Resilience is important. Emergencies have been growing in scale. According to the Munich Reinsurance group, the real annual economic losses have been growing steadily, averaging US$75.5 billion in the 1960′s, US$138.4 billion in the 1970′s, US$213.9 billion in the 1980′s and in 2004, the World Bank estimated that the annual global economic costs related to disaster events average $629 billion per year, five times that of 20 years ago.

This is about local impact. There is something else; global impact – because of the nature of integrated, and stretched, global supply chains. This takes us to the third dimension or phase of any Humanitarian response – RECONSTRUCTION.

A wider impact than this

We are all familiar with the harrowing images of a devastated Haiti, a flooded Pakistan and less so with those quiet disasters – in terms of media exposure – like Niger. If humanitarian efforts are geared to put a country “back on its feet” then, arguably, these countries have never been on their feet in the first place. They suffer from croney governance; corrupt practices; huge inequalities between rich and poor but, the fact remains that markets are a crucial component of how people survive in these places. Then, there are those places hit by similar earthquakes or meterological disasters this past year such as Japan; Queensland, Australia and Thailand. These disasters, because of their part in any number of integrated global supply chains – have had a wider global impact. Again on markets.

• Queensland, Australia. The floods closed 34 coal mines; knocking out 75 per cent of Australia’s 120 million tonnes. Queensland coal is high quality with < 15 per cent ash. On the 29/10/04 price per tonne was $53.90. After the floods in Queensland, this shot to over $300 per tonne. Power stations in Japan and India were badly affected and from this a number of industries dependent on coal fired power.

• Fukushima, Japan.27,000 people were killed and over 202,000 homes wiped out. Damages have been estimated at up to $305 billion – Greece GDP is $330 billion. Companies like Sony Ericsson record losses as a direct consequence and global GDP drops by an estimated 0.5 per cent. For example, 25 per cent of global supply of silicon wafers used in semi-conductors collapsed.The cost to insurers well may rival the record $62 billion that followed Hurricane Katrina. The rebuilding efforts will create more fiscal strain on Japan, where the ratio of debt to GDP already is 200 per cent, compared to 90 per cent in the U.S. Japan is “chronically under insured and that means that the government will pick up the tab for a particularly large part of the recovery effort, pushing the level of public debt perhaps even higher. In supply chain terms, South Korea and places like Thailand – for a short time – benefited from Japan’s misfortune.

• Thailand. Over two-thirds of the country’s 77 provinces have been flooded during the four-month-long crisis. The floods have had an impact on the following companies: Honda; Toyota; Nissan; Isuzu; Nikon; Sony; Canon; Nidec; TDK and various food companies. Some have had production suspended and are actively looking for alternatives. This means that many will not return to Thailand.

Building back opens up a number of issues. Fundamentally, the mindset has to shift from making sure that humanitarian needs are met; that essential shelter, food and medical supplies are made available  to a bigger and more long term picture – survival to sustainable livelihoods. This means a clear view of what is possible within a global economy and, a commitment to improved resilience going forward.

At the Policy or macro-economic level, there has been a significant impact on the economy as a whole. This is where the opportunity to RE-THINK purpose , scope and approach matters. What can we do to recover and what can we do to build back a sustainable future? Disasters wipe the slate clean in more ways than one. Then, at the micro or operational level, we have businesses and the market. This is not just about MNCs; it is more about SMEs or micro firms. These are often in the informal sector and have no insurance; they do not have any assets and, yet are a vital part of reconstruction.

The issue that needs to be addressed in the third phase of the Humanitarian effort is how to bridge the gap between the macro and the micro levels. This is the transformational agenda; a focus on business models themselves. That has to move beyond MNCs and into the details of SMEs and micro firms; informal as well as formal business relationships.

Let’s look at the  core issues related to building back; starting with the neutrality of humanitarian efforts; the “second tsunami” and, moving to the need for logistics and supply chain thinking more adaptable to local context and, a transitional agenda.

1.      Purpose. There are many interpretations of a humanitarian action but the principles of Humanity, Neutrality and Impartiality first developed by Henri Dunant after the battle of Solferino (1859) stand the test of time. See: Tomasini and Van Wassenhove (2009). The issue is to balance local, national and global priorities by respecting these key drivers and the challenge – as we move from Emergency Response to Post Emergency Reconstruction – is how can this be achieved and monitored?

Moving from Emergency to Reconstruction is not an easy transition.

Beware the power of the media to shape priorities. For example, International news and governments will not hesitate to allocate significant sums to rescue a loan yachtsman lost at sea but, the same sum is unlikely to be found for an improved weather forecasting system that could prevent future tragedies for many more sailors. This was very much the case with the Tsunami early warning system.

Then, as the transition from emergency to reconstruction and sustainable growth (or, better said, livelihoods) takes shape there is a need to ensure that the hard won neutrality and impartiality is maintained. This is a huge subject and important work has been done on Rwanda, Cambodia, Nicaragua, Iraq and Afghanistan. See: Terry (2002); Uvin (1998); Klein (2007) and much more. It does not remove the imperative – any place devastated by whatever needs to be helped to fend for itself and this is no short term fix. But by its very nature, what is done in the name of reconstruction is not the same as that effort to respond. It is the difference between a 100 metre sprint and a marathon.

2. Re-think & re-model. I recall a BBC Radio interview when the head of an NGO was asked what the goal was in Haiti. “To get Haiti back on its feet” came the reply. Paul Collier, the Oxford Economist, was in the studio and snapped back: “Haiti was never on its feet in the first place.” This is important. The word reconstruction implies building back to a model. No post emergency effort should be on automatic pilot. There is a real opportunity to RE-THINK the approach. Let’s not forget that after the Great Fire of London, Wren submitted a comprehensive plan to re-build London in a different way. Vested interests won and the City went back to what Le Corbusier would later describe as “the zig zag of donkeys”. Should we build back Port Au Prince or build a Port further along the coast? Should we bother with land line telephony? Is there an opportunity to challenge the energy mix? What industries will work? How can we ensure that we train and retain our people?  Above all, how can we balance the market in an inclusive way? This means a focus on more than better, cheaper and faster ways of exiting the country with commodities etc and more value added in country. And this does mean an effort to champion traditional as well modern; micro firms as well as MNCs.

3. The second tsunami. After every disaster there is a risk that “build back better” can be the trigger to a second tsunami – what Naomi Klein has called “blanking the beach”. This is when a disaster takes place where the poor live; a favelha, a shanty town or, in the case of the Indian Ocean tsunami of 2005, on the beaches where fishing communities had lived and worked for years. As Seth Mydans puts it: “The tsunami that cleared the shoreline like a giant bulldozer has presented developers with an undreamed of opportunity, and they have moved quickly to sieze it.” (IHT, March 10, 2005).

The Tsunami that struck on 26/12/04 took the lives of 250,000 people and left 2.5 million people homeless throughout the region. The relief effort was enormous. In Indonesia alone this meant a US$684-million Multi-Donor Fund for Aceh and Nias that has helped to build or rehabilitate 18,600 houses, to build 43 community health clinics, to build or repair 282 schools, to repair 975 bridges, to rebuild 2,881 km of village roads, and 199 km of urban roads, to finance 1,581 irrigation and drainage projects in rural areas, to rehabilitate 178 km of drainage in urban areas, to build 1,148 clean water systems, and to build 1,032 sanitation units.

In other places, the impact has not been so constructive. In Sri Lanka and elsewhere, hotel developers used the tsunami as a catalyst for their efforts to stake a claim for land that would be ideal for leisure facilities. Suddenly, the beaches were off limits for communities that had been there for years and, because of the fact that they had no title for the land, there was to be no compensation. In legal terms, they had lost what they did not own. Herman Kumara, the head of Sri Lanka’s National Fisheries Solidarity Movement, which represents small boats, referred to this reconstruction as a “second tsunami of corporate globalization”.

Let’s keep with the fishing communities around the Indian Ocean. Our work at Rushikonda, South India, illustrates the point that, generating over 1 per cent of Indian GDP, the traditional fishing industry has a role to play in the economy. We need to understand and explore how best to develop these traditional markets. It is unhelpful to assume that these are irrelevant to globalisation. As Mauro Guillen makes plain “globalisation … does not compel countries, industries and firms to converge toward a homogenous organisational pattern of “best practice” or “optimal efficiency” – those who fail to conform are doomed to fail”.

4. Transformational Logistics. As detailed on this Blog, we see the need to develop logistics and supply chain thinking and practice beyond the mainstream of the developed world to understand and reflect reality in emerging, developing AND devastated markets.

Rightly, the focus of any emergency response is on saving lives – ensuring that the local impact in terms of human suffering is assessed and, that vital food and medical supplies reach the needy as fast as possible. This is performance based logistics focussed on getting the job done. This is not about a better, cheaper and faster response to consumers in order to return greater dividends to shareholders; so much for an emergency response.

And yet, Logistics in the Developed world costs between 5 to 8 per cent of most products; this figure rises to over 13 per cent in India and, in the case of Humanitarian efforts can be as much as 50 per cent of total cost; 70 per cent in some cases. There has to be a way to reduce these costs after the Emergency or, consumer markets – not NGOs – will not be able to foot the bill.

We will not be able to move straight to a state-of-the-art approach in many markets post devastation and need to move from an obsession with better, cheaper and faster supply chain models to an agenda rooted in agility, adaptability and alignment – the three A’s. This means agility to respond to short term changes in demand or supply; adaptability to local context and, alignment with other operators or NGOs. All these factors in synchronisation can deliver improved performance. This means INCLUSIVITY – an effort to maximise job creation by building back and developing traditional markets as well as exploring global markets for more modern products and services.

Take agriculture. Few of these disaster hit markets have modern day agriculture but the opportunity is open for many in a world climbing from 7 to 9  billion by 2050 and needing to increase agricultural production by 70 per cent to achieve this.

Take infrastructure. In mature markets the ROI on infrastructure is $3 for every $1 invested. The impact figures after a disaster are significantly more. This is where, strategic decisions can be taken on urban layouts; affordable housing and connectivity. Above all, we need to move beyond hard infrastructure and explore “soft” – broadband etc; as well as “intermediate” – warehousing, truck fleets etc.

Take logistics. All too often Governments and International agencies fail to see “the multiplier effect” of this cross cutting theme. Governments will often have a Minister for Transport; another for Ports; another for Aviation; Agriculture etc. Post emergency, there is a real opportunity to build a Logistics and Supply Chain capability to combine with Infrastructure. This thinking needs to extend to the small players too. Don’t forget that truck fleets will be small and the effectiveness and efficiency of road transport will be critical. Warehousing is another area to focus.

Take retail. It is not all about the modern trade. The impact of building back small traditional outlets and serving them by cash and carry’s is considerable. Much more needs to be known about all sorts of supply chains from perishable to FMCG from source to consumer and back through waste and recycling.

Other sectors. This depends on local context. A Chemicals industry is useful to agriculture in developing fertilisers etc.

