Bold Business Logo

The Trend Toward Greater Diversification in Manufacturing

Many lessons were learned over the course of the pandemic. The impact of a highly connected world demonstrated just how fast an infectious process might spread. It also showed how international collaboration and policies help curb its spread at times. But in terms of consumer goods, the pandemic also proved how dependent all nations are on the global supply chain. As manufacturing slowed due to closures and restrictions, supply chain failures escalated. And with only a handful of companies producing some specific goods, shortages accumulated quickly. The need for diversification in manufacturing was evident as was a more lasting diversification strategy.

With the business disruptions that occurred from the pandemic, efforts are now being made to adopt such a diversification strategy. (Tap into some workforce strategies for navigating a disrupted world–Bold has you covered.) It’s worth noting that China now supplies a sizable portion of manufacturing to countries throughout the world. While reductions on U.S. reliance on Chinese manufacturing have occurred, they remain significant. At the same time, access to other manufacturing areas, specifically the Asia-Pacific region, has not expanded. Understanding this, and the fact that 60% of the global population is in this region, a new diversification strategy is being pursued. This month, President Biden announced the formation of Indo-Pacific Economic Framework (IPEF). As a non-traditional agreement, however, it is questionable whether the IPEF will fulfill the evolving need for diversification in manufacturing.

“[The IPEF] is a broad plan designed to help expand the U.S.’ ‘economic leadership’ in the Indo-Pacific region. The group wants to set international rules on the digital economy, supply chains, decarbonization and regulations applying to workers.” – Ted Kemp Managing Editor, CNBC International Digital

A Look Back at the IPEF’s History

The need for diversification in manufacturing is not something that was just recognized in the aftermath of the pandemic. In fact, a political shift to develop a diversification strategy in the Asia Pacific region dates back to 2012. It was then that the U.S. sought to create free trade arrangements with Asian nations. This resulted in the creation of the Trans Pacific Partnership (TPP), which included the U.S., Japan, South Korea and others. But ultimately, the U.S. decided to pull out of the TPP due to its administrative slowdowns. The IPEF is the U.S.’ next attempt to make headway into this region to alleviate manufacturing and supply chain issues.

The challenge for the U.S. now is the dominant presence of China in the Asia-Pacific region. As the TPP dissolved, China and other Asian countries formed the Regional Comprehensive Economic Partnership (RCEP). China is now the lead manufacturer and supplier in the RCEP, and many countries are therefore dependent on China. Likewise, Japan took the lead after the TPP dissolved and has created the Comprehensive and Progressive Trans Pacific Partnership (CPTPP). It would make logical sense for the U.S. to rejoin this entity, but the support for this is low domestically. Understanding this, the decision was made to pursue a different kind of framework to address the need for diversification in manufacturing and trade. That framework is the IPEF.

“The United States needs to enhance its economic competitiveness in the [Asia Pacific] region…the Biden administration will work to gain maximal traction for the Indo-Pacific Economic Framework.” – Ali Wyne, Senior Analyst, Eurasia Group’s Global Macro Practice

What the IPEF Is and Is Not

Contrary to some perceptions, the IPEF is not a free trade agreement. It guarantees no specific market access or relief from existing tariffs. Thus, the incentive to participate in the IPEF is limited. Instead, the IPEF represents an agreement of cooperation among nations that hopes to address some key issues of trade. In essence, the IPEF has 4 key pillars that include trade, supply chains, decarbonization, and anticorruption. Notably, the need for diversification in manufacturing is hoped to be addressed in the trade and supply chain pillars. But because nations in the IPEF do not have to participate in all 4 pillars, its impact remains questionable.

A warehouse with tons of diverse products
A broad diversification strategy means never having to fear one country letting you down.

As noted, resistance to a formal free trade agreement that provides market access exists in the U.S. Thus, the IPEF is a way to reach cooperative terms in trade and manufacturing with a formal Congressional vote. But this has its obvious downsides as well. For one, key nations may opt out of the trade aspects of IPEF. Likewise, even if agreements are made among nations, the IPEF has no way to enforce such commitments. Many critics therefore doubt this will provide the U.S. with the diversification strategy it wants. Not only might this flop in meeting the need for diversification in manufacturing and trade. But it might again limit the presence of U.S. trade in the Asia Pacific region overall.

