Would you like to gain an insight into new methods of working, acquire additional knowledge of markets and discover new product developments? We can help you gain the competitive advantage your company needs. Join us at The Public Establishment for Industrial Estates’ (www.peie.om) 2006 Smart Manufacturing Conference, 23 – 24 January 2006 at the Muscat Inter-Continental Hotel, Muscat, Oman.

To survive in today's marketplace, manufacturers must embrace new ideas and processes. Keeping that competitive edge requires constant growth and improvement. That's where PEIE’s Smart Manufacturing Conference comes in. This annual event is aimed at helping small- and medium-sized Gulf-based manufacturers become progressively more successful in their marketplace. Indeed, this is the networking-with-knowledge-transfer event par excellence of the first quarter of 2006.

Why You Need to Be There
PEIE’s Smart Manufacturing Conference brings together experts from industry to give attendees the most useful and up-to-date information available.

Industry professionals attend this event to:

o Network with those facing similar challenges
o Interact with industry professionals who can provide stories of success and failure
o Learn what options are available or will be available soon for their operations
o Take away knowledge they can use immediately to improve their process and product

You need to be there if you are a manufacturing professional involved in:

o Management
o Engineering
o Design
o Quality
o Maximizing resources
o Production improvement
o Operations
o Product development
o Marketing
o Manufacturing operations improvement

Conference Schedule

Conference Registration: 1:00pm – 7:00pm: 22 January, Muscat Inter-Continental Hotel, Jabrin Ballroom.

Day 1

Welcome Coffee 7:45am – 8:30am

8:30am: Opening Address – HE Maqbool bin Ali Sultan, Minister of Commerce & Industry & Chairman, PEIE

8:40am – 9:15am Keynote Address
Professor Mike Gregory (pictured above) Head of the Manufacturing and Management Division of the Engineering Department (www.eng.cam.ac.uk) & the Institute for Manufacturing, Cambridge University (www.ifm.eng.cam.ac.uk)

Manufacturers are facing a major challenge from dynamic markets, discerning customers and increased global competition; there is pressure for companies to become more agile, virtual, team-based and innovative. Indeed, to truly succeed, manufacturers need to grow beyond traditional methods and fundamentally change the way they do business. In this respect, Professor Gregory’s keynote address will embrace: developing people, leadership, strategy, globalisation, competitiveness, business efficiency, lean thinking and adding value. In brief, issues that will help lead the Gulf’s manufacturing sector into the future.

Coffee Break: 9:15am – 9:30am

Session #1: 9:30am – 10:30am - Design Driven Strategies: Increase Manufacturing Opportunities
Colum Menzies Lowe, NHS National Patient Safety Agency (www.npsa.nhs.uk) & Sunil Varughese, Brand Indigo LLC (www.brandchannel.com/features_profile.asp?pr_id=238)

Would you build a house today without an architect's plans? Then why would you consider manufacturing a product without a design driven strategy? Companies that are “in the know” are using design driven strategies to solve problems and get to market with fresh, innovative designs. Designs that touch emotional priorities of consumers yet are manufacturable and have proven benefits and fill a functional need. Designs on time. Designs that succeed.

This session will share insight on design driven manufacturing strategies. It’ll demonstrate how strategy with design as a priority creates platforms that in the end increase manufacturing opportunities. Most manufacturers know very little about how to use design to drive the manufacturing process. This session will change that.

Coffee Break: 10:30am – 10:45am

Session #2: 10:45am – 12:30pm - The Lean Enterprise
Mark Eaton, Director of Consultancy, Advance Projects Ltd (www.iee.org/oncomms/pn/manufacturing/biogs.cfm) & Mohammad Ajlouni, Managing Director, Jordan Specialized Vehicle Manufacturing Company.

Ever since the publication of The Machine that Changed the World in 1990, lean concepts have represented a powerful and influential set of management ideas. Originating from MIT-led research in the global automotive industry, lean principles represent an approach to managing operations that, properly applied, can yield unparalleled results in terms of efficiency and accuracy. The implementation of lean ideas thus promises enormous benefits in terms of productivity, quality and many other measures of operational performance. Lean implementations now stretch across many industry sectors and business processes. Lean initiatives have reduced in-process inventories, implemented cells and balanced takt times. The same Lean concepts of reducing waste and cycle time can be applied to the bureaucracy, manual paperwork and management procedures in the factory. By eliminating wasteful steps from the shop floor process management procedures, manufacturers can reduce the cycle time required to react and respond to unplanned events like machine downtime, part shortages, defects and critical engineering changes.

Lean process management procedures reduce the time required to respond to unplanned events from days to hours, from hours to minutes. The result is an even more agile factory. The reduction in cost of paperwork procedures and the reduction of buffer times will provide the next big leap in cycle time and productivity metrics.

In this session you’ll learn how to remove the various forms of waste from the information flow in complex discrete manufacturing and also learn how industry leaders are moving away from paper based processes on the shop floor.

Lunch: 12:30pm – 1:45pm

Session #3: 1:45pm – 3:15pm Innovation & Manufacturing
Professor Mike Gregory, Head of the Manufacturing and Management Division of the Engineering Department & the Institute for Manufacturing, Cambridge University, Dr. Tim Minshall, Institute of Manufacturing, Cambridge University(ifm.eng.cam.ac.uk/people/thwm100) & Adrian McCarthy, Oxford Brookes University.

Everyone knows the fable of Jack’s fast-growing beanstalk. It grew and grew as if by magic. Unfortunately, companies don’t have magic beans that can make profits grow overnight like Jack’s plant. However, innovative manufacturers have discovered a number of strategies that can, over time, provide a lift to a company’s top- and bottom-line performance. Manufacturers across the world are reconsidering their business models and employing tactics to gain a sustainable competitive advantage. Session 3 will explore innovative strategies that have helped large and small manufacturers achieve real and substantial growth.

Coffee Break: 3:15pm – 3:30pm

Session #4: 3:30pm - 6:00pm - Marketing for Manufacturers
Graham Porter, Sun Microsytems (www.ameinfo.com/70252.html), Jamal Al Asmi, RealityCG (www.realitycg.com), Pam McCarthy, Oxford Brookes University & Dr. S. Irfan Ahmad, Director, Yahoo! Middle East (www.strategiy.com/interview.asp?id=20050918071650)

This informative and insighful session will present marketing concepts and tips specifically geared toward manufacturers who need to know the fundamentals of New Marketing and Branding as a way of creating a strategic advantage.

In this high energy, high impact session, you’ll learn how to identify the “good money,” how to gain an advantage over your competition that has nothing to do with price, how to get on your buyer’s “short list,” how to use a little known secret of frequency to earn big dividends and how to hold your marketing department accountable for the budget. It’s a session that will help you improve your business situation and grow your revenue. In brief, this is the marketing session manufacturers need to attend!

Day 2

Welcome Coffee: 8:45am – 9:15am

Session #5: 9:15am – 11:00am China, the Gulf & the Realities of Global Competition
Dexter See, Vice-President, International Marketing, Ascendas Pte Ltd, Singapore (www.ascendas.com) & Professor Kulwant Pawar, Nottingham University Business School(www.nottingham.ac.uk/business).

China is careening down the path toward a market economy – with a long way to go, but with no turning back. To every manufacturer, China is both a threat and an opportunity. Over the next decade, nothing will be as important as China in defining corporate success or failure. How might manufacturers decide on what’s next - soft or hard landing or continued explosive growth? We interpret the key issues involving China – trade and legal reforms, WTO implementation, intellectual property, banking and finance, currencies, commodities, energy, FDI, infrastructure, the environment, privatization and the emerging greatest M&A boom in the history of the world. Where should China fit in to your global plans? What are the keys to manufacturing success in China?

Coffee Break: 11:00am – 11:15am

Session #6: 11:15am – 12:45pm - The Future of Manufacturing
S. Gopalan, Reem Batteries (www.reembatteries.com), Dr. Tim Minshall, Institute of Manufacturing, Cambridge University & Raza Ashraf, Total Alignment (www.peie.om/company_news_raza.asp), (www.apexstuff.com/bt/200511/column.asp)

Speed is increasing in every dimension of business and the ability to adapt rapidly to such changes will undoubtedly deliver significant competitive advantage. This session will examine how companies can leverage new technology innovations and transform them into new business opportunities from a variety of perspectives. Represented on this panel is a large Gulf-based manufacturer, a large consultancy company and a Cambridge University professor.