5. The flows.As with mainstream logistics, we need to consider the flows: physical; information; cash and skills.

• Physical movement of goods. Coca Cola have opened up their distribution networks for medical supplies and more companies need to explore the win-win of such initiatives. Nestle are using a floating supermarket, Nestle Ate Vocee (Nestle comes to you), to take products to remote areas of the amazon; Unilever use small armies of door-to-door vendors in several markets and Nestle has set up a network of over 7,500 resellers and 220 micro-distributors to reach people in the favelhas of Rio and Sao Paulo and many other Brazilian cities. Many companies are using manual handling systems in urban areas as a means to reach consumers in crowded places. More needs to be done to reduce empty trucks by sharing distribution systems – a dramatic shift to 3 PL and the growth of consolidation hubs.  Then, there are a number of simply modal options from adapted bikes to the South African street trader stalls made up of water carriers. the integration of packaging thinking into this will help enormously. Shelf ready packaging designed around motor rickshaws for example.
• Information flows. From wireless technology to cloud computing, more can be done to enable populations after a disaster. For example, mobile phones are being used increasingly to aggregate demand and supply in all sorts of contexts. Then, we have ideas like eChoupal – computer terminals deployed in villages to offer information, advice and on-line sales to rural communities. TVS have used this to sell motrocycles to rural areas – 37,000 in 2009.
• Cash flows. Not many ATMs – let alone bank branches – survived any of the disasters from Pakistan to Chile; Fukushima to Thailand and, many disaster zones are populated by what conventional banking would describe as the un-bankable. More needs to be done to explore mobile banking. In Haiti, companies like yellow pepper have developed the subscriber base and this improves the dispersal of monies. In contrast, look at what happened in Libya after the fall of Gaddaffi – a massive operation to print banknotes followed by a dubious effort to distribute the notes. It is like scrap metal dealers in the UK – keep it at cash and there is no traceability. Surely, more can be done to develop mobile cash options.
• Labour mobility and skills. All the very best equipment can be donated but someone locally has to be able to operate it – buy a man a fish and feed him for a day; teach him how to fish and feed him for a life time. We need to be realistic. Everyone in micro firms and SMEs is a key employee – there is little or no slack or, in the jargon, redundant equipment or resource. We need to take a view on training – standards; content and the use of technology for delivery. This is a huge area. Ironically, the developed world persists in selling legacy systems into markets that can’t absorb them and don’t need them. We need to respond to context.
• Energy and Utilities. Intermittent supply of electricity is hugely significant and every effort has to be made in the transition to look closely at the mix of energy available, developed and used. This is the oppotunity to explore “leap frog” technologies and green supply chains.
• Water. This is increasingly scarce and there is a need to focus beyond source and to include use. For example, embedded water. It is estimated that the average Briton drinks between 2 and 5 litres of water per day and will use about 145 litres for cooking, cleaning, washing and flushing. If the embedded water used in the production of the goods people consume is also taken into account however the daily use per person in the UK may be nearer 3400 litres (Source: Waterwise). So, encouraging a given location to produce and sell something that does not reflect an understanding of real water use is foolhardy.
• Feedback loops.  What are we learning? Over the summer, we worked on seven traditional supply chains and since then we have opened this up. There are more to follow. I have been struck by how weak developed world process mapping skills are in these traditional contexts. Procedures don’t exist and, due to financial constraints, improvisation is key and a constant feature. It is like asking a concert pianist to play in a jazz quartet with no notes written down. Few can do this.
• Innovation. As Paul Polak maintains, 90% of design resources serve 10% of the population. His point is that more needs to be done to serve needs and livelihood rather than feed expectations and lifestyle. This means a shift in emphasis from product to process innovation. And this may mean more jugaad (a hindi word meaning make do and mend) than on an obsession with blue sky and “new to the world” invention. It may mean championing second hand equipment for supply chains. And it may mean developing a comprehensive maintenance programme to maximise life-time value of assets. And this brings us back to skills and a need for huge innovation in learning and knowledge transfer. For example, the work that Pearson Group are doing in Africa or, Airtel are doing with mobile phones.
• Firms. The developed world needs to wake up to the fact that the Public Sector and Multi Nationals do not employ the majority world. The informal economy generates over 1.8 billion jobs worldwide and far more than this depend on what is earned in this way. We need to explore ways in which we regulate and develop employment across all types of firm – one regulation does not fit all circumstances.
• Transition. Any shift from Emergency to Reconstruction will take an enormous effort and, as we have noted, it is not an area well served by academic research or analysis of actual cases. As we have noted elsewhere in this T L Blog, there is a case building to extend the World Bank LPI to open up more the transition between the Modern and fully developed mature market and, the Traditional ones at the opposite end of the spectrum.Equally, there is a need to dis-aggregate large geographies into their constituent parts – logistically speaking. For example, we cannot compare Shanghai with a Western Province within China in much the same way that it is not helpful to aggregate logistics capacity, capability and delivery of a Region within a larger unit. We need greater granularity and, a recognition that micro firm capability needs to be tracked as well as bigger operators.This should explore ways in which a wider geographical radar can be of real benefit to accelerate reconstruction efforts. For example, Haiti being able to avail itself of adjacent Santo Domingo. This is especially significant when we factor in conflict hotspots in Africa where 15 countries are landlocked and 20 states have more than 4 neighbours. Tanzania and Zambia have 8. Try borrowing milk from a next door neighbour whose house has just burned down or, whose inhabitants are being dealt with by social services. An expanded LPI could provide a vital insight into this area and place an emphasis on external contingency as well as internal structures, performance and monitoring. Witness the implementation of a Tsunami early warning system in the Indian Ocean post tsunami – ignored by the Junta in Myanmar as if to prove the point.
• Inclusivity. Low growth in mature markets is driving MNCs to look to emerging and developing markets for growth. In 2010 39 per cent of acquisition deals by consumer companies were in emerging markets, compared with just 1 per cent in 2008 according to the Grocer’s OC&C Global 50 league table. There needs to be some way in which recovering regions can be re-built in the best interests of local people. We need to look at how Singapore, Taiwan and more significantly South Korea could be transformed over time. In logistics terms, we need to shift the emphasis from supply chains to what Malcolm Harper (2009) has called Inclusive Value Chains – a focus on linking small growers and producers to modern markets. This is the route to sustainable livelihoods and not just sustained growth for the developed world. As recent events demonstrate closing rather than widening the gap between rich and poor makes commercial sense.

….

All of the above merits a renewed effort to develop a research agenda to underpin global policy. The Humanitarian effort is underserved in any case but, what happens after the Emergency is most certainly the Cinderella at even that rather badly served table.

Each disaster area has a unique challenge – its own ground zero; and, a set of options that need to be understood; prioritised and delivered. Citizens need to be given the security of a job and a home; International business protected from corruption large and petty and, small business from government corruption and big business exploitation alike. Enabling strategies need to be developed and implemented to build the platform for sustainable growth and this does mean a long term vision far from the bottom line of quarterly shareholder reports.

We need to develop strategies to witness, understand and explore transitions from emergency to reconstruction. This is vital and so many governments; major international corporations; international agencies and specific trade associations can only benefit from this effort. At the very least it will improve value for money and result in wider impacts.

The Economic Intelligence Unit coined the term Civets (Columbia; Indonesia; Vietnam; Egypt; Turkey and South Africa) in 2009 to refer to a second division of developing markets which will grow three times as fast as mature markets this year. The EIU predicts growth rates of .9 per cent for Civets countries over the next 20 years compared with 1.8 per cent for the G7 countries.  Although it was only established in 2007, the S&P CIVETS 60 index is ahead of the S&P BRIC 40 and S&P Emerging BMI over one and three years.

There's life beyond BRICs ...

CIVETS countries all have large, young populations, with an average age of 27. This, or so the theory goes, they will benefit from fast-rising domestic consumption. CIVETS are also all fast-growing, relatively diverse economies, which means, unlike the BRICs, they should be less heavily dependent on external demand. This is a sketch and more details will follow in other blog posts on each CIVETS economy and, another group centred on Jim O’Neill of Goldman Sachs concept of the Second 11; the next eleven economies after the BRICs.  Meanwhile, here are some quick notes…

• Colombia. Once the basket case of the drug barons it is fast becoming the poster child for growth. Using significant oil revenues 9third largest supplier to the USA) to fund infrastructure improvements (more Norway than Nigeria); there is a real drive to diversify the economy. Its population of almost 45 million is made up of 27% 0-14 year-olds and 67% 15-64 year-olds, giving it a median age of 28, compared with 40 for the US and UK.  Textiles, food processing, textiles and FMCG categories are building momentum with the consumer and, export potential. Otherwise, cement and aggregates; gold and emeralds offer heavier industry opportunities to match.
• Indonesia. At 245.6 million, this is the largest Muslim country and, fourth most populous in the world with an average age of 28 years. Income has reached $3,464 per capita – up 15% from 2010. Business Monitor International predict that GDP growth will average 6.1 % through to 2015. Surprisingly, the modern retail sector is strong in populous areas with 37% market share – versus  6 to 10 % in India. Mobile phone penetration reached 48% in urban areas by 2009.
• Vietnam.According to the World Bank’s in 2009 Vietnam’s GDP will growth 5.5% only, much lower than the expected 7.5%. By 1987, the private sector virtually did not exist in Vietnam. After 20 years of reform, Vietnam has put in place the fundamentals of a market economy and opened up the economy to international flow of capital and trades in goods and services. The emergence of the market-based economy with appropriate institutions, stable macroeconomic environment and the support of the government for business development have allowed Vietnam to unlock the potential of the agriculture sector, turning Vietnam from a food-hunger country to the world third largest rice exporter.By 1987, the private sector virtually did not exist in Vietnam. After 20 years of reform, Vietnam has put in place the fundamentals of a market economy and opened up the economy to international flow of capital and trades in goods and services. The emergence of the market-based economy with appropriate institutions, stable macroeconomic environment and the support of the government for business development have allowed Vietnam to unlock the potential of the agriculture sector, turning Vietnam from a food-hunger country to the world third largest rice exporter. Largely due to the War in the 1960s and 70s, this is a young country. Vietnam has however slowly begun to make inroads into regional Chinese dominance of low end manufacturing of items such as shoes and garments where low labor, welfare and operational costs are attracting foreign investors away from the rising costs in China. A study by the Japan External Trade Organization found that a Vietnamese manufacturing worker earned US$101 a month against US$217 in China.
• Egypt. Has a big, young population—82 million strong and with a median age of 25. The Arab Spring has put a brake on progress but the legitimate protests have opened up interest in the wider marketplace. For example, Retail. However, political turmoil needs to settle and upcoming elections should put a perspective on the military role. As things stand, military control risks spilling over into a stifling of hard won freedoms as a means to protect vested interests. This will impact FDI and slow potential to a standstill. The prize remains: Egypt can play an increasingly crucial role as a bridge between East and West. Meanwhile, this morning, a BBC reporter asked a street trader: “How’s business?” “On one leg” came the reply. [BBC Radio 4, World At One, 22/11/11] The issue right now is the Army – who have been in a key role since 1952 and control an estimated 40 per cent of the economy.
• Turkey.The bridge between east and west, the Turks have been at the edge of the EU debate and, must be thinking hard as Greece and the Euro Zone go deeper into crisis.Turkey’s business sector has achieved high growth over the past few years. However, Turkey has relatively few natural resources of its own, but it has a diversified economy as well as major natural gas pipeline projects which make it an important energy corridor between Europe and Central Asia. Some labour-intensive sectors lost competitiveness prior to the currency depreciation in mid-2006 and faced employment losses, raising political pressure for interventionist policies.Overcoming the duality between the formal and informal sectors should be a key concern and could be instructive for other Civets economies.
• South Africa.The mantle of most developed country in Africa matters. And yet, it had the slowest growth of all Civets markets in 2010 and unemployment stands at around 25%.The latest World Economic Outlook from the International Monetary Fund noted: ‘A surge in unemployment, high household debt, low capacity utilisation, the slowdown in advanced economies, and substantial real exchange-rate appreciation are making for a hesitant recovery.’The IMF is forecasting growth of 3.4% in 2011 and 3.6% in 2012. Still, that compares favourably with the IMF’s 2012 outlook for US growth, put at 1.8%, and the UK, at 1.6%. South Africa’s fast-growing middle class makes domestic consumption a major opportunity – the retailer Walmart bought 51% of Massmart earlier this year

A common framework on Civets would look something like this.

