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Plan for a Global Base That Will Obliterate Costs

Feb 2, 2008
Talk to most organizational leaders about how the global marketplace can help them reduce costs, and visions of low-wage manufacturing employees seem to fill the leaders' heads. Hiring such employees may well be an opportunity, but often that opportunity will be the least important part of your global cost-reduction business model.

The marketing opportunity can be vastly more significant than the production opportunity. In our overly commercialized world, authenticity becomes scarcer and scarcer.

Remote locations may provide access to original sources of designs, improved ways of preparing materials, and unique resources. Would as many people visit Australia if it didn't have wild koalas and kangaroos?

People are intrigued by differences when they deepen their understanding of what interests them. I am constantly amazed, for instance, by how many different ways there are to make beer and vodka. Both were once seen as virtual commodities in the developed world.

Yet now these products splinter into ever more types, segments, and brands. Most of those unusual choices have their base in someone's authentic old recipe, regionally admired ingredients, or local stories and culture.

Television is going the same way. More and more choices are provided, and the most popular new choices are often not new stories . . . but new locations. For instance, one of the more popular cable channels is the Discovery Channel, which allows people to travel vicariously and experience vastly new places from the comfort of their homes.

Network shows based on so-called reality like Survivor (where individuals set out in a remote location to compete against each other in survival skills) feel the need to move on to ever more exotic and remote locations that most people have never seen or heard of before. When you mix in authenticity in the right way from local sources, you greatly increase your sales and reduce your marketing costs.

Energy is one of those costs that many people don't feel as if they can do very much about. But they are wrong. The cost of energy varies enormously around the world.

In some countries, energy is subsidized by the government. In other areas, plenty of direct sun and relatively few cloudy days provide low-cost opportunities for solar heating. Windy sites can use propellers to generate power. Strong tides in other areas can generate inexpensive electricity. Enormous rainfall in other regions provides the opportunity for low-cost power from hydroelectric dams without flooding a vast territory. Agricultural waste in some regions, such as bagasse from sugar cane, can be an inexpensive fuel to burn for electricity.

Similarly, raw materials are more available and less expensive in some places than others. When you are close to a low-cost source, you can expect your total costs to benefit as well. If that raw material is expensive to transport, you will often gain by doing your processing to upgrade its value closer to the source.

You can also see the globe as a living laboratory that's open to all at low cost. Benefits, rituals, methods of interacting, and experiences spread rapidly from a few places into mass offerings.

One of the most curious examples of this trend involves fire walking where people walk across superheated rocks or burning coals in their bare feet. I first saw the practice in Fiji as part of a fertility ritual in 1986 that was slightly commercialized to entertain the tourists. By 1996, it was hard to avoid offers of courses that would let you directly participate in a fire walk experience.

In 1986 I was intrigued to see that the people in Fiji were able to accomplish this feat (pun intended), but could find no one to explain why it's possible to us. By 1996, I was walking barefoot on red hot coals.

I still can't explain the phenomenon, but I know it's real. Experts argue that burning is avoided because wood is a poor conductor of heat to our feet and that our circulating blood helps cool the bottoms of our feet. Calluses undoubtedly assist, as well.

Successful companies often develop their offerings by creating a globalized version of an authentic product or experience. In essence, that's part of what Walt Disney did in creating the original version of Disneyland. In Adventureland, you can still ride across the rivers of the world to experience the wildlife in a simulation of the real thing. In Frontierland, you live the life of a rugged American frontiersman or cowboy as depicted in more American B movies around the world than anyone can count. In Fantasyland, you walk through Sleeping Beauty's castle (based on a real French chateau), drive wildly with Mr. Toad in England (drawing from children's literature), and ride a boat through Storybook Land where Grimm's Fairy Tales await. In Tomorrowland, you could formerly take an imaginary, but realistic-feeling, trip to the moon and back . . . all in 12 minutes. And now you can experience these same adventures and more in France and Japan where the American Main Street of 1890 probably seems as exotic to people who are native to those regions as the Jungle Cruise seems to Americans in California.

And, of course, if you are going to try to tap into everyone's ideas such as Goldcorp and Procter & Gamble have done through their contests to lower costs, you are wise to go global. This broadening approach expands the number of ideas you can draw on and delivers you into greater diversity of thinking.

To date, a weakness of such contests has been assuming that primarily experts are the people who can help. That's an incorrect assumption. In fact, nonexperts have a big advantage in that they come to problems and opportunities with fewer preconceived ideas.

In addition, many of the successful innovations for poor people have been designed by poor people with no technical expertise. Those who are interested in creating vast new markets need to engage these future consumers now.

Look beyond low-cost wages in exploring the potential for global cost reduction. What will you find?
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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