Moving Up the Value Chain [2006]
Business commentator Rod Oram has been talking about productivity this week* – but not in the usual way. Typically we think of productivity increases simply as efficiency gains – the result of better technology, smarter business practice, less down time etc.
But Rod was talking about the other side of the equation: increasing the value of what we do and what we export, so that the same level of effort earns us a lot more dollars – and ultimately redresses our little balance of payments problem.
Unfortunately he was also saying that since many of our largest exporters steadfastly maintain a commodity mentality, the likelihood of moving our exports up the value ladder is not that great.
As you do nowadays when you have anything to write about, I googled “moving up the value chain” and found that on the first few pages [and really – who goes any further?] the dominant source of comment on this topic came from India – with Ireland, China and The Philippines also cited.
These are fast growing economies, now looking to migrate from the commoditised provision of labour in call centres and factories towards the higher value areas of research, design, software development and consultancy.
A future with a billion consultants. . . imagine. Nothing would ever happen, but everything would be very well thought through.
Some of the most satisfying projects I’ve ever worked on have involved convincing clients that they really could increase the value of their product or service. There’s often a huge mental leap involved – new understandings to be instilled, strategies to be developed and a comfort zone to be expanded.
But perhaps the most important insight from that work is that “moving up the value chain” is not just one strategy.
As we see in the case of India etc, with the growth of the “knowledge economy” concept has come a sexy new idea of value – that it’s about generating more and more educated individuals who are able to charge more and more dollars per hour –
- doing brain work rather than brawn work,
- being a consultant rather than a call centre operator,
- telling rather than listening.
It's about earning more, buying more stuff, creating jobs for others, paying more taxes, demanding more services, getting concerned about more esoteric things that in turn require more expensive solutions.
We’ve already done that in New Zealand over the past thirty years and arguably we find ourselves with greater export deficits as a result.
Unless they’re directly producing exports or supporting their production, higher value workers can have quite detrimental impacts on the demand side of the trade deficit. They [we] just love overseas goods and services.
In marketing, the usual practice for increasing value is to increase the social status of a product or service – taking it “upmarket” from budget to mid range or mid range to premium, according to existing definitions of the relationship between price and quality.
When we talk of “adding value” to New Zealand’s commodity exports, we often assume the value will come from extra quality or further processing which will make them more attractive to wealthier people.
However you also increase value when you ditch conventional relationships and create more compelling experiences for customers – a sexy ice-cream – not just one that tastes good, a born to be wild motor bike – not just one that goes fast, or a lively and interesting airline rather than one that just gets you there.
This is essentially a matter of branding. A great brand commands a premium price. A mediocre brand or an average product experience often stops a business from extracting all possible value.
I recall talking to one large NZ building product company [last century] about the need to incorporate high standards of aesthetics and design in everything it did – as the Scandinavians had so successfully done. Unfortunately their heads just weren’t in the “design space”. I might as well have suggested they all wear paisley shirts and carry boy bags.
You can also re-define the value of what you do by increasing the “goodness of fit” with a particular kind of customer. Being everything to somebody rather than almost nothing to everybody.
A bland middle of the road product or service provided equally to everyone everywhere will never command a premium and rarely result in any customer loyalty.
But when a customer loves you and identifies with your product or service – when it makes their life possible or tells them who they really are, they’ll think nothing of paying more. In fact they’ll often assume they should pay more – “because they’re worth it” and so you must be too.
I don't want to turn this into an ad for "lovemarks" but my own research corroborates theirs - people love few brands but they love them passionately.
So pull this all together and you find that the answer to our balance of payments problems lies primarily in sophisticated marketing and product development. How self-serving is that!? But think it through.
- The global economic pie will increase dramatically as the BRIC economies – Brazil, Russia. India and China – move themselves up the value chain.
- There’s so few of us here in NZ, the last thing we need is to be everything to everybody – a commodity mentality in agriculture, manufacture or service provision is an extremely poor use of our thin resources.
- So please can we become the kind of country that gets its act together and becomes known for one thing and one thing only: producing and exporting higher status, highly compelling and highly customised products and services to the world.
Lets just be the place that treats every customer like a king – and charges accordingly.
Cheers,
Jill
Jill Caldwell is Director of Windshift Communications Ltd. Click Here to contact Jill directly This is a free monthly newsletter provided to direct subscribers and legitimate Windshift contacts only. No further use is made of subscriber information. [Copyright Windshift Communications Ltd 2006]
*Rod Oram Nine to Noon Radio New Zealand Tuesday June 27.
Distribute [unchanged] with impunity. Quote with attribution.
"A future with a billion consultants. . . imagine. Nothing would ever happen, but everything would be very well thought through."