1. Base Case. Ever investor wants to know what are the chances of doing viable and sustainable business in a given market.

• Political stability. Egypt illustrates a point and all countries have to be closely monitored. The message has to hit home, corruption does not just protected vested interests; it deters FDI and sustainable growth.
• Demography. These are all big populations but what is the youth factor and, how is gender handled.
• Governance. Corruption and how this is handled is key.
• Ease of doing business and visibility. International standards are needed to ensure that end-to-end global supply chains conform.
• Informal / Formal mix. Few countries from mature markets understand this well but the informal market is responsible for 1.8 billion jobs worldwide. It is not all about crime and excessive official corruption from a formal Public Sector and Legal system often plays a far greater role in marginalising what could be legitimate activity.  The role of land title is crucial here. As a percentage of GDP, the Civets informal market size in 2009 was: Colombia, 39.4%; Indonesia, 19.1%; Vietnam, 15.7%; Egypt, 35%; Turkey, 40% and South Africa, 28.5%. This compares with the BRICs: Brazil, 39.8%; Russian Federation, 46.6%; India, 23.7% and China, 13.2%. See: Schneider & Buehn (2009). These are not small numbers.

2. Infrastructure. This is the Achilles heal of many emerging and developing markets. The impact is huge in mature markets – it is estimated that the ROI on every £1 spent on infrastructure is £3 – imagine what it can be elsewhere.

• Hard. In India, and in Colombia the Economist noted: “the monumental backwardness of Colombia’s transport network is the biggest obstacle to economic growth.” The same applies in Vietnam whose textile industry has long suffered against Malaysian competition – due to a relative logistics weakness that nullifies low cost manufacturing on the route to market. While China remains significantly ahead of its neighbor in terms of supply-chain infrastructure, Vietnam is moving to address its weaknesses and the future growth of the nation will be dependent on how the government is able to address this key challenge.
• Soft. Broadband is key to enabling rural as well as urban markets. In 2005, Indonesias nine largest cities had 8% internet connections- this has quadrupled. In 2009, three per cent of consumers said that they would buy on line. Now, this has risen to over 80 per cent.
• Intermediate. This is the warehousing and truck fleets on the ground. More information is needed on this.

3. Modern and traditional market mix. All Civets have to respect the mix of traditional and modern. The nature of the appeal to youth markets is instructive. For example, advertising spend is up 39% YOY in Indonesia and this applies equally to modern and traditional outlets.

4. Logistics flows. These are the physical movement of goods; information and, cash flows.

• Physical movement of goods. This is not all about state-of-the-art solutions. Where modern firms source from an eco-system of micro or SMEs, supply chains will be characterised by hybrid solutions from end-to-end.
• Information flow. Cash flow. Places like Turkey have fewer than 40 per cent with bank accounts and so the potential to develop mobile solutions is significant.

5. Sector potential. Infrastructure; power; logistics and retail provide a useful platform for sustainable growth in all markets.

• Infrastrutcure.The Pearl River Delta experience is instructive here. Today, this is the … Back at the time of the 1997 Hong Kong handover nothing could be further from reality. The plan was to create a cluster of construction companies that could serve the huge investments in infrastructure and pave the way for light manufacturing companies and electronics to follow – benefiting from critical mass; improved connectivity and market access beyond the Pearl River itself.
• Chemicals. A key enabler of economic growth, as it is an integral part of heavy industries. The chemicals industry broadly covers the sectors of petrochemicals, fertilizers, basic chemicals, pesticides, industrial chemicals, pharmaco chemicals and consumer chemicals.
• Retail. The key here is the nature and scale of the traditional trade. The mistake would be to see this as no more than a drive towards the modern. India proves that there is considerable potential in the traditional sectors.
• Dairy. The Civets economies have more domestic than export potential. As such, dairy products will grow significantly. For example, Vietnam Dairy (Vinamilk), is well positioned to benefit from Vietnam’s 10% a year growth in demand for dairy products.
• Skills and knowledge transfer. This is a key localisation strategy; a means to ensure that sustainable growth can be delivered by local actors and not just bought in migrant labour.

We then come to the agenda for logistics and supply chain thinking and practice in these markets. Each of the above Civets economies has a unique story. Above all, there is no homogenous solution to all at the same time. This is why we need to develop a research agenda on these markets to develop a more robust approach that can cope with an emerging modern sector; developing (not dying) traditional sector and a convergent set of needs to enable inclusive and sustainable growth.

This agenda will be of great use to multinationals seeking sustainable growth and not just short term sales boosts in these markets. Equally, for those countries ravaged by disease or natural disasters, a clear understanding of the dynamics of post emergency markets will play a major role in value for money on humanitarian efforts and, the ability to open up local markets to global opportunities.

This is a transformational agenda that is vital to international private enterprise as well as international funds supporting specific initiatives. It is not about the export of legacy “best practice” thinking from mature markets. It is all about fresh thinking where it is needed.

How do we deliver over there?

Mainstream business books are full of illustrations; logistics and supply chain performance is a major part of any firms competitive advantage. This means the effective and efficient combination of all the flows (physical movement; information and cash) AND available local infrastructure are key to sustainable growth. However, in many of these high growth frontier markets infrastructure is NOT a given and many business models will have to adapt to a less than homogenous operating environment.

Marketeers have been licking their lips on the opportunities that are opening up in populous emerging and developing markets and many companies are cherry picking urban markets as opposed to the harder to reach rural areas. This approach may well be flawed and risks may be higher than a headcount analysis can determine. After all, those with discretionary spending power still live in congested places and rural areas remain more than 60 per cent of the market in many consumer categories in many emerging and developing markets.

The BRIC (Brazil, Russia, India and China) and Second Eleven (Mexico; South Africa; Indonesia; Vietnam; Malaysia …) economies are experiencing high growth and, rapid urban expansion. And yet, under investment on infrastructure and the reality of urban congestion is becoming a real brake on sustainable growth. China is experiencing significant wage hikes in coastal regions: 15 to 20 per cent year on year is common in Guangdong, the engine room of Chinese manufacturing. So, several Chinese companies have started to look overseas to increase their capacity. For example, Bangladesh is attractive – wages are 30 per cent lower than in Shenzen; people will work 48 hours which is more than the statutory 40 hour week in China and the government is offering a 10 year tax holiday. And yet, traffic congestion is appalling, electricity black outs are so frequent that companies have to invest in alternative generator sources and logistics resources are there to be built. This position is similar throughout India and Africa where clusters of support services and skilled labour just do not exist. Take Special Economic Zones in India again. It depends where they are – whether the connecting infrastructure essential to market access and the skilled labour pool or training policies are in place to ensure viability.

This past summer, I was working in Andra Pradesh and Tamil Nadu; we were looking at Coimbatore, the Manchester of South India – so called because of its large textile industry fed by the surrounding cotton fields. Success has acted as a magnet for rural migrants and the population has exploded from 816,000 in 1991 to well over 1.7 million by 2011 – a figure that grows still further as we consider the wider agglomeration. It is a story typical of urban areas all over India as the number of Indians living in urban areas has surged to 400 million – about 31 per cent of the population and growing fast. The percentage of people living in cities of more than 1 million was 3 per cent in 1950; it will reach 15.6 per cent in 2025. A recent government report suggests that India will have to spend $950 billion over the next 20 years on urban services including power, water and sewers. Imagine the commercial opportunities opening up for everything from milk to mars bars but, what can be done without maps …

It is one thing estimating what needs to be done and quite another how to do it. In many emerging, developing and now devastated markets – where all of this growth potential exists – few people know what is on the map. There are no up to date maps or plans of any city in India – by the time one is completed, somebody has built an extra room, a floor or even a new building. A lot of what is actually in the built environment should not be legally there in the first place. This is not unique to India.  Neither is it unique to the emerging and developing markets. Regional disparities in mature markets are equally damaging. Differences in Italy between Northern (€25k GDP per capita) and Southern (€16k GDP per capita) Regions are chronic and this difference is characterised by a more informal context in the south. With the current economic crisis throughout the EU, youth unemployment and efforts to upskill the workforce have stalled. And then, any effort to explore frontier markets is hampered by local conditions.

We spoke with Rod Stout, CEO of businessmodelling – a South African based supply chain optimisation consultancy with extensive experience in building sales and distribution capacity in the shanty towns like Soweto – and it became plain that many of the retail outlets in shanty towns move constantly; they cannot be fixed by a GPS system without constant adjustment. Rod reminds us: “These areas represent huge sales potential but, they are informal and regular trading conditions just do not hold. Any business has to re-think their approach in these environments and there is no substitute for work on the ground. You can’t do this on a screen and this represents a major culture shock for logistics and supply chain professionals trained in the developed world.” We need to remind ourselves that the informal market worldwide is worth $1 trillion – which is 20 per cent of the size of the China market!

The other issue is the difference between plans and reality. In Indonesia during Yudhoyono’s first five-year term, only 125 kilometers (78 miles) of toll roads were built. In China 4,719 kilometers of expressways were added in 2009 alone. Indonesia aims to build 20,000 kilometers of roads and add 15,000 megawatts of power generation by 2014. Similar claims are made for places like Vietnam but red tape and corruption gets in the way. Just how long local as well as international investor patience can hold in these markets may determine social cohesion and security as well. This is a viscious circle; delivery is becoming the difference – not brochureware.

Recent humanitarian disasters in Queensland, Australia (coal mines and wheat production disrupted) Japan (IT components destroyed) and Thailand (auto components and textiles dislocated) sharpen this perspective – maps are history. What do you do when the entire infrastructure is destroyed? Photographs of the disaster in Japan ask the question – where do you start? More to the point, previous disasters could be dismissed as force majeure, acts of God, and put down to bad luck. Increasingly, shareholders will not accept that excuse as they insist – why didn’t you see this coming? Then, what are you going to do to build it back … better.

