The changing global landscape
The world is currently being reshaped, at least when it comes to geopolitics and economics. We have China and Russia in conflict with the US and it’s allies. The west vs the east. A new landscape will emerge which will be different from the current economic world we live in. It is not easy to know for sure what the new landscape will be, however, it is very likely that it will require a closer interaction between the US, Canada, Mexico and the rest of the American continent.
China will possibly increase it’s sphere of influence and the remaining countries will most likely have to find a way to step up and through creativity and new technologies compete with the manufacturing monopolization of Asia. In my humble opinion, Innovation will be the only business of the future, together with medical and other types of services which require personal attention, at least for now. However, as tedious repetitive work starts disappearing and the only slots available for occupation become more and more based on specialized niche knowledge, the creative aspects of the human mind will become the most important value offer to the workplace.
It is very likely that the sole structure of the companies as we know it changes as well, it is happening right now and we’re all experiencing the radical change in office mentality that has been pushed by the last pandemic. The barriers represented by the office walls are no longer present in many cases, companies around the world . And the need for innovation companies to source talent is pushing them to look for offshore software talent specially from countries such as Ukraine, Brazil and India. This is specially true for software development as we notice many US companies hiring talent in Mexico and the rest of Latin America for remote work offerings. This has entirely changed the work culture.
According to Tholons Global Innovation Index, Mexico is placed 8th for digital nations for WFH (Work From Home)
Another phenomenon is that the US workforce is no longer interested in getting traditional jobs. They’re more interested in more fulfilling occupations like creating new companies that are focused in innovation, creating new products and developing software tools.
Also, currently, the world has created a huge demand of software development, there’s so many new apps coming. India has become a very relevant player (or competitor) in this sphere as more and more Indian companies start creating their software businesses instead of developing software for US companies like it was in the past.
What about Innovation?
And where does this leave Physical Product Innovation? It seems to have been completely forgotten. Hardware hasn’t been very appreciated by investors in general, as the risks of having a successful hardware startup are too high. Most of the new products reaching the occidental market are basically white label chinese products that have no IP claims other than their brand and their sales funnels. You might think that this doesn’t represent an issue. However, there are many risks involved in monopolies in general. I don’t think the world will benefit from there being only one factory. Imagine for example if China decided that they no longer want to export products to a specific country.
Another issue with this hyper centralized manufacturing system is for example when pandemics or other issues in China cause a shutdown in the factories. Also we have the increasing labor cost there which should eventually level up the playing field and will allow countries that are less developed in the manufacturing field to eventually create infrastructure and be more competitive in their local and neighboring markets. This is why, just from a philosophical standpoint, it is crucial that the rest of the world develops their capacity to fabricate products. Not only due to geopolitical risks, but also because part of the human nature is to thrive under the excitement of creating something that doesn’t exist. And just importing existing products, exciting as it is, is not as fulfilling.
Plus, the usual china business model will basically have you without any real or functional IP and no control of your product and will make you depend on your factory(ies) until you decide to re-design your whole product from scratch, but more on that on a later post.
This is why, leveraging the existing complimentary nature of neighbooring economies such as the US and Mexico can create very interesting opportunities. Not only because of the USMCA treaty, but also, because Mexico has a lot of engineering talent that is currently being underused, whereas the US has a lot of people with entrepreneurial mindset that want to leave a dent in the world who need access to more accessible talent than the already in very-high demand national talent.
Conclussions
I believe that this will translate in a very interesting way when it comes to factories and Mass Production. Mexico does have the Maquila program for example, but new working models will arise, perhaps something more similar to the chinese OEM and ODM models. Currently mexican suppliers are not fine tuned to attend these needs as quickly as chinese manufacturers (more on that in a later post). This is partly because they’re not used to working with Ecommerce businesses, but instead, local customers and/or they only make products for a specific US company, but not for the open market of Ecommerce businesspeople that is growing so fast nowadays.
This will change, though, as the demand for such services becomes more evident. Initially, sourcing agencies in Mexico will become the bridge between the existing infrastructure and the Ecommerce businesses demands. Then, Product Design Companies will start emerging and many us companies will start opening offices in Mexico to take advantage of the high number of graduate engineers. Factories will follow through, improving the way they offer their services to expedite processes and improving their know how for making complex products (this will take years though).