1. Global Manufacturing: Myth, Reality & Strategic Options Offshore Group - 12th Annual Manufacturing in Mexico Summit Michael L. Hetzel, VP/Americas Pro QC International www.proqc.com

2. “We can’t compete from the U.S.” © 2006 M.L. Hetzel

3. Who says? © 2006 M.L. Hetzel Who says? © 2006 M.L. Hetzel

4. Don’t Trust Your Business to Media Very little accurate and objective information coming from media any more – even trade media Very little accurate and objective information coming from media any more – even trade media Lack of context is nearly universal Lack of context is nearly universal Head counts trumpeted, actual output ignored Head counts trumpeted, actual output ignored Plant closings highlighted, plant openings ignored – “If it bleeds it leads” Plant closings highlighted, plant openings ignored – “If it bleeds it leads” Politicization of global trade issues resulting from general domestic political polarization Politicization of global trade issues resulting from general domestic political polarization © 2006 M.L. Hetzel

5. Why Listen to Me? Over 20 years of manufacturing experience in SMMs, from the shop floor to 9 ½ years as CEO Over 20 years of manufacturing experience in SMMs, from the shop floor to 9 ½ years as CEO Case study information from producing and moderating 2 years of the ITCC Global Manufacturing Series Case study information from producing and moderating 2 years of the ITCC Global Manufacturing Series Direct research – no second hand statistics Direct research – no second hand statistics Current visibility of the global supply chains of over 300 companies, large and small Current visibility of the global supply chains of over 300 companies, large and small Daily contact with Asian operations Daily contact with Asian operations Regular consulting engagements with SMMs Regular consulting engagements with SMMs © 2006 M.L. Hetzel

6. Do Your Own Research Don’t believe me - or anyone else Don’t believe me - or anyone else All competitive and market information must be customized and dynamic – there’s no canned solution All competitive and market information must be customized and dynamic – there’s no canned solution Go direct to data sources – statistics can distort Go direct to data sources – statistics can distort Always account for the context of information and data Always account for the context of information and data Research global conditions even if your market is domestic only – don’t miss opportunities or threats Research global conditions even if your market is domestic only – don’t miss opportunities or threats Use government market research resources such as USEAC Use government market research resources such as USEAC © 2006 M.L. Hetzel

7. Amplified Costs & Risks of International Procurement Supply chain length, inventories and queues Supply chain length, inventories and queues Quality disruptions & replacement product delivery delays Quality disruptions & replacement product delivery delays Logistical risks & market tolerance for delays Logistical risks & market tolerance for delays Political risks Political risks Currency risks Currency risks © 2006 M.L. Hetzel

8. Culture & Language Mexico & China Mexico & China Greater Asia Greater Asia Central & Eastern Europe Central & Eastern Europe Regions of the U.S. Regions of the U.S. © 2006 M.L. Hetzel

9. Time Zones Communications Communications Travel Travel Dateline Effect Dateline Effect © 2006 M.L. Hetzel

10. Product Life Cycle Phases Innovative & unique introductory phase Innovative & unique introductory phase Popularity & competition arrive Popularity & competition arrive Commodity phase Commodity phase Mature phase & proximity to market Mature phase & proximity to market © 2006 M.L. Hetzel

11. Common Myths vs. Reality China’s growth and size China’s growth and size U.S. current account deficit U.S. current account deficit U.S. Import sources U.S. Import sources U.S. manufacturing output U.S. manufacturing output U.S. export levels U.S. export levels India’s growth and size India’s growth and size What about Canada & Mexico? What about Canada & Mexico? © 2006 M.L. Hetzel

12. Marketing The number one cause of failure for U.S. manufacturers is a lack of marketing and market research The number one cause of failure for U.S. manufacturers is a lack of marketing and market research Number two is failing to adapt the company once market conditions are known © 2006 M.L. Hetzel

13. Common Traits Identified in Successful U.S. Manufacturers  They open their minds to global trade even if they choose not to participate in global markets or sourcing. No one benefits from anger and fear All have a “can do” attitude embedded from the top down in their corporate cultures, with high levels of employee development and commitment to executing global strategies All have a “can do” attitude embedded from the top down in their corporate cultures, with high levels of employee development and commitment to executing global strategies  Most of the companies engage in international activities of some type (Sourcing, Alliances, JVs, WOFEs), and all are creating growth and success in the U.S. as a result © 2006 M.L. Hetzel

14. Common Traits Identified in Successful U.S. Manufacturers  All of these companies are committed to excellence across the enterprise, not just as a buzzword but as a functional, deliberate and measurable business practice.  Whether operating internationally or not all of these companies are exercising a strong commitment to good, old-fashioned operational excellence as a key foundation of their success.  These companies directly engage in marketing and market research – the benevolent U.S. market anomaly of the last 50 years is over © 2006 M.L. Hetzel

15. Example Strategies from Case Studies  Attitude of positive outlook rather than anger about global business conditions. “Daily attitude ‘adjustments’ shared with staff to keep the organization from falling prey to the discouraging headlines our industry and the global economy creates”  Evolution in the recognition that “The world will not wait for your company. Take a ‘reasonable risk’ and help the company to evolve into something better (and typically different) than it used to be” © 2006 M.L. Hetzel

16. Example Strategies from Case Studies  Sharing all of their metric tracking with their clients and engaging in “value engineering redesign” to create new opportunities for their products through the conversion of designs from other production methods  Harnessing offshore inputs for local competitive advantage, using global experience to conduct a successful “U.S.-China balancing act” © 2006 M.L. Hetzel

17. Example Strategies from Case Studies  Build a business network of alliances and partnerships to remain in alignment with the global movements of their clients.  Remember that trade flows both ways, not just inbound, and pursue more exports Recognize that resistance to change and globalization is not unique to people in the U.S. Recognize that resistance to change and globalization is not unique to people in the U.S. Look for and capture crossover opportunities to other sectors and categories Look for and capture crossover opportunities to other sectors and categories © 2006 M.L. Hetzel

18. Four Fundamental Changes 1. Attitude 2. Marketing 3. Collaboration 4. Products & Processes © 2006 M.L. Hetzel

19. Strategic Overshoot The tendency to decide to operate in another country, often China these days, before careful analysis of the actual business and market conditions rationalizes the decision The tendency to decide to operate in another country, often China these days, before careful analysis of the actual business and market conditions rationalizes the decision The real solution is often much closer to home The real solution is often much closer to home © 2006 M.L. Hetzel

20. The U.S. Doesn’t Import Too Much… …We Export Too Little …We Export Too Little © 2006 M.L. Hetzel

21. Global Manufacturing: Myth, Reality & Strategic Options Offshore Group - 12th Annual Manufacturing in Mexico Summit October 20, 2006 Michael L. Hetzel, VP/Americas Michael L. Hetzel, VP/Americas Pro QC International www.proqc.com © 2006 M.L. Hetzel