Lunch: 12:45pm – 2:00pm

Session #7: 2:00pm - 3:30pm - New & Emerging Technologies: Smart Machines
Antonio Briguglio, Sun Microsystems & Amrou Al Shareef, Seeb Systems. (www.kom.om/index96d9.html?lang=en& sub=tenant_directory&id=seeb_systems)

Technology is helping create a new class of machines that that can "think" and quickly produce parts to exact specifications, without unscheduled delays. This session will explore this technology and the type of Smart Machines that are being created, how they work and how they can save you time and money.

Concluding Remarks: 3:30pm.

Bonus Session: Lean Enterprise Workshop
9:30am - 1:00pm, 25 January 2006 - Knowledge Oasis Muscat
Mark Eaton, Director of Consultancy, Advance Projects Ltd

In addition to the two-day conference, attend a special, pan-sector, half-day Lean Enterprise Workshop. Many have tried to implement lean production in their businesses - some have succeeded, while many have struggled. Lean can be a key competitive advantage in all types of businesses, especially manufacturers, giving them shorter, more responsive production, more effective ‘office’ processes and higher productivity. This drive for ever better performance is a hard path to follow and sustain. This workshop does not promise magic recipes - instead it offers the chance to hear what it takes from those - big and small - who have lived through successful lean transformations. In particular, the workshop will highlight Lean case studies drawn from manufacturing, the armed forces and the health sector.

This Workshop is not just about listening - it will show you how to use the three key tools to start you on your lean journey. Learn to see the waste in the value streams in your organization, learn how to create continuous flow in your processes and learn how to improve customer service and cut costs by re-configuring your supply chains.

British Airways Supports Smart Manufacturing

Approximately 200 business people and public sector representatives are expected to attend PEIE’s Smart Manufacturing Conference, scheduled for 23 – 24 January 2006 at the Muscat Inter-Continental. According to Eng. Mohammed Al Ghassani, Executive Vice President, PEIE: “The main focus of the event is to benefit and build bigger Oman-based manufacturers through an open, frank debate on the strengths and weaknesses of manufacturers and their business models.”

Held under the patronage of Maqbool bin Ali Sultan, Minister of Commerce & Industry and Chairman, PEIE, the event has received the backing of British Airways. Commenting on the airline’s support of the two-day event, BA’s Country Manager, Sunita Gomes (pictured) said: “I fully expect PEIE’s Smart Manufacturing Conference to provide business professionals with an understanding of how manufacturing is developing today and most importantly, how it contributes to the development and growth of Oman’s economy. British Airways is proud to be involved in what is obviously an important and timely national event in the Sultanate of Oman.”

According to Al Ghassani, the Conference is intended to achieve some highly important objectives, these include: providing a unique forum for leading-edge, Oman-based manufacturers to meet and discuss their value-propositions, business models, markets, objectives and issues. The event will enable policy makers and service providers to listen in and learn first hand about what’s driving Oman-based manufacturers and therefore learn how best to support them. In addition, the Conference will provide an opportunity to make delegates' voices heard directly by Government and related organisations about the needs of manufacturers. Finally, the two-day programme will promote a bright and positive image of manufacturing in Oman, making it an area in which people want to work and invest.”

Commenting on the future of manufacturing, Graham Porter, Marketing Manager, MENA region, Sun Microsystems and speaker at the event, remarked: “Omani manufacturers must seek new ideas and opportunities and exploit them more fully and at a faster rate, and then reinvest that success in further R&D and marketing. They must also develop the recipes, process and business know-how and keep commercial lines in place or they will ever be passing up value opportunities.”

“PEIE deserves high praise for organising this Conference. In fact, it has the best line-up of speakers I’ve ever seen at a Manufacturing event,” said Smart Manufacturing sponsor Karim Rahemtulla and CEO of highly regarded mobile commerce firm, Infocomm.

Lean Manufacturing Interview

Mohammed Ajlouni is Managing Director of Jordan Specialized Vehicle Manufacturing Company and is without doubt one of the Middle East’s most influential Lean Enterprise experts. He will be presenting alongside the UK’s Mark Eaton at PEIE’s Smart Manufacturing Conference, 23 – 24 January 2006, Muscat Inter-Continental Hotel. PEIE Mirror sat down with Mohammed to talk Lean Enterprise, this is what he had to say:

PM: What got you interested in lean in the first place?

The first time I came across “Kaizen” was in 1992 while on a postgraduate management course. After reading more about it and understanding the concepts, tools and systems of Kaizen, I realized this was the best management philosophy I had ever come across. Later on I read the “Machine that Changed the World” followed by “Lean Thinking”. In 2001 I had the opportunity to accompany Masaaki Imai (www.qualitydigest.com/june97/html/imai.html) Founder and Chairman of the Kaizen Institute, on a series of tours in the Middle East. Since then I have become a believer, a consultant, a practitioner and an educator of lean in the Middle East.

PM: What’s the biggest challenge Gulf-based companies have in applying a lean approach to their supply chain or other operations?

The biggest challenge is to get management to buy in and get excited enough to start the lean journey. Once management is committed to lean transformation, the next challenge is to make it happen. They have to start looking for the right people with the right knowledge and experience to help them implement lean in their organizations.

PM: Why, suddenly, does everyone seem to be interested in lean? What took everybody so long?

Organizations have realized that lean has become an indispensable approach if they want to stay competitive in their markets. Although the Toyota Production System was in place more than 35 years ago, but the rest of the world only learnt about it in the early nineties. It is never too late for any organization to transform into lean.

PM: What are the key components of lean, those core elements without which you really can’t have a lean operation?

The key components of lean is that every step within the process must be valuable (creating value for the customer), capable (having a first-time through capability), available (having a high resource reliability), adequate (ensuring capacity) and flexible (being able to produce a variety of products or services). Implementation should be linked by flow (one-piece-flow where possible), pull (no over-production) and leveling (of mix and volume).

PM: What are the kinds of things companies typically find when they begin looking at their supply chain in an effort to become lean?

Long lead times, high inventory (raw material, WIP and finished goods), unreliable suppliers, a discontinued flow of material through the supply chain, demand fluctuations along the chain and other problems arising from material shortages.

PM: What’s the downside of squeezing suppliers?

Supplier selection and rationalization are two elements of paramount importance in lean supply. The idea is to select a few good and trusted suppliers who can supply a wide range of parts. Consolidation of suppliers might cause some problems for the suppliers and this may lead to losing some. The lean company has to assure suppliers they will benefit from the new relationship.

PM: How should you work with your suppliers in a truly lean environment?

In a truly lean environment, suppliers are partners. They will be expected to supply the required material, the right quality, the right quantity, at the right time, every time. To be able to do this, suppliers have to learn how to take the waste out of their processes. Indeed, many companies have to teach their suppliers how to become lean too.

PM: Let’s say you’re a logistics or a purchasing manager who really believes in the things you’re talking about. What can you do to promote lean thinking in the organization?

Usually two hidden costs are associated with supply problems. The first is the cost of fast and expedited shipments (specially air fright) when the supplier fails to deliver on time. The other problem is quality and the costs incurred in warranty claims. Moreover, one needs to compare the costs of frequent and reliable orders on the one hand, and keeping inventory on the other.

PM: What’s the key to sustaining a lean program once you get it off the ground?

Committed management with strategic vision is the most important key to sustaining lean, but there are other elements as well. Among these is the establishment of a dedicated and knowledgeable lean promotion team, getting expert training and support, involving employees at all levels and having strong line management, setting performance targets and motivating employees to achieve their goals, and maintaining a general sense of urgency for progress.

PM: Instead of thinking of lean as a program, how should people think of it?

A program has a begining and an end. Lean is not a “flavour of the month” project, but an ongoing process. It should be thought of as a way of life rather than merely an improvement program.

PM: Where does technology fit in a successful lean approach?

