The following is a letter I wrote to my youngest sister, Sophie. I’m proud of her, as she is about to mark the end of her two-year commitment to the Peace Corps where she has served as a community organizer in a remote high-altitude village in the mountains of Peru. She currently lives with her sponsor family in an adobe house, which is state of the art in those parts. You can read more about her incredible experience here. With permission, here is the letter.

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Boogs–

As you wind down your Peace Corps assignment in Peru I have some more (unsolicited) thoughts for you around the future. Your future 🙂

Deep, incredible international experience is now part of who you are. I am very excited for you, because I believe that an international education will lead us—and your generation in particular—to a rich life of insights, humanity, and livelihood.

The Economist has a special report about “innovation in emerging markets” in the April 17 issue, and I want to talk with you about some of these ideas as you set the table for your future.

Innovation is a buzzword of our times, in some ways born of the current global economic crisis. In a word, from a US perspective, we are in deep doggy-doo-doo because we’ve chosen to focus on being “the number one consumer society” and on delivering services, rather than on manufacturing things here at home.

We offshore manufacturing to a large extent because there was a time when people and countries with “fewer skills” were “cheaper” to hire than the American workforce. Prior to this era, though, Americans were known around the globe as “the world’s innovators.” Technology, democracy, capitalism (and all the products and services under these mega-umbrellas) are a few of the major innovations we’ve developed or refined.

The approach we took over the past 50-60 years worked for decades, but then problems began to emerge: These pesky things called the Third World and the Second World (that’s what we called them until the late-80s) started to change—and many of them evolved, sometimes (due to their sheer numbers) rather quickly. And they aspired to higher global status—as people, communities, nations, and regions.

And as the years went by, they changed more and we changed less, to the point when astounding events occurred in the global social and economic marketplaces, which caught us off guard.

One problem with the US approach was exactly around this notion of “innovation:” Often times, innovation occurs at the manufacturing stage, or level of an economy. When you outsource that capability, you give away a potential competitive advantage.

Think of how Japan (Toyota) passed the US (the Big 4) in automobile quality, performance, and cost in the 1980s. The Japanese innovated on their assembly lines by applying the ancient principles of kaizen (around “making change for the better”) to car manufacturing.

These innovations in business processes became known as ”Lean Manufacturing,” which in turn spawned another innovation called “Just In Time” business practices, whereby a company only manufactures/inventories products when customers order them, rather than producing millions of units and storing them (which costs money and erodes profits) while marketing them to customers (which costs money and erodes profits).

So finally American firms (like everyone else in the world) adopted Lean Manufacturing and JIT business practices/processes where/when it made sense in order to remain at competitive parity with the rest of the competitive world.

Another problem with the US approach was that it did not account for the rise of emerging economies, which possess the potential to grow vast middle classes (ones that dwarf the US market by factors of 10 and more!) very rapidly.

These so-called “emerging markets” have finally “emerged.” I remember when we stopped calling them the Second and Third World and started calling them “emerging,” to signify their non-static, yet still inferior (relative and subjective) economic qualities and status.

“Emerged nations” (let’s coin the term!) aspire to what they believe is their destiny, just like Americans did in their time of modern emergence.

Emerged nations are not as “cheap” as they used to be, and when they produce goods for the US today, those goods aren’t so cheap for Americans to buy anymore.

This trend toward “economic parity” will continue to drive forward until it costs the same (or more) to produce something abroad, at which point the incentive for the US to outsource the manufacturing functions will disappear.

So let’s keep track: First we lost a competitive edge to innovate by off-shoring critical manufacturing industries and functions; next we lost the benefits that the off-shoring originally held for us; and finally, we might have lost the fire-in-the-belly to “make things” and the business capabilities necessary to do so.

An example of this trend, which hits quite close to home, comes from Canada:

There was a long period of time when the US had twenty-five cents (or more) on the Loon. It was precisely under those economic conditions in 2003 when eBay—searching for an in-expensive English-speaking nation in which to set up a Call Center to serve its growing English-speaking user base (think Canada, US, UK, and Australia)—went to Vancouver (Burnaby, specifically) and opened the eBay Customer Service Center.

The Center bulged to 600+ employees over a two-year period. It was a boon for the B.C. economy, and it looked like a great play for eBay’s bottom line.

Until the globalization tsunami hit Western Canada’s shores:

On July 1 (Canada Day, ironically), 1997 the Brits had handed Hong Kong back to PRC, and many, many HK residents (Chinese nationals, not expats), removed their money from HK and went looking for a safe place (preferably English-speaking, which they’d grown up with in HK), and with better air quality, to invest it.

And they found Canada. Vancouver, specifically, located on the opposite shores of their beloved homeland. Pristine, ready, willing, and waiting.

Over the next decade real estate prices in Vancouver (and Burnaby) went through the roof, and then through the stratosphere, and they’ve been going up ever since.

This global economic shift (from East to West) combined with the softening of the USD (think 2001 dot-com bubble-burst, think 9/11 economic crisis; and then credit defaults, mortgages, and financial scandals since then), caused a “very perceptible” re-balancing of economic power in the North American region.

It was so “perceptible” that eBay Inc. shuttered the Burnaby Center last year because it was simply more expensive to operate in Canada than it was to operate back in the US and offshore, in India (for now, anyway).

I wonder if anyone on the eBay Facilities Search Committee back in 2002 was aware of the impending economic impact of 1997 on Vancouver. If they had been aware, I wonder if they’d have chosen Burnaby in the first place (it’s very, very expensive to ramp up, train, open, operate, and then wind down and shutter a 600+-person operation in a 6-year period).