The skills required to build back infrastructure are at a premium. Take Canterbury, New Zealand after the recent earthquake. The Canterbury Employment and Skills Board are on a global recruitment drive to attract 30,000 skilled workers needed for construction, engineering and IT roles in Christchurch over the next 10 years. This project is worth well over $20 billion. We can expect a similar recruitment drive to follow all humanitarian disasters – especially those that have played a significant role in global supply chains and this will mean not just building back but building back better – so that supply chain risk is minimised.

That’s infrastructure over the longer term. Again, the skills required to build back the market for all sorts of products will not be those that are taught in conventional business schools. Try building a sales strategy in urban spaces that are so much in flux. The outlets are small and reaching them can be problematic – necessitating a complete rethink on distribution. For example, a move from trucks to manual handling systems. I recall building sales strategies in the transitional economies of Eastern Europe – there were few shops; most of them were informal kiosks and in Russia they had to pay krysha (roof) to the mafia to stay in business.

These environments are frontier markets and there has to be a total re-think in order to cope let alone prosper. It is as if we are moving from the need to understand orchestral music with rigid scores; defined musical roles and responsibilities led by a conductor to the ability to play jazz and improvised music. Logistics and supply chain thinking has to respond to demographic trends and urban congestion with innovative fresh practice. Best practice from the developed world is not the way forward. We need a transformational agenda – especially as shareholders force the Fortune 500 to go where the growth is.

How else can I make my living?

Bouazizi was 26 years old. He was not a salaried employee but an entrepreneur. He had clear ambitions and dreamed of owning a truck that would help him scale up his business but that would have required collateral to access credit from a bank. That would have meant using the title from the family house – but that would take 499 days of red tape at $2,976 and, to legalise the business would cost 12 times his normal monthly income. When Hernando de Soto, the Peruvian champion of land rights for the informal economy, asked his brother what Tarek would about what his sacrifice would bring to the Arab world, Salem did not hesitate: “that the poor also have the right to buy and sell”. With so much talk in the UK about the St Paul’s protestors and others in the USA and all over Europe protesting about capitalism it seems timely to explore how these two events blend into a call for capitalism not so much to disappear but to transform itself and with it logistics and supply chain thinking.

In recent months, this Blog highlights the need to move beyond mainstream logistics and supply chain thinking and build a variation more relevant to emerging, developing and devastated markets. This is the Majority world; already significant with 7 billion on the planet but, likely to be utterly dominant with 9 billion by 2050. Last year, more people lived in urban than rural areas; by 2050 this will shift to 75 per cent urban, generating a raft of issues from urban lay out; infrastructure to cope; energy mix to enable sustainable livelihoods; affordable (and own-able) homes to accommodate the workforce and, the dilemma of how best to accommodate a population characterised by informal living and working conditions. This is placing logistics and supply chain thinking firmly in a wider context – the world we actually live in.

And yet, our world tends to obsess on the trading dialogue and partnerships of BIG Corporations – retailers; suppliers and bankers – and fails to understand or banish to the margins the small or micro firms that emerge despite the system all over the world – some formally set up and the majority forced into the shadows by red tape at best or corrupt officials at worst – just like the story of Tarek Mohammed Bouazizi. SMEs (small and medium-sized enterprises) account for 60 to 70 per cent of jobs in most OECD countries, with a particularly large share in Italy and Japan, and a relatively smaller share in the United States. These figures close on 90 per cent in other emerging and developing markets and, globally they account for a disproportionately large share of new jobs. The plight of people like Bouazizi has become a major constraint on the way out of the current smouldering global economic crisis.

Despite an ever less convincing rhetoric, the  global political elite seems to champion the BIG monopolistic battalions and ignore (or fails to understand) the very lifeblood of core capitalism – the hugely competitive small traders from Buenos Aires to Birmingham; Cairo to Conakry;  Johannesburg to Jilin – everywhere really. The issue is that most jobs are generated by SMEs or, micro firms.

These figures are for the developed world where the success of SMEs is a vital part of re-balancing the economy away from the Public sector – especially when they are more heavily concentrated in high-unemployment areas. For example, in North East England with 11.3 per cent unemployment, SMEs account for 20 per cent of jobs and throughout the UK they represent over 30 per cent of manufacturing jobs. In addition, the CBI (Confederation of British Industry) estimates that 6 per cent of UK mid-sized companies make 60 per cent of all new jobs and if more could reach their potential it could add £20 to £30 billion or a quarter per cent of GDP. If this is the case in mature economies; imagine the numbers in emerging and developing markets. More to the point, how can SMEs in mature markets work with those in frontier markets without a radical overhaul of credit lines. In fact, where are the initiatives that would see investment in global supply chains as opposed to individual companies?

One of the major issues that we need to address is the definition of an SME itself. In the EU, the distinction is being made between an SME and micro business – which employs less than 10 people and whose turnover is under €2 million. Many of these micro firms in the UK and elsewhere are tempted into the black economy – to avoid the red tape. Cash in hand is far easier than registration and this is a widespread practice. Let’s get real, 95 per cent of all businesses in the UK are micro businesses and, 90 per cent of the jobs created in the USA since the 2008 recession were created by micro businesses. This is Basboosa territory.

Then, there are the risks associated with the shareholder model of large Corporations. As EU growth forecasts are revised down from 1.8 per cent to one half of one per cent the risk of  shareholders voting with their feet and moving to where the growth is – emerging and developing markets – is palpable. As Marx pointed out: capitalism holds the seeds of its own destruction.

Transformational thinking argues against the notion that globalisation is moving towards a homogenous one-size-fits-all world or even needs to. Diversity is a viable alternative. And the transformational agenda highlights the dangers inherent in monopolistic market shares in categories from automobiles and aviation to FMCG goods and fertilisers. A transformational agenda argues that such monopolistic tendencies destroy competition – the very lifeblood of capitalism – and fails to add value.

Transformational thinking explores alternative forms of enterprise and, like global energy policy sees strength in a viable mix. Just as we need to move to a mix of fossil; renewable and nuclear fuels; we need to allow for small, medium and even micro firms; some operating with shareholders and others based on a stakeholder or cooperative model – like dairies all over the world. And then, we need to set in place the ability to finance all types of enterprise – not just the major Corporations. We need finance for innovations in product and process not just in the architecture and instruments of finance itself. We need to acknowledge that finance is an overhead to the central core of enterprise; a means to an end and not an end in itself. And we need to understand that taxation has become discretionary for many Multi-National Corporations with their access to advice and, leverage with governments. The real point here being that MNCs employ few people in mature markets and this is unlikely to change going forward. Added to the red tape and corruption that consigns many informal players to the margins; we need more innovation on the nature of the firm. Look at the Cooperative model and the dairy industry. Amul in India have managed to build a $1 billion brand out of the collective effort of North Indian farmers. There are lessons there.

Transformational thinking argues for an ethical dimension to business. This is rooted in Adam Smith – though not solely from his book the Wealth of Nations but from an earlier and totally complimentary work The Theory of Moral Sentiments. This is the inspiration for Amartya Sen’s focus on the need for an ethical dimension to capitalism; which, in the current world, urges a triple bottom line of planet and people as well as profits. After all, the three F’s crisis of recent years (Food; Fuel and Finance) should have taught us by now that we need to know more about the real price of goods – this means adding in the real costs of carbon to operate stretched global supply chains and, the real social costs of high unemployment (especially amongst the young).

The youth factor is not to be ignored. Politicians have failed to address the issue of intergenerational equity. For example, in continental Europe, a two-tier labour market forces younger workers to suffer job insecurity, while preserving a significant degree of protection for older workers. Much of the frustration at St Pauls could be rooted in this issue and, as youth unemployment rises so too does the potential for another Basboosa – there has been a copy-cat incident in Italy already. This is not just a protest it is a business risk.

Recent natural disasters have sharpened the need to factor risk into supply chain modelling and practice. For example, the volcanic ash from Iceland closed down the Kenyan horticulture industry within hours (more than 20% GDP); the floods in Queensland wrecked the coal mines that many power stations from Japan to India depended on; the Japanese earthquake and tsunami impacted a number of IT companies worldwide and, the current calamity in Thailand is reducing many auto component and textile supply chain to a standstill. These are the type of risks that caused Ericsson to lose market share with the fire at Alberquerque and then, due to the Japanese and Thai disruptions, exit the mobile phone market altogether. Plainly, the race to the bottom price and the footloose Corporation is not the one best way when it carries risks in terms of location and, market access costs.

Humanitarian disasters themselves are part of this transformational agenda. The sheer scale of disasters in recent years argues for greater focus on the logistics and supply chain dimension. However, we need to look beyond the emergency response itself and explore what happens next. Is it enough to allow the market fundamentalists invisible hand to re-build destroyed or temporarily repaired infrastructure so vital to any supply chain? For example, was it enough to leave Iraq militarily and assume that market forces will take care of the road to sustainable growth? And surely it is in everyones interest to ensure that enabling infrastructure and market access is restored in places like Queensland and coal; Japan and IT components; Thailand and auto parts – all so vital to the global project. Does the world have time to wait for some mysterious market alchemy to deliver the solutions. Surely, we need to acknowledge that big ticket items like infrastructure; connectivity and the ability for small firms to start up and prosper cannot be left to chance.

This post emergency opportunity is especially valid in terms of traditional indigenous industries. For example, the traditional Persian rug style carpet industry is estimated at being worth over $2.5 billion. As Iranian, Pakistani and Afghan “brands” have their problems, the opportunity opens up for alternatives. In fact, it is Chinese industrial production that is soaking up global demand and thereby reducing the opportunity for the creation of sustainable local business where it is most needed. A failure to respond to this creates unemployment and from this a breakdown of the social cohesion that can result in terrorism and global security problems. Transformational thinking champions a an inclusive agenda and more could be done to develop traditional industries with huge benefits to social cohesion and global security.

The transformational agenda offers a focus on traditional industries characterised by fragmented, low-tech and under-funded players. This contrasts with the modern, highly concentrated and high tech MNCs with their ever widening global reach. And yet, this focus does not hark back to a better yesterday but opens up fresh potential for adaptable and proportionate technology responsive to local context and needs. This last summer in Andra Pradesh, we worked on seven traditional supply chains and noted a host of opportunities for mobile telephony (aggregation of demand and capacity to supply); packaging (shelf ready post-harvest packaging) and, a range of ideas on adaptable, affordable products and processes.

Transformational thinking challenges market fundamentalism and monopolistic capitalism – these days both are targets for the UKs Business Secretary Vince Cable and an increasing number of politicians of all types and, pundits alike. For example, the top ten companies in aviation, automobiles, oil, fertiliser, FMCG goods – the list goes on – have a global market share of from 50 to 85 per cent. This is hardly a recipe for competition and more than likely triggers other issues such as fashion stores being challenged on child labour; MacDonalds on child obesity; tobacco companies over the use of chemicals to accelerate addiction; banks over lending practices; retailers over payments and margin pressures on small producers and, their local impact on small traders. It is increasingly acceptable to argue for social and environmental sustainability as well as financial returns.