Lean works for both high- and low-tech organizations. If technology is available it can be used to support lean in a number of ways. But apply the technology after the waste has been cut out. For example, there is no point of automating a process that includes waste. “Don’t automate. Obliterate!”

PM: Any final words on why top management in Gulf-based companies need to start getting serious about lean?

As global competition increases, it is time for Middle East businesses to think seriously about implementing lean. Toyota - who is heading towards being the world’s number one automotive manufacture - has based its success on its operational excellence. In fact, it has turned this operational excellence into a strategic weapon. Very soon, only world-class organizations will compete globally. It is imperative that Middle East-based CEOs start getting serious about transforming their organizations into world-class outfits through lean, otherwise, they simply won’t qualify to compete.

Sun Sponsors Smart Manufacturing

It was announced today that Sun Microsystems will sponsor PEIE’s Smart Manufacturing, a two-day international conference scheduled to be held 23 – 24 January 2006 at the Muscat Inter-Continental Hotel.

Hisham Al Zubaidi, PEIE’s Marketing Director said Antonio Briguglio, Sun’s ERP Solutions Sales Manager for South East Europe and the Middle East, and Graham Porter (pictured), Sun’s Marketing Manager for the Middle East and North Africa will present at the two-day event. According to Al Zubaidi, Briguglio will discuss the trends and challenges facing the Gulf’s manufacturing sector and the way technology can be used to help – it is reported that Briguglio’s presentation will focus primarily around ERP, Supply Chain Management and Customer Relationship Management. He will also discuss how such applications can be integrated into existing business processes to improve business decision making and as a result improve a firm’s efficiency and profitability. “Briguglio’s presentation will use a number of case studies based on client experiences in the Middle East,” this is something we’re very excited about said Al Zubaidi.

Graham Porter will join Pam McCarthy, Essex University; Jamal Al Asmi, Reality CG; and Dr. Ahmad Irfan, Yahoo! on the Marketing for Manufacturers panel. Porter stated that: “The danger for most manufacturers is that they get caught up in a commodity market which is price centric, this is dangerous as cost becomes the key issue for the business and you can guarantee that Asia and the sub-continent have much lower costs than any GCC economy.” According to Sun’s Marketing Manager: “By using marketing and building a brand, the product can be positioned so that it stands out or is differentiated, thereby making a premium price possible. In the world of exports, image is everything and the Internet has allowed many small manufacturers create a perception of a much bigger enterprise to their end customers.”

Cambridge Comment on Smart Manufacturing

We sat down with Dr. Tim Minshall, Lecturer in Technology Management at Cambridge University and presenter at PEIE's forthcoming Smart Manufacturing Conference (23 - 25 January 2006, Muscat Inter-Continental Hotel). We spoke to him about various manufacturing issues - this is what he had to say:

PM: How long have you been involved in manufacturing?

I have worked in various manufacturing related activities for 10 years. Since 1998, my work has been focused on support for the creation and growth of new technology-based firms and their partnerships with established firms.

PM: How do you see manufacturing changing over the next 20 years?

A. Changes in the business models of manufacturing firms with increasing value add being generated through the provision of services and support activities to enhance the products themselves.

B. Increased emphasis on higher value manufacturing.

PM: Which emerging technology do you think has the most potential to change manufacturing?

RFID has the potential to bring great changes to supply chain management.

PM: What are your thoughts on the issue of knowledge transfer from academia to industry?

Universities can play a key role in increasing the productivity and competitiveness of a national economy. There is a wide range of ways in which universities can transfer knowledge to industry. These include: the provision of skilled graduates; making available the results of publicly funded research; consultancy and ‘soft’ knowledge transfer activities (such as student projects); provision of ‘packaged’ knowledge (through licensing of intellectual property); and the formation of spin-out businesses.

PM: There’s a lot in the press lately about how universities need to become more responsive to the needs of business ... what are your thoughts/experiences on this?

In the UK, great strides have been taken in this area. What is interesting is that different universities are developing different approaches to working with industry appropriate for their particular regional economic needs. Companies and universities are finding that there are many different ways in which they can work together.

PM: What type of involvement would you like to see business have with universities? What opportunities do you see?

There are so many ways in which universities and companies can work together. What is needed is a clear understanding of the ways in which each can help the other and this relies upon good communication and the building of long term value-adding partnerships. One of the areas I find particularly interesting is the ways in which smaller companies can benefit from working with universities.

PM: You’ve visited hundreds of plants around the world. While the industries, products, and equipment vary, what are the common principles that guide the best manufacturers?

I would say it is evidence throughout of the business that there is a clear focus on delivering what the customer really wants

PM: Dell hit in excess of US$45 billion in annual revenue and is growing at nearly 20% yearly, and seems well on its way toward surpassing its goal of US$60 billion within the next few years. And it's not letting up. Still relentlessly striving to get better faster, Dell intends to slash US$2 billion in costs. CFO Jim Schneider has indicated that much of the cuts will come from manufacturing operations and the supply chain. In your opinion, is speed the ultimate competitive weapon?

Speed alone isn't the key. It is the ability to respond efficently and effectively to changing customer demands.

PM: Do small manufacturers need big-name supporters?

Not necessarily. Small companies operating in specfic, niche markets can be extremely successful and profitable. These niches can be quite substantial. In and around Cambridge, there are companies that remain small but which are serving highly profitable and global markets. In some cases, the use of partnerships with large, established firms can be extremely helpful to smaller firms. However, making such partnerships work to the benefit of both parties is very hard. This is an area we are working on at present with a range of industrial partners.

PM: Whether you're running a company with 3 people or 3,000 people, you have to hire the best engineers, the best marketers and the best production workers. The products you make, the programs you have, the mission you espouse should make people feel good about working for you. In your view, are corporate values a real motivator?

Absolutely!

PM: We’re living in difficult times. Indeed, what do you do when the business world as you've always known it simply ceases to be? When new competitors and new technologies explode the industry economics? When everything that worked before won't work - and can't work ever again?

The issue of coping with ‘disruptive innovations’ is not new. If you look back over the centuries you can see time and time again how the established order in industry has been overturned. The difference now is that things are happening at a much faster pace and companies have to be constanlty looking for the distruptions on the horizon.

PM: If we don't have to own it, let's not own it. And if we do have to own it, let's reduce the risk by sharing it. How does this kind of thinking apply to today’s manufacturing sector?
The ‘make versus buy’ decision is at the core of any manufacturing business. Advances in communication and transport, and national cost differentials have certainly made global outsourcing commonplace. What is particularly interesting is to consider which elements of the manufacturing business do not get outsourced, and how certain functions often benefit from being kept in close proximity to one another (such as R&D and production).

Further information on Dr. Tim Minshall can be viewed at: http://www.ifm.eng.cam.ac.uk/people/thwm100/

New Speakers for Smart Manufacturing

PEIE, the producers of the Smart Manufacturing Conference, scheduled to be held at the Muscat Inter-Continental Hotel on January 23 – 24 2006, announced today the addition of three new speakers to the conference line-up. Adrian and Pam McCarthy are UK-based business, leadership and executive development specialists and will join sessions on innovation and marketing.

Currently, the McCarthys are working with one of the UK’s leading research universities, focused on developing new best practice in entrepreneurial leadership. Essex University is the first university in the UK to have a School of Entrepreneurship and Business and according to Pam McCarthy “is set to redefine world-class standards in this area.” Sunil Varughese, Brand Strategy Director at Brand Indigo LLC has been added to the Design Driven Strategies: Increase Manufacturing Opportunities session scheduled for the first day of the conference.

The Smart Manufacturing Conference is to be an annual event organized by PEIE. “This new and innovative program has been designed specifically to bring manufacturers, entrepreneurs, marketers, finance and IT professionals together to examine issues aimed at helping small and medium-sized Gulf-based manufacturers become progressively more successful in their marketplace,” remarked Hisham Al Zubaidi, PEIE’s Marketing Director. In particular, the two-day programme will focus on marketing, innovation, product design, lean enterprise, the realities of global competition and the importance of technology to the manufacturing sector. According to the organizers, the event has attracted speakers from Europe, the Middle East and Asia.

