Tuesday, December 07, 2004

Five Stages of Global Restructuring

O. is 'in' and in the past few years, companies have started to slash costs by offshoring: moving jobs to lower-wage locations. But according to McKinsey Global Institute in (HBR Dec04) this practice is just the tip of the iceberg in terms of how globalization can transform industries.

McKinsey has conducted a study that suggests that by streamlining their production processes and supply chains globally, rather than just nationally or regionally, companies can lower their costs by as much as 70% of their total costs:
- 50% from offshoring,
- 5% from training and business-task redesign, and
- 15% from process improvements.

McKinsey has defined five stages of global restructuring:
  1. Enter New Markets (Market Entry)
  2. Move Production Abroad (Product Specialization)
  3. Disaggregate the Value Chain (Manufacture individual components in different locations)
  4. Reengineer the Value Chain (Redesign production processes taking local factors into account)
  5. Create New Markets (Leverage outsourcing to offer new products at lower prices in new market segments or geographies)

Some best practices of McKinsey are to abandon incremental thinking, use global assets effectively and efficiently, tailor your best practices to local conditions and to aim for higher quality when moving your company through the five stages of global restructuring.