“I think that the biggest problem with [a free trade agreement] was that we did not have the support at home to get it through.” – US Trade Ambassador Katherine Tai

A Diversification Strategy is Best for All

Despite critics, there is the potential that the IPEF could succeed. This potential pertains to the existing reliance many nations in the area to China’s manufacturing and trade machine. Currently, the IPEF membership involves 13 different nations including the U.S. Major economies include Japan, India, Australia and South Korea. Others include New Zealand, Thailand, Vietnam, and Indonesia. Each of these countries are concerned about their reliance on China, and they too seek a diversification strategy. Thus, the U.S. is not the only nation with a need for diversification in manufacturing and trade. The IPEF could provide such a strategy if member nations fulfill their obligations and participate in all four pillars.

Just because these countries favor a diversification strategy doesn’t mean the IPEF will succeed. Knowing this, the U.S. has chosen to leave Taiwan out of the IPEF given its political tensions with China. Presumably, this decision was made so that other countries would be more likely to consider joining the IPEF. Whether this will be enough to encourage broad participation remains to be seen. But in either case, the need for diversification in manufacturing and trade is a widespread. If the IPEF fails to achieve its goals, then new approaches will be needed. The bottom line is the pandemic proved how interconnected global markets and supply chains are. And modern trends of the post-pandemic world show that countries are painfully aware of this fact.

 

Want to control your cost efficiency and protect your bottom line? Bold Business can help.

The Workplace Happiness/Productivity Connection – Fake or Fact?

Increasingly, companies are targeting workplace happiness as a specific goal among their employees. Why? Because research has repeatedly shown that a happy workplace environment boosts productivity, and secondarily, profits. Thus, senior leaders and managers are increasingly enrolling in seminars and conferences to help them cultivate such an environment.

On the surface, the pursuit of workplace happiness seems like a good idea. After all, all managers should want an office full of happy workers. But that’s where the problem begins. In a post-pandemic world, many workers don’t want to return to the office. And many more are feeling other pressures like those related to price inflation. While companies attempt to lure workers back to the office with various perks and conveniences, many aren’t buying it. And instead of an authentic happy workplace environment, some workers believe it feels more like a bribe. If companies truly want to encourage workplace happiness, a different approach might be required.

“If people have better relationships with each other, especially within teams, we can expect better performance. We can expect people to be more engaged, and then at the end our clients get a better service and are happier with our work.” – Sasa Popovic, CEO and Cofounder, Vega

Today’s Pursuit of Workplace Happiness

Companies didn’t just begin trying to create a happy workplace environment in the last few years. In fact, companies like Apple, Google and Microsoft tapped into this vibe decades ago. But in the aftermath of the pandemic, businesses are realizing just how important workplace happiness is to their bottom line. Some labor studies show that workers with more positive attitudes are roughly 12% more productive. Likewise, the top 100 workplaces in the country earn their shareholders greater returns than others. Amidst the Great Resignation and challenges filling position vacancies, happiness has thus began receiving more attention. And as you might guess, companies are investing heavily in these areas.

The difficulty for many of these companies, however, involve determining what kind of return on investment they’re getting. Several companies now exist to help with this problem. For example, Happy Ltd. In the UK offers a Happy MBA for senior managers to help them cultivate a happy workplace environment. For $18,000, these managers take a course and receive a certificate. Other companies offer surveys and assessments to determine workplace happiness among employees. Woohoo and Heartcount, both Danish companies, have designed these instruments with the aid of psychologists and statisticians. Whether or not these services pay positive dividends remains to be seen on a broader scale.

“There’s evidence that we get the causal arrow of happiness wrong. You think, ‘I’m feeling productive at work and things are going well at work and therefore I’m happy.’ But the evidence seems to suggest that the other arrow exists as well, that happiness can really affect your work performance.” – Laurie Santos, Cognitive Scientist Professor, Yale University

Authenticity Matters

In taking a sample of businesses today trying to create a happy workplace environment, some of the efforts seem superficial. Some businesses have increased snacks in the breakroom or may have even arranged a food truck for lunch. Others have redesigned office spaces to give them a more comfy, homey feel. Others are giving workers greater autonomy in choosing their supervisors or eliminating performance reviews. These are all being done in an effort to promote workplace happiness. But is this really working? At the end of the day, do these amenities actually equate to worker happiness?