The conference will be held under the patronage of HE Maqbool bin Ali Sultan, Minister of Commerce and Industry and Chairman, PEIE, and the keynote address will be delivered by Professor Mike Gregory CBE, Executive Director, Cambridge-MIT Institute. Professor Gregory is also Head of Manufacturing and Management Division in Cambridge University’s Department of Engineering and Fellow of Churchill College. “He has served on a range of institutional and government committees including currently theUK’s Department of Trade and Industry’s Manufacturing Forum. Professor Gregory is also Chairman of the British Manufacturing Professors Forum. We’re delighted to have someone of Professor Gregory’s stature present at Smart Manufacturing,” remarked PEIE’s Ibtisam Al Faruji.

Commenting on the introduction of additional speakers, Al Faruji said: “After reviewing the excellent feedback we’ve received on the conference, we decided to make some changes to our sessions and expand the programme.” She added: “The new topics, which offer additional coverage on innovation and marketing in manufacturing, have been developed with the help of the presenters themselves, and we feel that attendees will benefit from their experience.”

In addition to the two-day conference, PEIE will host a bonus Lean Enterprise Workshop at Knowledge Oasis Muscat on 25 January, this will be delivered by Mark Eaton, former Director of the UK’s Manufacturing Advisory Service.

Smart Manufacturing is sponsored by Reem Batteries, Sun Technologies, Oman Economic Review, Knowledge Oasis Muscat, OEPNPA, Infocomm Group and Photo Centre. Further information on Smart Manufacturing can be obtained from Ibtisam Al Faruji on: Ibtisam@kom.om

Smart Manufacturing: More on China

Last week we ran a series of China and manufacturing questions by Professor Kulwant Pawar of Nottingham University Business School – this week, we’ve got Dexter See’s - Singapore-based Ascendas PTE Ltd (www.ascendas.com) and a presenter at PEIE’s (www.peie.om) Smart Manufacturing Conference - perspective on Made in China.

PM: In reading about industrial development in China, one often encounters the terms – Economic and Technological Development Zones (ETDZs), High-tech Industrial Development Zones (HIDZs), Free Trade Zones (FTZs) and Export Processing Zones (EPZs). To the new China-hand, this “alphabet soup” may seem daunting and confusing. Can you explain what each of these terms signify and how they differ and can affect a company’s selection of a location?

This is a natural progression of any economy moving forward from agriculture-based to industrialization to knowledge-based economy. I see it in good light that China is increasingly participating in a larger international community, and at the same time, the international community can tap on to the resources China has to offer. These zones offer tax incentives and other benefits that foreign direct investments (FDI) can take advantage of. From a business space perspective which Ascendas plays a role in, these zones are better planned and managed, with better infrastructure and services and they enjoy a higher profile compared to other industrial estates. For example, Ascendas plays a part in the development of Suzhou Industrial Park located west of Shanghai. SIP is an ETDZ where FDI enjoys, for example, income tax exemption for two years and 50% for the next three years. At the same time, the park is well-planned with excellent infrastructure, efficient logistics and customs hubs, and, for human-resource talent growth and retention, it has adopted the Singapore-styled Provident Fund. Investors would find such location ideal for business and knowledge-based workers. The ETDZ and HIDZ are the same but reporting to and supervised by two different ministries. ETDZ reports to MOFCOM while HIDZ to Ministry of Science and Technology. FTZ and EPZ are bonded areas. EPZ is a new version of FTZ but for manufacturing only (without trading).

PM: Today over two-thirds of foreign manufacturing in China is for the domestic market. The second wave of FDI is characterized by a two-fold shift: from low knowledge base industries to medium and highly knowledge-intensive industries and geographically from the coastal and southern areas of the country inward. This seems to indicate a less coastal bound stage of development and a more domestic as opposed to export oriented economy than most other observers have reported. Are these trends clear at this time and how certain is this change in economic development?

China has a huge domestic market one can cater to. A large number of FDI establish itself initially for exports but soon finds the domestic market lucrative as well. At the same time, we see a boom in returning Chinese, a strong pool of well-trained Chinese executives, and a high return of investment in education from the locals. All these combined, coupled with the Government push to expand to the inner cities, give rise to what you have mentioned. Inner cities like Xi’an, Chengdu, Chongqing are developing rapidly not just in manufacturing but in Information Technology as well as IT-enabled Services. Ascendas sees these emerging trends, and as a good service provider, follow our clients there to assist in their developments. A case in point is Infineon who has established in Xi’an’s Ascendas Innovation Hub.

PM: The non-state sector, which consists of private companies, self-employed businesses, shareholding corporations, joint ventures with foreign investment and community-owned rural industries, a great part of which are actually private undertakings, now contributes 74% of industrial output, 62.2% of GDP and more than 100% of the increase in employment. These and other statistics seem to indicate an economy that has already transitioned much more to a private business model than most people outside of China realize. Is this change as deep as the above statistics suggest and in terms of state control of business how different is China today than many European countries in terms of state control and state intervention in the economy?

The State is still playing a dominant role in economic development. However, we see the major SOEs restructure into more profit oriented companies and more core-business focused. Many are listed on the Shanghai or Shenzhen Stock exchanges or even overseas in New York, Singapore and Hong Kong. The telecommunications and banking sectors seems to be taking the lead. Many of the smaller SOEs are also privatised. Many private companies are emerging, especially in the real estate sector and many other industries. Out of the 74% non government owned industrial output, many, we suspect are contributed by foreign-invested companies given the strong FDIs in the last ten years. (suggest you check with Toh Sim on the response to this one)

PM: If you were to give five reasons for a company to consider establishing a factory or a business office in China, what would those reasons be?

I would say the five would be huge market opportunities, availability of raw materials, abundant talents (and affordable), good infrastructure, and low costs of business. But I must caution that it is tough business in China given the strong competition in every area.

PM: How important is an understanding of the regions and provinces of China to a company’s plans in China and how best would you recommend for a company to acquire and build such knowledge into its planning?

Just like anywhere else, local knowledge is an absolute must. This knowledge can be in terms of market dynamics, technological trends, and guanxi (relationship). I would say, first, gather info from resources you can get your hands on, be it publications, seminars, or exhibitions. It would also help for one to talk to experienced investors either from similar industry or those who are operating in locations you want to establish in. Next, build relationships and a circle of influence while working the ground. When it is time to establish a presence there, offices and ready-built facilities are available for lease so that risks are kept low. I believe investing in human resources is important in acquiring and building such knowledge – so be sure to put this into the plan as well. Working with distributors (from city to city) is a good way Multinational Companies can make entry into the market and gather intelligence. Joining trade organizations and chambers of commerce is an excellent networking platform too.

PM: For years, China has been the cheap assembly shop for the world’s shoes, clothes and microwave ovens. Now, it’s laying the groundwork to become a global power in more sophisticated, technology-intensive industries that demand considerable capital. Billions of dollars are flowing into autos, steel, chemical and high tech electronics plants. How will this affect manufacturing in Europe and North America?

China has the advantage of learning from the others and so shortens the learning curve. As one saying goes, it skipped the VCR era straight into CD and DVD. At the same time, its companies have attained a level where they now go on a buying spree. Some say that this is going to be China’s era. The European and North American manufacturers are also expanding into China. They are taking advantage of the opportunities to gain better competitiveness worldwide.

PM: Chinese manufacturing will drag down the profitability of global industries – do you agree with this statement?

One could sell at a lower price but at a lower cost, profitability can still be maintained or even increased. Lower costs, of course, can be achieved with advancement in technology, for example.

KOM on Corporate Communications

In today’s highly competitive world there's a lot of pressure on marketing and communications executives to find more innovative, better crafted and executed ways of communicating with not only their internal audiences, who are the building blocks of their own organization but also their customers who drive profitability and purpose. Knowledge Oasis Muscat’s (KOM) December Open House - scheduled for Tuesday, 6 December at 5:30pm - will explore and show how certain communication activities can help maintain or improve an organization’s overall competitive edge.

According to Ibtisam Al Faruji (pictured), KOM’s Open House Co-ordinator: “December’s session is intended for heads of communications departments, senior managers and marketing professionals taking responsibility for planning, managing and delivering integrated marketing, communications and PR strategies.”

