were manufacturing motorcycles and scooters. They were not simply participating in the two-wheel industry, but had industrialized two-wheel production.
Back to my visit...In addition to seeing their bike production and vertically integrated parts production operations, I also had the opportunity to spend time with their design team, engineers, and road test operations. A product and technology development center was in a rural area not far from the Indore plant. Adjacent to the center was an on-road and off-road test track. I test-rode several of the Kinetic models on the track, from 50cc to 250cc (engine displacement) models. All had cleaner burning four-stroke engines, as Kinetic, like many other two-wheeler companies, had eliminated 2-strokes from their engine portfolios to reduce emissions. While taking either the fourth or fifth model through the off-road portion of the track, I stopped after crossing through one of the puddles formed by the morning rain to admire the view and chat with a few of the engineers and technicians. One of the technicians, Jaggdish, casually commented that he had seen a tiger on the track earlier in the morning. Yes, a real tiger! That ended my test rides, and we headed back into the technology center.
Concurrent with my evaluation of suppliers and product, other members of my team were conducting research to evaluate the market’s acceptance of motor scooters in West Africa. While there was interest in the product, the projected sales volume was much lower than expected and not sufficient to meet our business case objectives. The people and the products of Kinetic were great, but simply taking and kit-assembling their portfolio of products in West Africa would not meet the needs of the market and would not make business sense. We decided to not move forward with that venture. We concluded that if we could launch a more vertically integrated business, with more control of the part production costs and more flexibility to tailor the products to the local West African market, we could revisit this opportunity in the future, once the market was ready.
Definitions and Progression
From a Manufacturing Business to Sustainable Industrialization
Manufacturing business –
A manufacturing business is created when raw materials, labor, machines, and energy are brought together and organized to repeatedly produce quantities of a good that a customer finds desirable and is willing to purchase. Think about any product manufacturing company existing today. No matter its size, years in business, location, or number of employees, it was first started by a single entrepreneur or group of entrepreneurs. At some point in this company’s history, an individual or group of individuals recognized a market need, felt they had the ideas and skills to address the need, and decided to take the risk to build a business that could fulfill that need. The motivations to get started may have been planned and deliberate, or they may have been opportunistic.
For example, Kofi is a successful carpenter and wood sculptor working for a home construction company. He decides to make a new set of cabinets for his kitchen during his spare time in the evenings and on weekends. His neighbors see his work, are very impressed, and decide that they want to remodel their kitchens with Kofi’s cabinets as well. Kofi builds their cabinets. The neighbors each post photos of their new cabinets on social media. The photos are a hit and receive lots of “likes" and "follows.” Because of the photos, many of Kofi’s neighbors’ relatives across town, across the state, and across the country all decide that they also want a set of Kofi’s cabinets. Kofi buys extra drills and power saws, places a bulk order for wood, and hires two of his wood finishing colleagues from the construction company to help build the frames and stain the doors. What started out as a side hobby project turns into a revenue generating enterprise. Kofi’s Cabinet Works Limited is born. Demand continues to grow and other kitchen remodelers around the country want his work. Kofi now needs to go from building seven cabinet sets per week to 75 sets per week. Kofi decides to invest in the equipment needed to automatically cut the special wood joints for the drawers, and a computer numerical control (CNC) lathe to high-speed cut his unique and complex design patterns for the cabinet doors. The addition of this equipment and the employees needed to operate it gives the company the production capacity to efficiently meet its customers' demands. Kofi’s Cabinet Works is now a cabinet manufacturer.
Industry –
Multiple customers for a product create a market for the product. Great business is all about the customer, the customer, and the customer. A business without customers is just a hobby. The multiple businesses in pursuit of these customers are competitors. If the product offerings are similar or undifferentiated between multiple businesses offering the product–like crude oil, wheat, rice, or steel–the product is considered to be a commodity. Commodity products compete with each other primarily on the basis of price. The producer’s profit margins are squeezed and the best deal typically wins. Adding unique designs, branding, business models, and distribution channels help enable price premiums and move a product from a low-margin commodity category to a higher margin differentiated offering.
An industry is created when multiple manufacturing or non-manufacturing businesses each produce and offer entries in a particular sector of products and services and vie for acceptance by customers and the marketplace. As the market opportunity is proven to be sufficient, multiple competitors are attracted. Many customers result in the development of many competitors, and many competitors help to create an industry. Again, it all comes back to the customer.
Entrepreneurs who see and seize on business opportunities in the marketplace become competitors and are drivers of industry development. Local government policy and support, infrastructure availability, the skill level of human capital, and other external factors also play a role in the development of an industry. The businesses that have grown out of the combined impact of customer demands, market opportunities, and external support factors are why many cities, states, and even countries are known primarily for their local industries.
Examples –
Chicago meatpackers: The US city of Chicago was once famous for its leadership role in the meatpacking industry, earning this distinction after the American Civil War (1865). As income levels in major cities increased, the market demand for meat began to rise. This created increased opportunities for innovation and new business in commercial butchering. The railway system and networks that linked Chicago to many of the rural cities throughout the Midwest, where cattle and pigs were raised, allowed for easy transport of this livestock. Chicago’s infrastructure advantage enabled the commercial butchering and meatpacking industries to develop and flourish.1 Chicago has since diversified its local economy toward other industries, including other forms of transportation networks, manufacturing, financial services, commodities brokerage, insurance, software, and information technology. In this list of local industries, we can also include Chicago’s many entertainment venues and professional sports franchises, including the 2016 Major League Baseball World Champion Chicago Cubs!
North Carolina furniture: For approximately one hundred years, the US state of North Carolina and the city of High Point was known as the furniture manufacturing capital of the world. Immigrants with artisan skills in woodworking had settled in the region since the seventeenth century. The state was also home to vast reserves of hardwood forests. Entrepreneurs combined these advantages in skilled labor and natural resources with capital to develop a local furniture industry. The proximity to rail and highway infrastructure also made High Point a strong location for a major annual furniture trade fair. While global competition has reduced the region’s role as a major furniture manufacturer, the twice-a-year High Point Market furniture fair continues to draw more than 75,000 people from around the world.2
Silicon Valley technology: Silicon Valley’s leadership in the computer hardware, software technology, and