Questions on business fundamentals came fast and furious after the financial crash of 2008 when the developed world socialized losses after a lengthy period of privatized gains. This was the bonus culture across the banks and multi national corporations.  Economists call this “asymmetric incentives.” You make money by taking risk, but nobody takes it away from you when the strategies don’t work and lose lots of money. That’s not capitalism! That’s not a market economy. It’s a game of heads they win, tails taxpayers lose.

The analysis turns on other examples of monopolistic or oligarchical behaviour all over the world. For example, parallels can be drawn between the decline of Argentina from being a leading economic power in 1914 and how the conservatism of major land owners, oligarchs, destroyed innovation and wrecked the chances of a diversified economy. It is a lesson for African countries with sudden mineral wealth – will Ghana become Norway or Nigeria – and, places like Russia where the oil price impacts all of the economy. It is a lesson for all businesses that have created a massive gap between the remuneration of the boardroom and entry level employees – on average an America CEO earns 185 times more than the entrant employee. Discuss. In a more integrated world, inclusivity is ceasing to be a political choice; it has become a social and environmental imperative that the politicians cannot ignore.

The point from the Arab Spring is that protest will come from unexpected quarters. Let us not forget that leading South African companies were actively supporting exiled revolutionaries to wreck the apartheid system. The logic of apartheid said that the black majority were to be denied an education and that meant that businesses were starved increasingly of skilled labour. Then, there is the relevance of small traders in all of this. Jan Palach, the Czech student whose death in 1968 in St Stanislaws Square triggered the Prague Spring had more in common with Tarek Mohammed Bouazizi than setting fire to themselves. Jan’s parents were small traders and owned a sweet shop and Basboosa was a fruit and vegetable vendor on the streets of Tunisia.

We are experiencing political and economic tectonic plates shifting. Much of this is being driven by demography – the biggest and the youngest populations are in the emerging and developing world and, these developments have been speeded up by the financial crisis of 2008 and are likely to speed up still further with the Euro crisis now. These markets have growth where the mature economies are stagnating. Orthodox economics builds a narrative on two levels: macro and micro economics. The macro level focusses the allocation of resources subject to constraints – and now that markets are globally integrated a complex cocktail of geographical, institutional, social, cultural and  geographical make for real problems of alignment. Then, micro economics – where the rubber hits the road. As we factor in the unique characteristics of this emerging world order we note and increasing tension between the macro and micro levels and a need to build better ways of relating the two. This is part of the transformational agenda.

Let’s make no mistake about this, a transformational agenda asks questions about how a values driven agenda can succeed – which CAN be both inclusive AND good for business. Given the evidence of global stock markets, this is a welcome insight. For example, Vodafone is writing off £450 million from its Greek business and looking to emerging markets to re-build revenues; Diageo, whose brands include Guinness and Smirnoff, is cutting payroll in the EU by £80 million and refocussing on emerging markets in Latin America, Africa and Asia. The list goes on and, as mature markets stagnate and the coherence of the Euro Zone falters, Financial Institutions and MNCs will look for growth elsewhere.  These companies cannot afford to ignore the true context they will be trading in and, they cannot abandon their roots either. An innovative approach has to build from a platform of environmentally realistic; socially sensitive and economically inclusive roots.

For decades capitalism was able to sell the idea of a better future. Now, there are real questions about the legitimacy and integrity of a system where executives make, on average, 350 times more than the lowest-paid workers. Professor Michael Porter has joined the chorus urging businesses to create economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress and create shared value. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. Porter is clear: shared value is not on the margin of what companies do but at the centre and can be the next major transformation of business thinking. See: Harvard Business Review.

Add to this the perception that austerity budgets, funded by ordinary citizens paying taxes, are using the money to pay off the country’s debt and not to invest in job creation and the well-being of its citizens by building schools or improving the health care system. Market capitalism will ultimately be judged by the reaction of the business sector and public sector to the human problems caused by today’s crisis. If steps are not quickly taken to improve the social consequences that affect huge portions of the population, the backlash against capitalism will be serious. As the FT’s Economics Editor Martin Wolff puts it in a BBC Radio programme this week: “”we can’t continue with business as usual.”

The celebrated historian, Braudel said that history is what people make of their geography and the history of this next phase in capitalist development will be a function of how diverse and inclusive that geographical reach will be. Capitalism is suffering from those who defend it as being monolithic when there is more to be gained by accepting that  there is more than one variety – to critique and to defend.

Medjool dates grown on the West Bank
Chilean cherries, Brazilian limes,
Californian pistachios, pomegranates, grapefruits,
Spanish sun-soaked clementines.

Columbian physalis, Italian kiwis,
Fresh strawberries from the land of the Nile,
New Zealand apricots, South American melons,
Jet-lagged bananas of the Windward Isles.

South African lychees, passion fruit, peaches,
Costa Rican pineapple, Portuguese pears,
Israeli Sharon fruit, oranges, lemons,
Red grapes, green grapes, golden plums.

The fruit is green but not its journey -
Miles and miles across the globe.
Only a bag of Cox's apples
Came from an orchard down the road.

From, Green Poems for a Blue Planet - with illustrations by Nick Park
www.martinkiszko.com
www.greenpoemsforablueplanet.com
AND, have a look at this - Takeaway Carbon 
 

Vertical means developed world architecture

A while back, I went to the Whitechapel Gallery in London and saw Twins, a piece by the Indian photographer Rashid Rana. From a distance, the two prints (171 x 228 cm) are streaked with light. Close up, each canvas is made up of tiny photographs of dwellings characteristic of the Majority World. It reminds me of the view from a plane on a landing approach anywhere from Jakarta to Soweto; Luanda to Rio; Dharavi in Mumbai and the adjacent Financial District. The symbolism of a vertical developed world architecture contrasting the horizontally humble dwellings of the developing world reveals itself and, the reference to the Twin Towers makes it all the more poignant. Twins triggered a thought – the need to develop a more inclusive architecture that responds to and does not seek to divide a city into the haves and have-nots; gated communities for some and slums for the rest.

In his treatise on urban architecture, Urbanisme (1925), Le Corbusier argued that the zig zag tracks of donkeys are behind the shape of all cities of the continent. He argues for sanity; he insists that the random and chaotic trajectory of donkeys has to give way to rational and logical lines. Fast forward to now and, this is the inspiration behind plans to redevelop Dharavi in Mumbai and re-settle a whole community in purpose built tower blocks elsewhere. Notions of living and working in the same space are rejected, yet again, to replicate the soulless projects typified in 1960s European architecture or, the Soviet experiments such as Nova Huta near Cracow , Poland. There is no scope for the zig zag of individuality let alone that of donkeys and scant attention is given to the affordability of housing amidst grand Municipal designs or abandoned renaissance projects throughout the contemporary developed world.

Demographic studies make clear that the global population burst from 6 to 9 billion in 2050 will explode in the cities where 75 per cent of the total will live. At current levels an estimated 1.3 million people move to cities every week and, 2 billion people or 1 in 4 will live in slums within these cities by 2030; 3 billion by 2050.An estimated 50 city regions generating more than 60% of globalGDP. These facts demand the re-thinking of urban spaces and the building of inclusive environments that acknowledge the existence of informal communities and, drive necessary transformations.

The work of Chilean architect Alejandro Araveno and his aptly named “do tank”Elemental, is an innovative response to the challenges these demographic trends generate. With a combination of idealism and pragmatism, Alejandro champions urban density seeing this as a cornerstone of affordability. Pointing out that location is a major constraint relegating people to the margins of the cities they work in or, in squatter settlements that do not gain in value – not that this matters when you have no legal title in the first place.

First the structure; then customisation

Elemental want to design and build better neighbourhoods but this does not mean the gentrification of slums first highlighted by Jane Jacobs in The Death and Life of Great American Cities (1961) nor the prescriptive rigidities of other “social housing projects”. Elemental want their housing to be an investment and not just an expense but they aim to do so within existing economic and political constraints. Given the current global economic climate this is worth listening to.

Araveno and Elemental are best known for their “half a house concept”. This is the problem – slum areas are restricted in size; there is not much space. So, conventional architecture could do one of three things:

• Few medium size houses – and then most people have to leave, as there are no houses for them.
• Loads of small houses – but still not enough, too small, and these houses would be difficult to “expand” as families needs grew.
• Highrise buildings – these have been tried and failed the world over.

The Elemental project’s solution was this.  The project would plan for the “medium” size houses, but build only half the house.  They would plan (and build) in such a way that more units could fit in, and that the families could easily expand into the “missing” half when they were able to do so.

The economics are revealing. Phase 1 – the foundations and load bearing walls that offer a safe structure costs $100 per square metre; Phase 2 – is left open to the individual family with an average cost of no more than $20 per square metre. Phase 1 is based on prefabricated modular designs which offer simplicity, standardisation and speed. This approach learns from what happens in the favelhas and townships where homes are built – and customised – room by room but, answers the need to improve safety and create sustainable solutions.

Alejandro Araveno and Elemental open up an innovative architectural dimension that triggers a number of other transformational ideas in infrastructure:

• Hard infrastructure. A whole range of affordable solutions for road surfaces to using barges and coastal transhipment.
• Soft infrastructure. The need for affordable connectivity rather than fully fledged ERP. Wireless and mobile phones to aggregate information on production capacity and demand – this challenges rapacious agents and helps build inclusive value networks instead of supply chains.
• Intermediate. The nature of warehousing and materials handling equipment; manual handling as well as state-of-the art machinery. What about bonded warehouses in “hub” villages? Then, there are trucks – a major issue in all developing economies.
• Green and sustainability agenda. This needs to embrace process as well as facilities and energy options are opening up all of the time. Are we trapped in developed world legacy systems (that they need to sell) or, ready to develop and build according to local needs.

The transformational agenda is wider than logistics and supply chain thinking and practice. As this example from Alejandro Araveno and Elemental; inclusivity, adaptability, affordability and accessibility are all factors relevant to architecture just as much as an end-to-end supply chain. Then, there is the dignity of having a place within society and not being consigned to the margins. This is a major part of what Professor Michael Porter, amongst others, are calling “creating shared value” – the idea that corporate activity which advances society will contribute to a positive cycle that allows everyone to grow faster.    

Rashid Rana’s Twin was exhibited at the Whitechapel Gallery during the Where Three Dreams Cross exhibition (January to April 2010)

This story picks up momentum on a beach in Rushikonda, just 13 kms from Vishakhapatnam on one of the best rated beaches on the south east Indian coast. One morning Rob Bell was walking the beach and, having taken a photo of a fishing boat on its way back to the shore continued the sequence on to the beach; unloading the nets; sorting the species and sizes and then, as the women arrived to trade with agents, an idea took shape …

Off to market

Textbooks are full of supply chain examples and, sophisticated supply chain optimisation software can “map” a process from raw material to value addition and on to the consumer or end user on the screen. This summer, on a Logistics Course at GITAM International Business School, Rob Bell worked with an MBA class to map from end-to-end a number of supply chains such as Fish; Mango; Banana; Dairy; Bakery and Vegetables – starting on the beach or in the field and on to market by bullock cart or rickshaw; bike or light truck. The idea was to nurture the students interest in reality rather than simulation and, encourage them to learn from everyday business practice and process all about them. The developed world and high tech supply chains are not the only source of insight into supply chain techniques and hands on experience can improve the ability to read a supply chain and stimulate insight, analysis and innovation.