With over 15 years professional experience in corporate image management, Atulya Sharma, Communications Manager, United Media Services SAOC, and the seminar’s presenter said: “Successful communications is increasingly central to the management of an organization’s reputation in all its forms. Commercial performance, corporate values and good governance are all critical to the more holistic perception of an organization now demanded by the market – this includes investors, customers, the media and employees.” Having consulted international organizations on formulating and implementing best practice corporate communications strategies, “Sharma combines practical commercial experience along with an interactive style. We fully expect the seminar to be relevant and applicable to the challenges faced by Oman’s senior corporate communicators,” remarked Al Faruji.

Including the latest communications, marketing and PR theory and developments, Sharma’s Open House seminar will draw on existing best practice, use real-life, corporate communication case studies and generate thought provoking ideas and solutions that can be immediately applied by attendees in their own situations. Asked about the value of KOM’s 6 December seminar, Hisham Al Zubaidi, Marketing Director for the Public Establishment for Industrial Estates said: “If I had to list the key reasons why I’ll be attending Sharma’s session they’d be: to help me develop my strategic framework for corporate communications and PR planning and strategy implementation; to help me realize the value of my brand and corporate image through integrated communication channels; to understand the implications of global and local communications planning and management; and to learn best practice tools, tips and techniques to apply in my organization.”

PEIE Thinking

PEIE's blog is intended to give you an insight into Oman's manufacturing and ICTS sectors. In this regard, we sat down with Sultan Al Habsi, PEIE's Executive President and discussed innovation, smart manufacturing, competition, SMEs, Knowledge Oasis Muscat and Open Source. Indeed, the interview ought to give you a flavour of PEIE's way of thinking.

PM: What does innovation mean to you?
Innovation is the successful exploitation of new ideas. We want to get ideas out of the research centres, into the offices and factories and onto the balance-sheet to help Omani businesses compete in the global market. To be frank – our future success will be won through the exploitation of new ideas, particularly in the area of information and communication technology.

For the Omani economy as a whole, innovation is the key to higher productivity and greater prosperity for all. The government has already laid the foundations of an innovation-driven economy by creating a stable macroeconomic environment, promoting fair and free trade and improving education and skills. But there’s more to be done. To hold our own in modern manufacturing and ICT – areas that PEIE is actively involved in – we’ll need to innovate strongly by creating new high-tech firms and light-manufacturing industries as well as helping current PEIE-based firms upgrade.

At the same time, we need to raise the level of innovation in our service industries. In this regard, PEIE is in the vanguard of helping Oman become a regional knowledge hub – a country with a reputation for turning knowledge into new and exciting products and services; a country that invests in business R&D and education and skills, and exports value-added goods and services. As you’re aware, Knowledge Oasis Muscat (www.kom.om) is very much part of this process. Indeed, this is why PEIE is organizing the Smart Manufacturing Conference – 23 – 25 January 2006 (www.peie.blogspot.com) on an annual basis, we feel there’s a real need to bring business people, policy makers and academics together to discuss innovation and entrepreneurship and their importance to manufacturing and ICT.

PM: We hear a lot about the Weightless Economy – what’s PEIE’s take on it?
In our view, the weightless economy is shorthand for the changes taking place in markets across the globe. Just think back a little, only 20 years ago, phone conversations travelled by copper wires which carried less than one page of information per second. Today, a strand of optical fibre as thin as a human hair can transmit in a single second the equivalent of over 90,000 volumes of an encyclopaedia. This change is driven by two factors which reinforce each other – rapid development of technology, and the opening up of markets across the globe.

PM: How does an established company actually go about it if it wants to innovate?
There’s no right way of going about this. But there are a variety of tactics a company can use to improve the probability of producing new ideas. One is to fundamentally question the existing mental models of the organisation. Let’s face it, every organisation operates under certain mental models and paradigms. For example, these are our customers, this is how we market, this is how we sell, this is how we hire, this is how we do business. What I’m suggesting is that an organisation will never discover anything new unless it first questions what it already has and says. Ask yourself - why are we doing it like this, is there another way? As long as an organisation is happy and satisfied with what it has, it isn’t going to search for something new – and will never discover anything new as a result.

PM: With your experience of managing KOM, where do you see innovation happening in the future, particularly in IT?
Probably in places we least expect it. I'm intrigued by what’s going on in countries like China that are promoting Linux and other open source solutions in its government and to its citizens. Their government favours Chinese-developed open source software, such as the Chinese Academy of Science's Red Flag Linux. Like many countries around the world, China wants to build its ICT infrastructure and economy with domestic spending and expertise. India, Argentina, Mexico, Germany, Venezula and Peru are doing similar things, if not at the government level, then at the grassroots and corporate level. With all these people building software to solve real-world problems using open source tools and technologies, I expect there will be a deluge of new innovation in that space in the next ten years or so.

PM: What do you feel are the main challenges facing Gulf-based small businesses today? One of the main challenges facing the region’s SMEs centres around the death of distance. With improving technology and the Internet, SMEs can operate on a global basis. For this to succeed, they need to be as professional, as efficient and as cost-effective as possible. The other challenge facing them is the immense competition from larger companies.

PM: What’s the state of entrepreneurialism in the Gulf?
Entrepreneurialism is thriving in the region, but there is a high churn rate of entrepreneurs who come and go. For instance, hundreds of budding entrepreneurs will give it a go this year in terms of setting up their own enterprise but many of these will close within their first three years. This is one of the many start-up issues we’re grappling with in the Knowledge Mine, the business incubator program at KOM.

PM: What type of person makes a good entrepreneur?
Being a bit of a loner tends to help, as sometimes the whole world is against you. You could go into work one morning and find a bank breathing down your neck, a supplier wanting to know what’s happening, orders stacking up and staff not turning up. So, a good entrepreneur needs a thick skin.

PM: A lot of people think entrepreneurs are born, not made. What's your view on this?
This is an interesting question. I'd say both. Some people are born as such – they have the right temperament and are entrepreneurial from an early age and others pick it up as they go along. For people like Steve Jobs of Apple and Sir Richard Branson of Virgin, I’d think it’s more the former than the latter. I admire people like Jobs and Branson for creating new things in the face of severe doubt and opposition, and in doing so, for making the lives of people that much better. Same for HP in its early days. I admire Bill Joy for coming up with Java and Sun for maintaining a culture of innovation and entrepreneurship.

PM: If you could change one thing overnight to make it easier to start up an enterprise, what would it be?
Changing attitudes to enterprise and innovation is the key to this – fear of failure is one major factor that prevents many people — young and old — from putting their business ideas into practice and business survival rates improve dramatically when fledgling businesses seek advice and support. So, my wish is for a cultural change to take place in the region to stimulate more business start-ups, with people taking advice at each stage leading to more successful, growing businesses, following on from that.

Chinese Manufacturing

As a presenter at PEIE's forthcoming Smart Manufacturing Conference (23 - 25 January 2006, Muscat Inter-Continental Hotel) PEIE Mirror sat down with Nottingham Business School's Professor Kulwant Pawar (pictured) to talk manufacturing and China.

China is the fourth largest country in terms of size and the largest in terms of population. Driven by domestic demand and supported by World Trade Organization accession, China's economy should continue to grow robustly over the next 2 years. The total value of goods and services has been growing at a double digit rate for over 20 years. Although growth figures are now in the single digits (about 7.3 %), this is a large market that cannot be ignored. The World Bank estimates by the year 2025 China's economy will account for 25% of the total world economy.

PM: In reading about industrial development in China, one often encounters the terms – Economic and Technological Development Zones (ETDZs), High-tech Industrial Development Zones (HIDZs), Free Trade Zones (FTZs) and Export Processing Zones (EPZs). To the new China-hand, this “alphabet soup” may seem daunting and confusing. Can you explain what each of these terms signify and how they differ and can affect a company’s selection of a location?

Economic and Technological Development Zone (ETDZ) has a more general function, whilst High-tech Industrial Development Zone (HIDZ) focuses on high-tech industry. But in reality, the distinction between the two is not clear and often they are differentiated only by name. To date, there are 54 national-level ETDZ, among which, eastern coastal regions 34, Middle West regions 21. The ETDZs have been quite successful in attracting foreign investment and have made significant contribution to export.