Some people living that post-it life
Workplace happiness is an essential component of a productive work environment.

Perhaps, the best definition of workplace happiness is related to one’s meaningfulness of work and their sense of belonging. When workers enjoy authentic relationships, that is when they feel most engaged and content. These are the type of relationships where employee needs are prioritized and solutions considered. For many employees, the perks, gifts and conveniences being offered to attract them back to the office seems suspect. Similarly, the motivations behind the pursuit of a happy work environment seem misplaced. Certainly, a happy work environment does correlate to higher productivity and less employee turnover. But pursuing a positive company culture through unauthentic means may very well backfire in the long run. (Want to learn the truth about company culture? This Bold story reveals it!)

“I don’t think these things like meditation or whatever employers may be doing to increase well-being are bad initiatives. But they do not substitute for decent wages, decent benefits, sane scheduling.” – Heidi Shierholz, President of the Economic Policy Institute

A Broader Vision of Workplace Happiness

When it comes down to it, there is nothing wrong with adding some niceties to the office space. These things can certainly help create a happy workplace environment. But these alone will fail to accomplish the level of workplace happiness that companies desire. Instead, it’s important that businesses take a much broader perspective when it comes to encouraging positive attitudes among their employees. Real happiness, in the workplace or otherwise, occurs when one’s needs are met and they feel connected to a team. Therefore, it takes much more than a more casual attire or a beer fridge in the break room. It requires a deeper understanding of their preferences and greater inclusivity in their roles to achieve the company’s vision.

With this in mind, a great place to start in today’s post-pandemic world requires addressing worker schedules. Remote and hybrid work arrangements are preferred by most because it allows them to enjoy better work-life balance. Likewise, as inflation increases, a return to the office full-time means extra travel and meal costs. If employers want to cultivate real workplace happiness, these issues need to be addressed. At the same time, companies should re-explore how workers and managers interact and how this creates real engagement and participation. And of course, a fair compensation for their efforts and the economic landscape should be a priority as well. When these types of needs are respected, employee engagement and productivity will increase. And ultimately, these will foster a happy workplace environment much more than any gimmicks or games.

 

Want to control your cost efficiency and protect your bottom line? Bold Business can help.

The Equestrian Option: An Investment Explainer

According to the Equine Business Association, the equine industry today is worth about $420 billion. Kentucky alone has nearly $7 billion of this total and represents one of the hotspots in the sport. But increasingly, places like New York, Kentucky and even England no longer represent the only equestrian-heavy destinations. With numerous businesses in the equine industry now involved, expansion is on the rise. And for those looking to invest, the horse industry looks to have tremendous potential in the coming years. By most analysts’ accounts, the future of this sector looks to be incredibly favorable.

While purses received from horse racing receive the lion’s share of attention, gambling represents only one revenue stream. Sales and breeding also bring in big money, and investors in the equine industry are realizing the potential of these activities. Of course, that’s not to say racing and gambling aren’t also gaining momentum. Sizable investments by some businesses in the equine industry are laying the groundwork for the future in this post-pandemic world. Whether you’re new to horses or not, it’s worth taking a deeper look into the equine sector. This is especially true if one is exploring new investment opportunities moving forward.

“The current state of the U.S. thoroughbred breeding and racing industry is strong. The resilience of our sport and industry was on full display as we weathered what we all hope was the worst of the coronavirus pandemic.” – Tom Rooney, President/CEO of National Thoroughbred Racing Association

Breeding Revenues Remain Strong

When it comes to horses, bloodlines mean everything. Thus, while an existing racehorse might attract hundreds of thousands of dollars in price, their offspring are even more valuable. The reason for this is because the average sports lifespan of a racing thoroughbred tends to be only three to four years. But its breeding potential extends for a much longer period of time. As a result, many businesses in the equine industry are increasingly focusing on this particular area of expertise. Kentucky, in particular, has become a goldmine for thoroughbred breeding over time, serving the majority of North America. This makes horse investments within the equine industry that much more attractive.