Nearly forty MBA students were split into groups to complete desk research on the product to generate basic background information on market size, scope and share. From this platform the teams worked in the field to map the supply chain from harvest to market. For example, one team focussed the fishing community at Rushikonda up the coast from Vizag in Andra Pradesh.*

The Indian Fishing industry is a INR 220 billion ($ ) industry generating 1 per cent of GDP having moved from 0.75 Million Tonnes (1950) rising to 7.2 MT (2009); exporting $1.9 billion with over 5 million employed. This Study focussed South East India, 34% of Indian coastline; 21% of landings and 663,790 MT (2008). This is a significant  industry and, despite the traditional tools of the trade merits closer investigation – over 50% of landings are generated by the non-mechanised sector typified by the community at Rushikonda.

The team worked hard and swiftly to map the process from end-to-end. On Saturday, we observed the community at work on the nets and on the engines themselves – maintenance. Each boat was made of wood; the crew was from 6 to 8 and on some boats oars were used and others a small engine to speed up moving away from the coastline. The team interviewed the fishermen to understand the economics – a typical boat costs 200,000 INRs; an engine about 100,000 INRs and, nets (with 30 kg capacity) 15,000 INGs. Each trip to sea needs 10 litres of fuel costing 450 INRs and so on. Working with the local community takes time and patience with a need to cross reference and check – all skills needed in mapping exercises in the field.

On week days, after the sail and harvest itself, we monitored sorting activities and then loading the thatta (a basket and unit of measure costing 15 INRs); analysed the species – Indian mackerel; sardines; croakers fish and threadfin. Then the team followed the thattas into the fish market at Vizag observing the random selection of rickshaws and, in the market itself, photographed fish transferred to polystyrene boxes.  The boxes with the Red Cross insignia on the side – they were leftovers from the Tsunami of 2005! A clear illustration of the type of chronic under investment the industry suffers from.

The team spent time interviewing the fishermen and, the womenfolk who played a key role in selling the fish to agents on the beach and down in the market itself. We noted the lack of insurance; seasonal peaks and the need for better distribution and cooling facilities. This was a preliminary study and working conclusions highlighted the need for greater investment; succession planning and, the potential to develop cooperatives out of these communities as a means to build investment capacity; improve local value addition; skill development and retention. Similar observations emerged from parallel studies by other teams on mango to vegetables – with a fascinating comparison between a farmers market and a modern trade vegetable outlet in another study. The farmers market was superior on price, quality and freshness.

Fishermen in Kerala have used the mobile phone to communicate with the shore and then to the markets as a means to maximise income; secure orders; reduce waste AND reduce dependency on rapacious agents. The results are impressive: profits for fishermen up by 8%; consumer prices dropped by 8% and waste has fallen to zero from 8%. This is a compelling illustration of how we can develop these studies to open up other traditional – but no less important – industries to greater productivity without abdicating all initiative and innovation to MNC and the barons of the modern trade. A focus on the “black box” of the informal economy is a useful learning experience as well as being fertile ground for product development. Many developed world companies could AND SHOULD use this approach to grow business in quite different markets. Above all, this is the route to inclusive and sustainable growth.

The teams then pulled together all their desk research; photo sequences; observations and informal interviews to prepare a formal presentation reviewed by Faculty and their peers. Following this initiative, Rob Bell and the T L team are engaged in a number of discussions with businesses in India; Kurdistan; Africa; South America and Asia to open up these studies and extend them into a wide range of research projects leading to improved commercial performance. For example, in October, a team will be mapping the traditional carpet industry in Kurdistan and, another team will be studying where best to deploy or develop mobile technologies to aggregate demand and, operate more effectively and efficiently. Process mapping and value chain analysis tends to focus the physical movement of goods; we need to balance this with clear insights into cash flow and working capital management. This dimension will lead us to mobile solutions. Elsewhere, we are looking at garlic in Nashik and, we plan to extend these studies into Argentina; Colombia and elsewhere in South America. There is much to explore and even more to learn. We’d be keen to hear from anyone who would like to work with us in this exciting endeavour. See comments below.

There are many learnings from these explorations of essentially traditional “supply chain” contexts; most of which operate informally – are unregulated, not licensed and don’t pay taxes. However, according to the OECD, by 2020 these informal markets will generate two thirds of the global workforce and almost half of the world’s economic growth over the next 15 years will come from the top 400 cities in which this majority will live. Bluntly, no government, no multinational, no global non-profit or social enterprise can claim seriously to replace an estimated 1.8 billion jobs worldwide created in what we all too easily dismiss as the shadow economy.

The Transformational agenda advocates greater emphasis on understanding these supply chains that start out and often remain in an informal context. And yet, these are the supply chains that DO plug into more sophisticated environments further down the line such as Future Groups Supply Chain Solutions ever expanding and sophisticated warehouse network in India. As CEO Anshuman Singh puts it, not everything needs to be – or even can be – state-of-the-art. Many supply chains will combine traditional and manual handling techniques with high tech and capital intensive materials handling and warehousing equipment.  The point is this – you can learn much from the grassroots and the experience can strengthen your use of more sophisticated techniques at a later stage. As Frank Zappa, the experimental musician, once said of the computer – it lacks eyebrows. We need to understand reality on the ground and educating logistics professionals of the future from the grassroots as with Rushikonda can produce surprising results. Lest we forget, this is the majority world.

• Rob Bell would like to thank G Sanjusha; Praveen Kumar Naidu; G.V.K Sandeep; Priyaparna Majumdar and M.S.P.Rani for all their enthusiasm and commitment to this work and throughout the Advanced Logistics Course. This was an exemplary team. More examples from other teams to follow.

Adding value building livelihoods through design

Gandhi once said that “the soul of India lies in her villages” and the work of NAESEY is very much geared towards making sure that employment opportunities and access to skills can generate a livelihood in rural areas. This is a massive task best understood by experiencing reality at village level and, on this trip James Fathers explored the potential for design to play a role in increasing the value of their produce. The team worked with local potters on design and, the role of sharing market information to open their eyes on price and market access.

James Fathers is an extraordinary advocate of design beyond the developed world. Paul Polak, writer of  Out of Poverty, once lamented that 90 per cent of designers work for 10 per cent of the population – which builds an obsession with the ever more huge television or any number of lifestyle gadgets as opposed to keeping a focus on real needs and simplicity. James has spent a long time working with traditional village craftsmen in India to encourage them to develop designs using their traditional skills.

Many of these highly skilled potters, leather workers, carpenters are illiterate and so, James has adapted mind map or highly visual techniques to open up the dialogue and track ideas as they emerge. He has harnessed the rangoli tradition to give this a local emphasis. Rangoli are highly decorative designs made on floors of courtyards and living rooms as a welcoming for Hindu deities. Drawn in chalk or stone powder, the technique is to build interconnecting dots with flowers and a whole range of materials that can add colour and form to the design. Over time, James has added a number of interview techniques including cards written in the local language that are designed to open up discussion with notes being made and shared in a rangoli form. Educare in latin means “to bring out” and these educational techniques are “bringing out” and developing the design skills of these traditional craftsmen and women.

This brief summary of James Fathers innovative design workshops does not do justice to the transformative impact of these methods and T L looks forward to seeing them reach a huge audience in a number of emerging and developing markets. Further, we see real scope to add to what James Fathers has done on product design with a parallel push on end-to-end process. See the Post on Rushikonda. Equally, there is considerable scope to explore mobile technology as a means to aggregate capacity; build knowledge on market access and price and, improve vital cash flows. Back to transformational logistics and inclusive value networks …

As far as the potters were concerned they were fabulously skilled but were sceptical as to the need or benefit of using design to increase the value of their produce. This comes from a lack of knowledge as to the extent that India is changing around them. Naturally products such as Tandoor ovens and marriage pots are anchored in tradition and the authenticity that the traditional production technique supplies is one of their selling points. However the potters also made a lot of pots for horticultural centres such as hanging plant pots with three (rather than two) extensions to thread through the coloured rope – providing enhanced stability. Encouraging the craftsmen to experiment and change their work patterns is a challenge in itself. Hence the need for techniques that address behavioural issues as well as pure design.

There is real scope to incorporate these techniques into NAESEY and other such projects. For example, T L  has used these examples with representatives of the Kurdistan Carpet Industry and there are plans to explore the possibility of building a training programnme around these ideas as a means to combat the incursions of cheaper chinese copies that have started to flood what is a more than $3 billion global market. This is an excellent example of where traditional quality products can maintain their markets but where greater attention has to be taken to ensure that traditional skills are protected and enhanced. Watch this Blog for more information.

NAESEY train people from scratch, and although some of the training is in more traditional skills like embroidery, much of it is geared towards the demands of 21^st century India. For example, cell phone repair and basic computer skills – which were deployed in designing embroidery patterns.

NAESEY makes a significant contribution to rural livelihoods and family life itself. Many of the NAESEY trainees are women and care is taken to build workshops around childcare. Firstly training sessions may have to be at times when children are at school or children may come with their mothers to training sessions and the skills which the women are being trained in are ones they can take advantage of whilst still looking after their families. For example many women who had completed embroidery training praised it because it allowed them to work from home, making clothes to sell in local shops.

Naesey addressed two core issues:

1) The skills deficit; whereby those in rural areas do not have skills to survive in modern India.

2) The information deficit; whereby a lack of knowledge of the rapid change happening inIndiaholds back those in the proverbial information “black hole”

The aim of the NAESEY training programme is very much to give people the skills so that they can be self-employed. Talking to the men, and they were all men, taking the cell phone repair class, they all saw themselves as entrepreneurs. Their ambition, without exception, was to open their own repair shop.

By extension, NAESEY engages with various self help groups (SHGs); for example, those producing shoes to organic skin products. NAESEY offers support in starting up these groups and is invaluable in helping them to acquire bank loans. When NAESEY are involved banks are much more likely to approve loans, and at better rates. This can give businesses the vital start up capital they need to utilise the skills they have.

More than this the groups offer support, both practical and moral. Ben noted the positive impact it has on the confidence of the people who are trained by them. One woman, her name was Salavari from Arcot, put her confidence to start her own small business solely down to NAESEY. In her own words she described herself as a family girl with no great formal education. However she took training in embroidery and tailoring with NAESEY and after this she started a small business with her husband and with the help of NAESEY. After this she formed her own SHG and helped others to form their own, as well as offering free training through her business. Now she works for NAESEY and this must be taken as tribute to the positive influence the work of NAESEY has on people.

Sustainable growth on a national level depends as much on rural stability as opportunity in the ever expanding cities and NAESEY is a model of the sort of project that could be deployed beyond Tamil Nadu and India itself. The TL team are exploring other such initiatives to train the rural poor in other geographies. Any ideas?