On the other hand Free Trade Zone (FTZ) and Export Processing Zone (EPZ) are kinds of special zones, whose main function is for international trading, exhibition and export-oriented manufacturing. Therefore, goods imported to these zones enjoy zero custom duties.

PM: Today over two-thirds of foreign manufacturing in China is for the domestic market. The second wave of FDI is characterized by a two-fold shift: from low knowledge base industries to medium and highly knowledge-intensive industries and geographically from the coastal and southern areas of the country inward. This seems to indicate a less coastal bound stage of development and a more domestic as opposed to export oriented economy than most other observers have reported. Are these trends clear at this time and how certain is this change in economic development?

The publicly available statistics are patchy and present a fragmented and fuzzy picture. It is always important to develop a holistic and complete picture as more and more statistics emerge, otherwise there is danger of presenting an incomplete and contradictory viewpoint.

Much of the current production in China has been organised by foreign companies themselves, and they dominate the industry and overseas companies accounted for 87% of China’s 2004 exports. The next 5-10 years will be critical as many foreign companies will cut their expatriate staff to reduce costs and many companies will also lose their special tax status over this period. Currently, state-owned Chinese companies have access to 300,000 engineers who graduate from universities every year, however, foreign companies tend to attract the best talent. Many state owned Chinese companies are initially likely to rely on a fast-growing domestic market before venturing into high technology export markets.

PM: The non-state sector, which consists of private companies, self-employed businesses, shareholding corporations, joint ventures with foreign investment and community-owned rural industries, a great part of which are actually private undertakings, now contributes 74% of industrial output, 62.2% of GDP and more than 100% of the increase in employment. These and other statistics seem to indicate an economy that has already transitioned much more to a private business model than most people outside of China realize. Is this change as deep as the above statistics suggest and in terms of state control of business how different is China today than many European countries in terms of state control and state intervention in the economy?

The emergence of the non-state sector is a phenomenon that has been mentioned by a number of analysts and observers. For instance, recently the Party Congress in Beijing has allowed members of the private sector to come into the Standing Committee. This is a positive step forward, and does indicate a trend towards a more open, diverse economy. While it is too early to say, it is possible to imagine a situation in which the Chinese economy is as diverse as and possibly more flexible than some of those in Europe today. On the other hand, China is already a much more open market than Japan or South Korea were when they started to become global industrial powers. China’s barriers to entry are still falling as it attempts to comply with its promises in 2001 to the WTO. In contrast, the pace at which China is opening sectors gives local companies very limited time to develop their R&D competences and hence innovative products which can compete with western companies.

PM: If you were to give five reasons for a company to consider establishing a factory or a business office in China, what would those reasons be?

1. Low labour costs but committed workforce.
2. Chinese culture is similar to Japanese and Korean and shares similar work ethics.
3. Huge potential for local markets as well as opportunities for export to neighbouring Asian countries and indeed to the West.
4. Relatively well developed infrastructure when compared to its competitors such as India, Indonesia etc.
5. Increasingly educated workforce. For example, in 2004, Chinese universities produced more than 200,000 graduates in computing and information systems and the government estimates that between 1978 - 2003, 700,000 Chinese studied abroad.

PM: How important is an understanding of the regions and provinces of China to a company’s plans in China and how best would you recommend for a company to acquire and build such knowledge into its planning?

Location is always one of the most important decisions which a company has to make as it has significant impact on the returns on investment. It needs to be considered that the development in China are highly divided, some regions are more prosperous when compared to others. In Shanghai more than 50% of the students have finished higher education. However, the level of progression of a region, including economic development, infrastructure, convenience of transportation, can often translate into investment costs and returns. Additionally, the level of development in one region often has high correlations to the culture, educational attainment, attitude and the policies of the local government.

PM: For years, China has been the cheap assembly shop for the world’s shoes, clothes and microwave ovens. Now, it’s laying the groundwork to become a global power in more sophisticated, technology-intensive industries that demand considerable capital. Billions of dollars are flowing into autos, steel, chemical and high tech electronics plants. How will this affect manufacturing in Europe and North America?

The advances in Chinese manufacturing present two challenges for producers in developed countries. First, more companies and industries will face new competition from low cost Chinese manufacturers. Second, as China becomes more self-sufficient, it may limit the opportunities for these same companies and industries to sell product into the Chinese market. In contrast, China’s success has two shortcomings:

1). Despite great effort to climb up the value ladder, the vast bulk of Chinese electronics manufacturing is focused on relatively low-value parts production or assembly.
2). The biggest beneficiaries so far have been overseas ventures.

Furthermore, it has been argued that if a multi-national company can come and take advantage of lowers costs, what can a Chinese company do that is different or better? It is felt that a large proportion of the Chinese educated labour force lacks creativity due to heavy reliance on rote learning and memorisation and students are not encouraged to ask questions. The system is heavily examination oriented even at the top universities.

I feel that the Chinese have not figured out how to capitalise on their culture in terms of economic wealth generation, once this happens then the West should be concerned. Similarly, Chinese industry still lacks technical know-how and competence to compete with the best in the world.

PM: Chinese manufacturing will drag down the profitability of global industries – do you agree with this statement?

As China moves into more sophisticated industrial sectors, Western companies are likely to face new challenges. They will have to move into even higher-tech, higher-value added materials and products - or buy them from China!

PEIE & Clusters

PEIE was involved in the recent MEED Sohar Port Conference (www.emapconferences.co.uk/oman) held at the Al Bustan Palace Hotel.

Establishing plastics and metal clusters in Sohar was a topic raised by a number of panelists at the MEED event. Indeed, the concept of "cluster" has attracted growing interest in recent years as a way to encourage economic development and growth at the regional and national level. PEIE’s existing foundation in manufacturing and technology-based activities, innovation focus, access to national and international business networks, strong local presence, as well as its mix of services to SMEs places it in a strategic position to foster cluster development and innovation in Sohar.

In partnership with Oman Oil (www.oman-oil.com) and Sohar Aluminium (www.oman-oil.com/newsdetails.asp?id=69), PEIE is looking to initiate and develop a downstream aluminium metals cluster in Sohar. In this regard, Quebec's Aluminium Valley (www.transformactions.net/english/val_alumi.html) model is of particular interest to PEIE.

How can Oman-based clusters benefit businesses and the economy?
PEIE believes that clustering can bring a wide range of benefits to both business and the wider Omani economy. For example:

o Companies can increase the expertise available to them if they locate amongst a cluster of other firms.
o They can also can draw upon others with complementary skills to bid for large pieces of work which each of the individual firms would have been unable to complete.
o Advantage can be taken of economies of scale by further specialising production within each firm, by joint purchasing of common raw materials to attract bulk discounts or by joint marketing.
o Social and other informal links are important and can lead to the creation of new ideas and new businesses.
o Reputations spread quickly within the cluster, enabling finance providers to judge who the good entrepreneurs are and business people to find who provides good support services.
o The cluster enables an infrastructure of professional, legal, financial, marketing, technical and other specialist services to develop.

If you’re interested in reading more about clusters, we recommend:

www.isc.hbs.edu/econ-clusters.htm
www.isc.hbs.edu/economicdevelopment.htm
www.competitiveness.org/article/archive/43/
www.gorgebusiness.com/2005/clusters.htm
http://aoi.cordis.lu/article.cfm?article=477
http://aoi.cordis.lu/article.cfm?article=1267
http://www.sciencejobs.com/insider/article.action?article.id=insider106&focusId=uk
http://www.rediff.com/cms/print.jsp?docpath=//money/2004/dec/29inter.htm

PEIE Backs Digital Oman

In partnership with ITTS (ittf.gov.om) and OEPNPA (www.omanobserver.com), PEIE (www.peie.om) has launched a quarterly ICT magazine, Digital Oman (DO) (www.digitaloman.gov.om)

DO is looking to involve and engage its readers rather than merely attract attention. Gaining attention isn’t enough. Put simply, DO’s remit is to analyze technology that has the potential to transform lives, business, industry, government or financial markets. As well as providing in-depth coverage of domestic and international innovations as they move from labs and pilot projects to the marketplace, DO evaluates the social impact of technologies in a variety of fields - from Government, manufacturing, sport through to consumer products.