But in contemporary implementations of corporations in America, we often find textbook cases just like this, where a strategy is formulated, ratified by the BoD, and implemented around the short-short-term (i.e. the Wall Street Quarter) despite knowledge (or at least well-informed strategic insights) that might inform a different course if the Long-Term had been the point of reference.

I wonder if we’ll ever know.

But back to the main point: Not only that, but the larger issue is that those “emerged economies” will begin to focus their attention on their own, truly vast markets of consumers (whom we have almost wholly ignored, btw) instead of “existing to serve the US markets.”

Here are some of the main issues that will confront companies that attempt to market to those “emerged markets” (per the Economist’s special report article called, “Easier said than done”):

“As companies work their way down the income pyramid, the problems proliferate. Distribution is tricky: modern retail chains account for only a third of consumer goods sold in China and a fifth in India. Branding can have pitfalls: the locals may be suspicious of foreign products. Companies may find themselves up against feisty rivals that they have never heard of, not to mention unscrupulous pirates. And China’s rural areas account for 54% of its population but produce a much lower share of its GDP.”

It goes on:

“Companies in search of the much-vaunted fortune at the bottom of the pyramid have to start not with consumers but with non-consumers. They need to get inside poor people’s heads to develop new markets, shaping people’s tastes and establishing habits.”

This plain talk sounds crude and opportunistic at first blush; however, the context of the point about “non-consumers” and “shaping people’s tastes” is we must attempt to objectively define the challenge of marketing to an “emerged market” whose people really don’t know how to be consumers yet, despite their desire to move from ag-based economies toward a more free market-styled one, and that we (in the US and elsewhere) don’t know how to market to “emerged markets.”

The challenge we all face is how to approach this dynamic with a balanced view of capitalism, humanitarianism, and with a view to preserving cultures and values. (An excellent book that delves deep into these issues is “Capitalism with Chinese Characteristics,” by Professor Yasheng Huang of MIT’s Sloan School of Management.)

Opportunity knocks—It beckons you, little sister, to have a look deep into the future. Your future:

By any standard, you have a world-class college education. Not only that, you’ve studied broadly rather than narrowly by learning about social sciences, literature, and political science. I remember reading one of your early college papers (I was on a flight to the Burnaby Center, I believe, when I read it) about understanding radical Muslim behavior.

It was a well-researched and passionately written paper, which left me inspired and wanting to learn more (though it could have come off as trite and plain in less capable hands).

As a young person, you were ahead of the Awareness, Passion, and Sensitivity curves.

And now, as the country and other limbs of the economic globe have stumbled and fallen into recession, you chose to employ yourself as a volunteer in Peru, which “is considered an Emerging Market according to the MSCI.”

You were pulled to Peru, as I understand it, for humanitarian reasons, which is the best news because that’s given you even more platform from which to listen and learn, and to help as possible.

Your choice was not (again, as I understand it) motivated exclusively or even partially by capitalism, per se.

Back to the Economist article for a second:

“Some companies even employ corporate anthropologists…Heavy investment in education is also essential. Unilever has teamed up with various NGOs to teach people about the importance of washing their hands and other aspects of personal hygiene. So far more than 130 million people have undergone such instruction, which makes it perhaps the biggest educational exercise in human history. This has helped not only to create a market for the company’s soaps and detergents but also to forge a bond of trust with potential consumers.”

When I learned about Unilever’s initiatives, I naturally thought of your own “Healthy School” initiative in Peru, which the Peruvian Ministry of Health acknowledged by awarding your school and work with national accreditation. My eyes widened as I thought of the possibilities.

Above I emphasized that capitalistic notions did not motivate you and I think you know I applaud that. My reasoning is simple, and twofold:

First, it’s critical for young people to learn how to give when they are young and open to ideas. Volunteering is all about giving. And while parts of capitalism are sort’a-kinda about giving, it really isn’t about that.

Second, going abroad provides you with a critical (and differentiated) point of view about what capitalism could be about. Is our 20th century US implementation of it (along with the legal and social frameworks, our taxation frameworks, and our sense of “community” and social welfare, etc.) really the right one for today and the future? What does the rest of the world–especially “emerged nations”–have to say?

Can we imagine an implementation that is appropriate? One that will serve a broader notion of the terms “worker” and “owner”?

I think so. But I think others in the world will be framing it this time. With contributions from the West, no doubt.

So where will you fit into this? Where do you want to fit into this future that is happening right now?

Is it important to you to “contribute” to the shaping of the future? I think for most people this thought is too abstract to act upon, and too daunting.

For others, though, the notion is only abstract to the extent we are unwilling to grapple with it, to formulate it. For these folks, it is an opportunity not an obstacle.

One answer might be to live and work in the US, either “letting it happen” (passive implementation) or trying to influence as best as you can from within “corporate America” (slightly less passive to slightly proactive implementation).

Another answer might be to live and work abroad, either with a multinational (from anywhere, not necessarily the US), or for a “local” firm. Not sure either of these would be more proactive by definition.

Unilever (an Anglo-Dutch multinational) and P&G (a US MN) both take a longer view than most:

“The techniques they use include “embedding” employees with local families in order to study their day-to-day behavior. P&G sends young marketing people to live with Chinese peasants for months on end.”

Or you can take your own long view, one in which you do not think in short-terms nor do you think about personal gains. Instead, you think about big economic trends. You think of the gaps, and economic dis-parity. You let your mind go to those places for inspiration and information about where things are headed. And, if you’re inclined, you pick one or more of those, and influence in every way you can, by all available means at your disposal.

In short, you continue—as you began in Peru—to develop deep relationships one day at a time, and for the long view, regardless of where you are or with whom or for whom you work.

If you do these things, you will find fulfillment and you will have a tremendous impact. All the rest (passion, love, sustenance will follow naturally).

Here ends the unsolicited thoughts for your consideration.

xo

JD

© 2009 John Dila