In recent weeks, stories have started to appear about International retailers reporting profits warnings because of a combination of fragile economic conditions in their domestic markets and, difficult trading conditions in emerging and developing markets. Are these the first signs that the major retailers do not have all the answers? First, the background.

It takes all sorts

Carrefour, Europe’s biggest retailer with more than 9,500 stores in 32 countries, warned analysts that “increasingly challenging” economic conditions across Europe will drag its profits down by more than 15 per cent this year. Over at the UKs biggest Retailer Tesco, new CEO Philip Clarke has started to take tough decisions. After ploughing more than £250 million and eight years into trying to build a viable business in Japan, Tesco admitted defeat and is pulling out. And then, there is Walmart. The world’s biggest retailer by sales has posted eight consecutive quarters of falling sales at US stores open at least a year and there are strong hints that the trend will continue into a ninth quarter. What is happening?

Let’s start with the biggest. Walmart’s international business is going well and, it is rumoured that they will bid for Carrefour’s ailing Brazilian business – though Carrefour insist that the business is not for sale. Walmart’s problem is domestic; with Morgan Stanley forecasting a 1 per cent fall in like-for-like sales year on year and blaming this on a growing price-image problem: “60 per cent of Walmart customers no longer believe that they have the lowest prices.”

With a 40 per cent drop in the value of their shares so far this year, Carrefour is in more serious trouble. This is the same fall as the retailer’s operating profits in its core French market. This means a €249 million half year loss with a warning that things will get worse before they get better. Lars Olofsson, chief executive of Carrefour, said the results were “unsatisfactory” and promised “radical action”. City Analysts were unimpressed. “Yet another profit warning and yet another plan,” said JP Morgan Cazenove.

Tesco has over 5,000 stores worldwide – 2,484 in the UK and 2,750 sores and 65% of total space in International markets. However, with 129 stores in Japan, Tesco did not have scale enough to build a viable business in the tough Japanese market. Boots the chemist and Carrefour made the same conclusion a few years earlier. Cracking the third largest retail market, with total sales of $356bn, proves difficult. The market is fragmented with many strong retail players, often family owned. Crowded urban areas and stretched commuters have built a strong convenience culture and vending machines are everywhere.

Scale in all markets is a major issue and, as Walmart, Carrefour and Tesco push their agenda in India it is worth exploring whether this will be possible. Indian FDI legislation is being relaxed on Retail but, this does not guarantee success. According to research from Roland Berger, almost two thirds of average supply chain costs for UK supermarkets come from the “last mile” – taking goods to stores. Then, there is the all too often ignored cost to the consumer (and the environment) of taking things home. When International MNCs enter emerging markets this cost will escalate. Even moreso if the MNC has low density stores. For example, Tesco and Sainsburys have an advantage in London because of their scale of operations. In Indian metros; Moscow; coastal cities in China and, the huge agglomerations of Brazil and Mexico the same applies. Worse, the start up cost are exacerbated by huge rental costs. Kishore Biyani, Founder of India’s biggest retailer the Future Group makes the point that, despite FDI relaxation, International Retailers will suffer badly from the lack of a property bank in metros and the impossibility of boiler plating their supply chain standards into a stretched network.

International Retailers need to tread carefully AND be bold. Developed world markets are suffering from a reaction to the credit fuelled boom years and, low growth in these markets is starting to push them overseas. Two things are happening here.

First there is the realisation amongst Emerging market based investors (who have piled up $6,400 bn worth of official reserves in “safe assets” – sovereign debt in developed markets) that a marketplace made up of a fragile Euro zone and Americans wrapped up in a political Civil War is no longer a safe bet. This is looking like a comprehensive role reversal with the IMF estimating that by 2016 emerging markets will account for no more than 14 per cent of world debt – down from 17 per cent in 2007 – as the four main reserve currency areas (the US, Japan, UK and Eurozone) account for 81 per cent.

Second, the developed world approach to retail is not the answer in many emerging and developed world markets. The major rush to urbanisation means that International retailers will not be able to build their preferred big store formats. The shift in developed markets to convenience formats and smaller stores will be forced upon them in the majority world and this means – as Asda found with their UK inner city formats – greater attention to geographical clusters of small stores. The ‘last mile’ is not just a concern for retailers it is a real issue for consumers. Fuel costs are impacting shopping decisions and, this is exacerbated by living in appartments with no need for a big shop to be stored in confined space

We are moving into a phase where MNCs have to re-think their strategy and the mobile phone industry offers a sobering comparison. Over the next five years global subscriptions to mobile phones will grow by 30% – from just under 6 bn to 7.8 bn. But revenues over the same period are unlikely to rise by more than 10%. The growth in global connections will be fuelled by Africa, China, India and Indonesia – up from 44% to 51% of global connections by 2016. However, the business model is changing. The mobile internet will shift many subscribers to VoIP calls (voice over internet protocol) and services like Skype. Suddenly, these new services will undermine the Telcos grip. Similarly, developed world business models that target the people with money in the big cities have to get used to the fact that there is a massive market at the bottom of the pyramid. Here, success comes not from using the same products and prices for a global middle class but ADAPTING products at an AFFORDABLE price with margins generated by huge VOLUME. For example, Nokia designing a phone with far fewer features but with multiple address books – so that a village can have one phone.

Maybe the same will be true of International Retail where crowded urban spaces and distribution difficulties will challenge traditional International retail models and demand innovation in format; size and logistical clusters. In traditional legacy based supply chains the various actors operate independently of one another with each step in the end-to-end process moving in a staccato stop / start fashion. This is encouraged by the agents who dominate the flows and withhold information as a means to extract better rents and prices generating collateral value erosion in excessive inventory and waste. There is a real need to explore and understand these flows more closely, to identify basic processes which are lacking in resources and to ensure that investments and changes happen. This is where cooperatives and 3PL operators can combine with traditional actors to transform the system by coordinating the so far uncoordinated. It is this lack of integration which distinguishes the modern and traditional approaches and, these ideas offer practical solutions.

Cooperatives are a case in point. AMUL in India has been referred to several times on this Blog and we raise it again as an illustration of what can happen in highly fragmented markets without reverting to the MNC model. AMUL is located in Gujurat and has built a $1.3 billion branded business by coordinating the milk out put 10.2 m litres of raw milk per day from 2.7 million farmers. AMUL operates dairies, milk collection facilities, truck fleets and food processing plants on their behalf. Cooperatives and other mutual models have merit in many contexts and, with mobile technology aggregation and cash flow need no longer be in the hands of agents. This is the LOCAL spirit that is transforming the beer industry. Over time the big breweries wiped out local beer but then, the consumer became bored with a lack of variety and now micro-breweries are growing fast in the US and the EU. This is the same logic that seems multiple radio stations and the internet generating massive content for regional languages in India and elsewhere. Diversity sells.

Similar innovation can happen with products and packaging design. For example, single use sachets being more useful to consumers living in cramped spaces. Remember, one in seven people on the planet live in slums, favelhas, townships or jhopadpattis and, according to the OECD, by 2020 over two thirds of the global workforce – many of whom will be target customers – will live and work in the informal marketplace.

What happened to Tesco in Japan – a lack of scale to deliver their supply chain advantage – could happen in all such crowded urban spaces. This is NOT a zero sum game in which International Retailers are bad for local business in all emerging and developing markets. There needs to be a recognition that all business models have to adapt in the Majority world as well as an understanding that logistics intensive businesses – like retail – are likely to accelerate sustainable growth in these markets for all sorts of business. For example, there are several examples of companies developing the Cash and Carry model as a means to build business in the modern trade AND support growth in traditional outlets. This means a kirana or a spaza or a mom and pop can use a Cash and Carry as a regional distribution hub; thereby leveraging someone else’s intermediate infrastructure (warehouses and truck fleets) investments. Conversely, the modern trade is not leveraging efficiency so much as the inherent sociability of these crowded areas; a kind of viral marketing.

One size does not fit all in the local markets of the global retail economy and, whilst little or no growth in developed world economies makes these markets attractive, developed world plug and play solutions are highly unlikely to work. The premium is not about expansion into a new market; it is the opportunity to look anew at the business as a whole. MNCs are going to have to learn to learn and not expect to have all the answers.

These two priorities, inclusivity and rural markets, were covered in a ground breaking series of lectures given at GITAM over the past two weeks on Transformational Logistics; an umbrella term for logistics and supply chain thinking in emerging, developing and devastated markets. This course explored these markets not as “an act of charity”, not as an “act of corporate social responsibility” but as a viable option to build sustainable, inclusive and innovative growth beyond the mature – but largely stagnant – developed world. This is not about sharing best practice from those “that know” but building fresh practice from markets that have an acute survival instinct and an ability to adapt that can be an inspiration elsewhere. All businesses can benefit from these markets beyond the mainstream in many ways.

At the invitation of the Director of GSIB, Professor V.K. Kumar Rob Bell led the sessions with Dr P.R.S. Sarma and Assistant Professor Ram Bhagavatula.  This is a detailed overview of the Course. These are the core units.

1.      Mainstream Logistics. Drawing from the work of Martin Christopher (2011), John Gattorna (2006) and, a sample of key Papers from the Logistics and Supply Chain discipline the sessions started with an overview of mainstream logistics highlighting all sorts of examples from lean to agile supply chains and, logistics and supply chains as a source of competitive advantage. This revision session linked to GITAM’s established Logistics Course.

2.      Checking our assumptions. The three F’s crisis (Food; Fuel and Finance) has accelerated a number of trends (the pace of the BRICs; G7 to G20) and, questioned a number of fundamentalisms – not least, as George Soros coined the term – market fundamentalism.

The Group explored ideas on Globalisation; Growth and free markets in this fresh context and, explored the impact such global shifts have on logistics and supply chains in all industries.

3. The Brands New World.With Global population rising from 6 to 9 billion by 2050 As Dr Subbarao had said in his talk earlier today, there is a need for greater inclusivity and, exciting potential to develop rather than ignore rural markets. Equally, there is a role for traditional industries in the business mix.

The Rushikonda fishing community

The sessions highlighted a range of highly relevant developments in design. For example, the work of CavinKare and single use shampoo, the Godrej fridge aimed at the rural markets; the bamboo bike from Zambia with the longer wheelbase to support the carriage of boxes – all were used as examples of the need for adaptable, affordable and accessible products in this fresh context of fast growing and frontier markets.

4. A Transformational Agenda. Starting from the baseline of the World Banks invaluable LPI (Logistics Performance Index), the Group was taken through the need to understand better the middle ground between the highest ranking Singapore and Germany and the lower reaches of countries whose logistics are dislocated and hardly viable.

Emerging and developing markets are characterised by a mix of formal and informal markets; strong, weak and non-existent infrastructure. These are asymmetrical supply chains characterised by traditional; low tech; low skill operators supplying modern, high tech, high skill and well capitalised businesses – often MNCs.

This is CK Prahalad’s Bottom of the Pyramid territory and a useful discussion ensued over the need to go beyond BOP as a market for MNCs to enter and dominate in or, as a means to develop inclusivity and respect diversity. The work of Wharton’s Mauro Guillen on the Limits of Convergence informed much of the debate on diversity as opposed to a globalisation hell bent on one size fits all markets.