The emergence of the Internet, mobile phones, satellite TV and SMS has raised Omani consumer expectations of interactivity in all the media they use. Moreover, there’s a heightened quest for self-improvement in Omani society and the explosion of new media is helping to fuel and satisfy this need. DO readers have a keen interest in self-improvement, new learning, ICT, innovation and entrepreneurship. Indeed, DO’s aimed directly at these social transformers. These are people that are involved in change. It is assumed that a high proportion of DO readers have recently changed jobs, completed an undergraduate course, enrolled or are considering postgraduate studies, moved home, had a first child, and so on – this is the educated, business savvy 21 – 35 year-old bracket. These are people that are open to change, guidance and practical information from trusted sources.

DO has the power to arouse interest in ICT and provide information that isn’t readily available. Indeed, in these days of information overload people need trusted influences to guide them through the mass of information. In this regard, DO should be perceived as an idea-generator and motivator. In brief, a reliable and intelligent ‘friend’ that passes on ICT recommendations - issues to think about, explore, do or buy. In fact, DO’s designed to be a companion which is consumed in ‘me’ time, making a private personal experience. In short, DO has been created specifically to become part of an individual’s personal network of reliable sources.

On the domestic ICT publishing front, DO has a head start in responding to this rapidly evolving post-mass-media world. Provided it gives readers good reasons to engage with it, and knows how to harness that engagement, DO should have a bright and long-term future.

PEIE-based Logistics Firm to Serve Sohar

PWC Logistics (pwclogistics.com) is Sohar Industrial Estate’s newest tenant. PEIE Mirror caught up with Chris Clark, PWC Logistics’ Country Manager to talk about Sohar, logistics spending, technology and the new economy. This is what he had to say.

PM: Can you give our readers some background details on PWC Logistics?

PWC Logistics’ is a Global supplier of Logistics services which includes warehousing, distribution, inventory management, transportation and freight management. Its fully integrated, end-to-end supply chain solutions provider, starting with demand planning and procurement and ending with delivery to the retailer or end consumer and invoicing.
PM: Why did PWC Logistics decide to set-up on Sohar Industrial Estate?

Sohar Industrial Estate provided a number of key attributes that were at the forefront of PWC’s requirements:

Geographical Position: 200km from Dubai and 250km from Muscat, the location couldn’t be more strategic.

In close proximity to Sohar Port, 6km away means that we’ll be well placed to service future potential clients.

Security: The 25 year lease means that PWC has confidence to make a significant investment (US$1 million) in PEIE.

The site is extremely well appointed with all utilities and a good road infrastructure already in place. In addition to this, PEIE provides assistance with obtaining building permits, this is a big attraction.

The leasing arrangement with PEIE means that PWC doesn’t have valuable capital tied-up in land.

Finally, Sohar Industrial Estate is a source of potential clients for our services.

PM: Apparently logistics spending in the US is anticipated to be between US$900 billion to a little over a trillion dollars a year. Transportation is a little bit more than half of that. How do you see the Gulf’s logistics market developing over the next 5 years?

I see out sourced Logistics spend in Oman increasing over the next 5 years. As companies focus more and more on core competencies, activities such as Logistics will be outsourced.

In developed Logistics markets such as the US or Europe, the estimated spend on outsourced Logistics is 40 - 45% of total Logistics spend. In Oman the outsourced Logistics spend is estimated at 8% of total Logistics spend (transport is estimated at 46% of this figure), based on trends elsewhere in the world it is my opinion that the proportion of out sourced Logistics in Oman will increase to around 15% over the next 5 years.

PM: Internet technology, wireless communication and tracking devices are the dominant technologies utilized in the freight and transportation industry today. How has PWC Logistics brought all this together?

PWC has invested a significant amount of money in ensuring that it has superior software applications so that it can effectively manage its customer’s supply chains. Our proprietary MicroTransport Transportation Management System (TMS) uses automatic vehicle locator (AVL) units (fitted to each vehicle) and global positioning system (GPS) technology to enable real-time vehicle tracking. Tight integration between MicroTransport and both the warehouse management and order management systems provides customers with full on-line visibility of both vehicles and their contents. MicroTransport also provides information on the truck, driver, route and scheduled arrival date. Another example is the tight integration between our EXceed Warehouse Management System (WMS) and MicroTransport which allows us to create shipment manifests without manual data entry. PWC is continually assessing the latest technologies available so that it can continue to provide value to our customers.

PM: What technological advances are your customers crying out for?

Our customer base is varied, however the common requirement across all industry verticals is for there to be greater visibility of inventory level and event information along the whole supply chain. In order to accommodate this many of our customers are asking for real-time vehicle tracking so that they know where the vehicles containing their valuable goods are located. Another requirement is Radio Frequency Identification Tags (RFID) to allow traceability of high value products and lastly customers are asking for all products to be scanned in and out of warehouses so as to fulfill requirements such as batch traceability.

PM: PWC Logistics has some great web-enabled solutions that provide real-time inventory visibility and control. In your opinion, what has been the best technological investment in terms of ROI for PWC Logistics thus far and why?

There is no one item of technological investment that stands head and shoulders above all others, each investment is seen as part of the whole solution, however our Warehouse Management System (WMS) is our most tangible investment. All of our warehouses use the EXceed WMS. This advanced application manages all warehousing processes, including receiving, putaway, replenishment, picking, packing, labeling and shipping. PM: What factors do you believe will differentiate the winners from the losers in the logistics industry over the next 3 years?

Oman in Logistics terms is a traditional market, it hasn’t experienced significant change in this area over the last decade. I anticipate that due to the catalyst of opportunities such as Sohar Port and Salalah Free Zone that the change over the next three years will be huge.

The winners will be those companies that embrace the change and seamlessly adapt to customer requirements. For those companies that resist the inevitable change then the next few years will be a rough ride.

PM: What makes for a successful “new economy” company?

PWC believes that it has embraced both new technologies and innovations whilst at the same time ensuring that this ‘new knowledge’ is harnessed to the core competency of the Company. For example PWC operates a network of warehouses throughout the Middle East. This can be seen as a very traditional aspect of Logistics, however we have equipped each warehouse with the advanced EXceed Warehouse Management System (WMS) developed by EXE Technologies (now part of SSA Global), Similarly, our fleet of trucks – another traditional aspect of logistics – is equipped with our proprietary MicroTransport Transportation Management System (TMS). We feel that our unique combination of assets and technologies, which provides for seamless real-time inventory level and event information, provides us with a significant edge over our competitors.

Why's PEIE Blogging?

In the words of the Financial Times blogging is: "Home to those informal, frequently updated online journals that people create to share their thoughts and opinions." Increasingly, PEIE has become aware of the potential of blogging as a means of communicating one-on-one with current and potential tenants - and filling a hole in our CRM program.

PEIE's blogging because.......

1. A corporate blog will help us be more approachable.

2. It'll help us keep our finger on the manufacturing and ICT pulse.

3. Current and potential tenants are smart - they're tired of 'corporate speak'.

4. It means we can communicate with our communities unfiltered and promotes instant feedback.

5. It builds a network.

6. Google. Page Rank means the more people that link to us, and the more often the blog is updated, the higher we'll appear on Google's searches.

Business Plans for Start-ups

Knowledge Oasis Muscat runs The Knowledge Mine - TKM -(pictured are the 8 start-ups based in TKM) - a business incubator program. Indeed, we regularly have young entrepreneurs requesting pre-incubation advice. In particular, questions related to business plans. As a response, we've pieced together the following business plan guidelines.

Business Plan for BoldIdea LLC

o Summary of Business Plan
An Executive Summary - a one-pager on what BoldIdea is all about. Hammer home BoldIdea’s WOW Factor. Think of it as a Lift Pitch, because if you can't explain your idea to someone in a one minute climb from the ground to fifth floor your target will be out of the doors and gone. If you pull it off, you'll be off to a flyer with them licking their lips and reading on.