As an example, a well-bred thoroughbred often sells for a price between $7,000 and $105, 000. However, the offspring of such a horse attracts much larger sums, ranging between $35,000 and $215,000. Overall, breeding remains strongest in the equine industry among thoroughbred populations. However, there are many other businesses in the equine industry involved by breeding other key bloodlines. These include those with special expertise in Dutch Warmbloods, Andalusians, and Friesian horse breeds. Thus, from a global perspective, revenues being generated from horse breeding continue to attract major investments.

“There are three profit centers to our industry: breeding, racing and sales. We are the principal producer of thoroughbred foals in the United States, responsible for 38.5% of the national foal crop. Our stallions cover over 50% of the broodmares across North America.” – Chauncey Morris, Executive Director of the Kentucky Thoroughbred Owners and Breeders

Nothing Against the Horse Traders

While breeders earn strong revenues within the equine industry, those trading in horse sales fare well also. Sales in Kentucky alone exceeded $824 million in 2021, which was up about $100 M from the preceding year. These figures are even more impressive in Europe where a larger variety of breeds are sought. While thoroughbreds attract the greatest offers, plenty of other businesses in the equine industry deal with other horse sales. Depending on the type of equine activity being considered, different breeds offer different features. As a result, sales involving all breeds of horses tend to start at the tens of thousands of dollars.

A horse getting ready to run wild
The equine industry: more than just frenzied races around a track!

Several other horse breeds besides thoroughbreds remain highly popular among buyers today. For example, Friesian horses, known for their calm demeanor and durability, are often sought after for equine events and dressage. They routinely attract sales ranging from $40,000 to $65,000 in price. Andalusian horses, also recognized for their hardiness and athleticism, are routinely used for trail riding and also for equestrian events. Their average sales prices within the equine industry may be anywhere from $15,000 up to $55,000. Unlike thoroughbreds, which have a limited number of racing years, these other breeds have longer duration of productivity. This is why some businesses in the equine industry have chosen to focus more on sales rather than racing.

“Over the past three years, Churchill Downs Inc. has made significant investments in our historical racing operations in Kentucky, and the success of these properties allows for us to contribute in a vital way to Kentucky’s signature horse industry.” – Jason Sauer, Senior VP of Corporate Development, Churchill Downs Inc.

Betting on the Farm

Breeding and sales are great rainmakers, but racing and gambling still provides the bulk of the equine industry’s revenues. The top 300 horse earners each generated more than $1 million each with some earner several million dollars. This has not gone unnoticed by many businesses in the equine industry either. Specifically, corporations like Churchill Downs Inc. is investing heavily in their gambling and racing sites. They are in the midst of a $76 million expansion of its Derby City Gambling site in Louisville, Kentucky. They have also allotted $145 million for its Turfway Park Racing & Gaming project in Florence, Kentucky. Plus, it’s also involved in a multi-year capital improvements project of the 137-year-old Churchill Downs racetrack.

In most of the gambling sites, Churchill Downs is installing horse racing machines as well as restaurant and entertainment venues. The former are essentially like slot machines where patrons place bets on horse races. But instead of providing results according to chance, the machines use previously recorded horse races to determine results. These gambling opportunities have become immensely popular and generating tremendous revenues for the equine industry at large. (Dig deeper into the future of gambling in this Bold story!) At the same time, the state of Kentucky’s legislature recently granted legal protection to horse race gambling on a permanent basis. If businesses in the equine industry weren’t all in on racing revenues before, they are now. Projections for this portion of the equine industry in particular look extremely bright for the future.

An Industry on the Verge

From a worldwide perspective, the equine industry is definitely gaining momentum. New arenas are appearing in places like Miami Beach, Monte Carlo, and near the Eiffel Tower. Showjumping shows are also on the rise in Europe and in the U.S. And big sponsors like Rolex, Gucci, and Hermes are providing major support for businesses in the equine industry. All of this suggests that investing in the equine sector could have favorable returns. From breeding, to sales, to gambling, all signs point toward positive gains ahead.

 

Want to leverage offshore capabilities for business process outsourcing? Bold Business has you covered.