Which brings us to the need to challenge ideas on markets themselves – in particular the trade concentration that sees the top ten players in everything from autos to pesticides; retail to consumer durables with market shares of between 30 and 85%. As Vince Cable the UK Business Minister highlighted recently, “outright monopoly is the death knell of capitalism itself”.

The “invisible hand” of Adam Smith was used to highlight free markets and, using Amartya Sen’s work, Smith’s earlier “The Book of Moral Sentiments” was used to highlight the need for an ethical dimension in business. Sen, with a Nobel Prize for “having restored an ethical dimension to Economics” was discussed; highlighting that “self-maximisation does not provide the best approximation to actual human behaviour nor does it lead to optimal economic conditions.” As Alan Greenspan, for long the custodian of monetarist practice in the G7, put it to the Congressional Committee after the 2008 Financial crash saw $40 trillion wiped off the value of markets worldwide – “Yes, I have found a flaw. Those of us who have looked at the self-interest of companies to promote a free market Capitalism are in a state of shock.

Sen has shown how prolonged celebration of utility and wealth has obscured the central value of freedom itself. And in this transformational context, his four freedoms (1. Economic facilities; 2. Social opportunities; 3. Political freedom and 4. Protective security) read more like the basic requirements of a viable supply chain than a philosophic tract.

More needs to be done to understand this challenging environment where logistics is as much about livelihoods as feeding the lifestyle choices of the developed world – values as well as value. Here are some of the topics covered:

• Transformational Logistics. This session explored a number of traditional industries – the cotton trade and textiles in Asia and Africa; the leather trade in India; fruit and vegetable growers in South America and, traditional fishermen in India. Rob Bell explained the preliminary work being done through Nahro Zagros on this loom to room supply chain in the mountain economy of the Kurdish Region of Northern Iraq. Of this more later.
• Transformational Retail.The developed world sees the Modern trade dominant – over 85% of US Retail and, in the UK over 80% – but this is not the case in Emerging, Developing and Devastated markets. For example, in India the modern trade has around 6 to 10% of the market and, traditional Mom and Pop stores (kirana play a significant role.The group explored the supply chains supporting these traditional outlets and reviewed Bharti Walmart’s cash-and-carry venture as a form of distribution hub that could transform this traditional sector. The point is that there is more to Retail than shopping malls and, supermarkets designed in mature markets and led by MNCs.
• Transformational Agriculture.The demographic shift from 6 to 9 billion demands a 70% increase in food production. It is not just a case of building everything from a MNC perspective – though their contribution will be considerable – it is about added value as locally as possible to create inclusivity and improved livelihoods for the majority world. This is about rural markets and, it is a packed agenda.Drawing from the work of Malcolm Harper on Inclusive Value Chains in Orissa, the group looked at Transformational Agricuture – taking in the sweep from subsistence farming to major MNCs and highlighting the need for hybrid business models – how can we support local solutions.A major discussion took place on the use of mobile phones all over rural and devastated markets – as an aggregator – and, IT examples from eChoupal and mobile phone work with AgRisk were covered.Agriculture in trade corridors around Africa were explored; ideas around model villages that can serve a hinterland of other villages with a clinic, schools, skills capacity training centres and, even a bonded warehouse. Again, the transformational agenda acts as a catalyst.
• Humanitarian Logistics.Reviewing the sheer scale of disasters from Haiti and Pakistan to Queensland and now Fukishima; the impact on stretched supply chains was highlighted. For example, the volcanic ash from Iceland dislocated Kenya’s $1 billion horticulture industry as $15m stock went for compost within a week; and the impact of the Japanese disaster for the high tech industry.Equally, the damage to global coal supplies as Queensland mines were flooded was put into the mix. H L covers the Emergency agenda well but, Rob Bell highlighted the need for a better understanding of what happens next.The three core phases of a Humanitarian emergency – Resilience > Response > Reconstruction – were discussed. Transformational Logistics was explored as a catalyst for efforts to build the hard soft and intermediate (warehousing to truck fleets) necessary to either get an economy back on its feet or, take the opportunity to build a viable economy from scratch. Rob Bell is a member of the Cardiff Cranfield Humanitarian Logistics Initiative which is exploring this fresh dimension.

5. Tool box.

• Process mapping. So much is done on the computer these days that walking the talk is a lost art and, the learning potential to work with traditional supply chains and encounter all sorts of challenge is an area worth pursuing. Drawing from Archomai’s work in various emerging and developing markets, the group were taken through basic routines from end-to-end of various supply chains from Steel and Aluminium Plants to Fruit and Vegetables. In particular, the links between traditional and modern industries, informal and fragmented to formal and consolidated were examined. Rob Bell used examples from work in Africa with Rod Stout and his team at businessmodelling (supply chain optimisation software) right through to a brown paper excercise using live documents from the field. The students then went out to map a series of traditional supply chains such as the fisheries example – see below.
• Presentation methods and statistical representation. Some examples were covered to equip the teams with the insight to build a better case study and the studenst were encouraged to carry the ideas into the field.  The idea is to open this out into an Executive Programme for those businesses wanting to know more about market access into rural markets and the links between rural sourcing and urban markets for all manner of companies. This breaks fresh ground. So to the Case Studies.

6. Case Studies. This is work-in-progress. The plan is for Rob Bell and Dr P.R.S. Sarma to develop Transformational Logistics Case Studies around the rural economy and extend this into other relevant areas. Meanwhile, various groups from the Course worked with the following projects.

• Cooperatives. The Dairy industry acts as an indicator of growing affluence in emerging and developing countries. Meat and dairy products follow the growth curve. So, as part of the T L exercise, the group were taken through ideas on historical Cooperative thinking (from the Rochdale Pioneers, 1840s UK; to Amul, India and their $1 billion business). Workgroups discussed the potential for Cooperative solutions to act as a catalyst for inclusive growth in traditional areas. Examples from Northern Italy; Mondragon in the Basque lands; the Cooperative and Arup in the UK were discussed. The sessions explored the potential for Cooperative firms to deliver on values as well as value.
• Warehousing. Starting with a review of basic principles of warehouse design, the group was challenged to design their own white goods warehouse and, locate a network of them around India.
• A series of traditional “perishable” supply chains from traditional fisheries; fruit and vegetables; bakery to a newspaper were assigned and groups of 5 went off to trace the supply chain from end-to-end. For example, one group started at the Rushikonda Beach landing area close to GITAM; engaged with local fishermen and, traced the supply chain right through to the market in Vizag. This Blog will carry details of this and other such traditional supply chains shortly. This was a unique learning experience.

• Developments in Logistics and Supply Chain thinking and practice. Here, the sessions turned to a number of ideas relevant to Emerging and Developing markets.
• The Green Supply Chain. Nature bats last. Over time, people have grown tired of CSR programmes that are little more than brochureware. C3 (Cross Company CSR) highlights the need to deliver CSR from end-to-end. The same holistic logic should apply to those championing Corporate Environmental responsibility.Other work was done to map various supply chains and model their shape as the global energy mix shifts. For example, a supply chain will be radically different at $50 and $100 a barrel of oil!
• Logistics and Supply Chain thinking for a Region.This session started with the demographic shift from rural to urban areas and, the trends that will see roughly 50 City Regions dominate global supply chain networks by 2050. This is where the majority world will work and live. So, what can be done to establish and sustain economic growth momentum in these City Regions. Starting with the Pearl River Delta (open with an infrastructure and construction cluster; build connectivity and then, trigger light manufacturing – all as a FDI “magnet”. Oresund in Scandinavia – a new Region formed out of older Regions from Southern Sweden and Denmark – was founded as the Bridge was built. It is a Case Study in Regional development.The group were challenged to develop their thinking on the Regions of India and how logistics and supply chain initiatives can sharpen their competitive edge.
  Skills in the Supply Chain. A CII Report on the Indian Skills deficit highlights the need for 450 million skilled people by 2022. Current vocational skills training capacity stands at no more 3.1 million and needs to rise dramatically to achieve its objectives.Drawing from the work of Archomai, Rob Bell explored the use of simulation, simulators and training technologies to deliver improved performance across a range of supply chains. For example, Quayside crane operations in a Port; Truck and welding simulators. In addition, the work on wind farms and other power plants.The sheer scale of vocational skills needs in these markets is such that classroom techniques will fall short. These technologies offer the ability to move to specific performance issues along the supply chain; create a learning environment on site and, simulate accidents rather than having them. The benefits are considerable – not least the significant insurance cost reduction. Above all, we explored the need to ensure that gender issues are addressed – there is no credible reason why women cannot be part of the solution when the skills gap is so acute. This session used posters from the Soviet Union; the UK in World War 2 – with women at the wheel and, cracking codes. What happened next?
• Visibility, Transparency and Accurate date. None of the enthusiasm for these markets makes sense if there is little or no progress on the fundamental freedoms Sen speaks of. Corruption and opacity will de-rail any well meaning initiative. For this reason, more work needs to be done on a dashboard of relevant, accessible and accurate measures – KEY VALUE INDICATORS – for emerging, developing and devastated markets.

This course built from mainstream logistics experience and, highlighted the need for Transformational Logistics as a means to understand better the realities of Emerging, Developing and Devastated markets. These are the ideas and techniques that will equip future leaders to build more inclusive and ethically sound business practice and, open their eyes to the potential in the rural markets as well as more conventional outlets.

Transformational Logistics is a branch of an emerging business agenda to understand and perform better in Emerging, Developing and Devastated markets. It is an umbrella term and will draw from a host of disciplines and, through better understanding of local context, make an impact through changed behaviours as much as concrete outputs. Above all, it is part of what Amartya Sen has done for Economics – putting an ethical and inclusive dimension into the business equation in the Majority world.

As with the Blog, this is at an early stage but momentum gathers and, as the University of Hull Logistics Institute launch a T L Research Club in September and, with others in South Africa; Kurdish Iraq and South America in the pipeline, the potential for Transformational Logistics to add value to the Logistics and Supply Chain discipline gathers momentum.

In parallel, a number of initiatives with companies throughout Europe, India and beyond are being developed to understand and explore rural markets; supply chain design and resilience and, improve synergies between traditional and modern players in a range of complex supply chains. Watch this space.

Thanks must go to Dr Omera Khan of the University of Hull Logistics Institute for an inspiring guest lecture and, to Terje Stolte for his support on TL content that went into the course lectures prior to the trip. Above all, many thanks to the MBA class at GITAM who took this course and the tremendous support from the Director, Professor Kumar and his team (cited above). The sweep of concepts and detail has been challenging but the enthusiasm which saw the students following fish from the landing stage to the local Vizag market at 05:00 a.m. says it all. The final Case Study presentations on a variety of supply chains (Newspapers; Mango; Banana; Vegetables; Bread; Dairy and Fish) was a tribute to the hard work of all concerned. There is a need for this T L agenda and, there can be no doubt of its value as a learning experience. We look forward to repeating the Course and, opening this up to a network of other Institutions in the Majority World. Not every supply chain is modern, fully funded and serving the developed world alone.