Start with a one liner - your strapline - that really sums up BoldIdea so that your reader instantly 'sees' where you're at.

o Management
Detail BoldIdea’s management and/or business experience and team members – include your CVs here. Make sure you clearly set out the roles and responsibilities of each team member and how they fit together. What are their strong and weak points? Make sure you know this before deciding who does what.

o From Idea to Reality
Here’s where you detail all the nuts and bolts of BoldIdea - like premises (location), key partners, suppliers, IT, etc. Where’s the nerve centre going to be? Your home? Rented commercial premises - office space, a shop, a warehouse? Will your premises give access to BoldIdea’s key markets, good communications, such as Internet access and public transport for your clients?

What raw materials, equipment, facilities and other hardware does BoldIdea need? How will you get the raw materials? Who are your suppliers? Are they any good with a solid track record? How are you going to sell the product/service – from a shop, wholesaler, distributor? What are they like? Quality is key. How will yours be checked and maintained? It’s no good designing a product/service if it falls apart after five minutes. No-one will come back for more.

o Product: A Technical Explanation
Give a credible description of what BoldIdea’s product/service is, how the idea of BoldIdea works and what it will do for its clients that will make it worth paying for. Keep this short and to the point. Remember, clients are less interested in how clever you are than how well you can serve their needs.

o Market Research
Put yourself in your clients’ shoes when giving details of BoldIdea’s products. Think of it as they would think of it. Tell them why they won’t be able to do without your product/service now and in the future. This shows you really understand your market which is what often makes a successful idea stand out. But keep it simple. If you need to talk ‘techie’ then put it at the end of your plan.

What’s BoldIdea’s USP? What gives BoldIdea the edge on its competitors? How is BoldIdea different from its competitors?

Do you have any patents or copyright (register the name – website etc)? Address any of these so-called intellectual property issues. Can your competitors copy all the new things you are offering easily?

You may want to attach a ‘Features and Benefits’ analysis at the back of the plan, perhaps covering BoldIdea’s manufacturing process and any other life and death factors.

o Marketing
You will need to know BoldIdea’s market and how you will promote BoldIdea to your clients. Spell out where you are now - new market, mass market (everybody wants BoldIdea!), niche market (you’ve only 3 clients in the whole Gulf). How big’s your market, what’s its history and where does BoldIdea fit in? Is it likely to shrink, grow or stay the same? Your aim must be precise. Who exactly is your target customer or client? Research this.

Winning new clients and keeping your existing clients will be crucial. How will you do it?
You must know your competitors intimately. What are their strengths and weaknesses? How is BoldIdea different or better? How is the BoldIdea brand better?

Where are the gaps in the market and what is BoldIdea going to do about them?

Your marketing mix could be your money-spinner. So how are you going to position yourself in your market? Key strategies are:

Price. The Rials you expect your clients to pay is critical. Will you undercut your competitors or up the price knowing that all your extras provide value for money? How will your pricing policy affect the business - will you make any profit? How will your competitors react? After all, you are stealing their trade and they may launch a fierce battle to protect themselves, like slashing their prices.

Place. Can your clients get to you easily? Do they need to?

Promotion. How are you going to reach your target clients? If you believe that all you have to do is make it and they will come, you may be shocked when they don’t. Don’t make the fatal mistake in believing that BoldIdea is so cool and clever that it’ll sell itself. Cover all your options including advertising, public relations, direct mail, branding, networking etc.
Product. Why is BoldIdea’s product/service better than your competitors? Have you got that award-winning designer, the super-quality support service, the cool distribution channel? How will it develop in the future? How will BoldIdea move with or set the trends?

o Operational
Business location, equipment in-situ, proposed equipment.

o Short and Medium-term Objectives
What are your objectives for BoldIdea year one and for the next two to three years? For example, what targets do you want to achieve, what turnover or how many people do you hope to employ?

o Sales Forecasts
Is anyone going to buy BoldIdea’s product/service? Here’s where the numbers game kicks in. How many pieces will you sell? How many potential clients do you really have? And how much of your product/service are they likely to buy? Be realistic. How does this breakdown on a month-by- month basis?

o Financial Documents – P&L and Cash Flow Forecast
Sales may be great, but are you making a profit? Just because BoldIdea’s product/service is selling faster than you can churn it out doesn’t mean that you’re going to make any money at the end. So when it comes to piecing together a Profit and Loss (P&L) and Cash Flow Forecasts be realistic with your numbers.

Expenses/Overheads
Make sure you cover any fixed and variable expenses you have over the accounting year. These might include:

o Rents. Show how much you’ll be paying each month. If you pay your rent annually, you’ll need to divide it up evenly across each month.

o Utilities. How much are you likely to pay for water, AC, lighting, gas, etc each month?

o Telephone/Internet. When will you have to pay these bills?

o Insurance. BoldIdea may need: fire or liability insurance, life insurance, shipping insurance, employee insurance. How much will these be?

o Drawings. As your manning the ship, how much are you going to pay yourself each month? You will need something to live on.

o Salaries. How much will you pay your staff?

o Interest. If you’re borrowing cash to make BoldIdea work, what are your interest payments each month?

o Depreciation. Even the best equipment gets old and dies. Work out the value of your assets at the beginning of the year and how much they’ll depreciate by at the end of the year. The depreciation period can vary, e.g. your delivery van may be depreciate at a different rate to your desk.

Crunching Numbers
Now you need to put all this on paper to see if BoldIdea really can work. You need to think about:

1. Is BoldIdea going to make a profit, and

2. How much cash does BoldIdea need to make it happen and how long will it take BoldIdea to earn it back?

Profit/Loss Forecast (P&L)
Every business has to have a P&L. It’s not rocket science! At its simplest, this is the difference between what money you’ve got coming in and what you are spending. So:

Profit = Sales (income) less Costs (spending)

Your Sales/Income is everything that you will make from all sources over your working year. If you’re a photographer this could cover everything from weddings to sales from your exhibition.

Your costs are everything that you need to buy/hire/rent to make your idea happen in the same working year. This includes your Direct Costs (like raw materials, transport, etc) and your Fixed Costs and Overheads (like phones, office rent, heating, etc).

This produces your Net Profit. Now you know if YOUR idea’s worth it!

Cash Flow Forecast
When cash will come in and when it will go out (Cash Flow Forecast). Just because you invoiced in April, doesn’t mean you’ll be paid in April. Chances are you won’t get paid until May, or June… if not later. So you need to show how much BoldIdea needs to keep afloat until the cheques start rolling in and that you’ve got the cash to cover your costs. In brief, just how much cash do you need to make BoldIdea work?

To work it out you need what’s known as a Cash Flow Forecast. It does look complicated so you need a simple system to work it out for your idea.

Follow these steps:

Step 1: Set up a simple table with one column for each of the next 12 months.

Step 2: Work out your Sales/Income - who is likely to buy your product/service or time in the first year and how much cash this will produce each month. Think carefully about when they will actually pay you.

Step 3: Enter your most realistic projections of your income/sales into your table. Think about when you will actually get paid for all the work you’re going to do.

Step 4: Now work out your Direct Costs (like materials, transport, etc) and when you’ll have to pay for them so you won’t disappoint your clients/clients. Expect to pay for these in advance as you are a new business. Think about the smallest amount you’ll need to pay out to finish the job.

Step 5: Now plot these into your monthly table.

Step 6: Now work out your Fixed Costs and Overheads (like AC, rent, petrol, web access, etc). Remember, include everything!

Step 7: Now plot them against the headings most relevant to your idea and put them into your monthly table.

Step 8: Finally, work out your One-Off Costs that you need to cover to get started (like IT equipment, cars, etc).

Step 9: Enter these into your table in the month that you are likely to have to pay for them.

Step 10: All you have to do now is total up all the different costs for each month and take them away from all your sales/income received. You now know how much cash will move in which direction if your business lives up to your realistic projections.

The last thing you’ve got to do is enter the amount of money you will start with – your opening balance - and add (or take away if it’s negative) your cash flow for each month. Now you know what cash you need to make your idea work. You’ll also know how much investment your baby needs and have a clear idea of when you will make enough money to pay it back.