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Published: February 26, 2008

 
 

Twenty Hubs and No HQ

Each hub would take primary responsibility for serving the gateway market, plus other markets in the regional footprint (often five to 10 other countries), all with local logistics expertise and cultural awareness that a faraway corporate staff could not provide. For example, the German hub might manage Switzerland, Austria, and Hungary; Brazil might support Argentina, Uruguay, Paraguay, Bolivia, and Chile; and Mexico might cover Colombia, Venezuela, Peru, and Ecuador. In the non-hub countries, there would be only a front-end organization for customer contact and service. Everything else would be handled through the hubs. For example, a hub might oversee 15 or 20 manufacturing locations — providing cost and scale advantages while retaining enough local autonomy to succeed in local markets. Some hubs, like that in India, might cover all aspects of corporate activity — marketing, manufacturing, research and development, logistics, and shared services — for a region, whereas other hubs, such as those in Turkey or Indonesia, might start with a customer-centric supply chain and gradually build capabilities in other functions. Hubs in the largest markets, such as the United States, Brazil, or China, might create their own regional brands. Mozambique and Kenya might receive products developed in South Africa, just as Austria and Denmark currently accept products developed in Germany.

In the aggregate, this gateway approach would allow an MNC to serve customers on every level of the income pyramid, from wealthiest to poorest, in every country where it operates. In addition, in most MNCs, a gateway–hub structure would reduce sourcing costs by 20 percent and corporate overhead costs by two-thirds. Although many companies would probably ease their way into this setup by establishing hubs in just some of the 20 gateway countries, the most successful competitors would soon be drawn to establish hubs in all of them. And in the next few years, other countries, such as Vietnam and Nigeria, may become full-fledged gateway countries as well.

Many companies have experimented with this type of structure for marketing, organizing their product lines in North America and Europe through “lead” countries. Other companies, such as GE, Siemens, Philips, and Intel, have moved their manufacturing, shared services, and R&D to China and India, with the clear intent of building a presence in the region around hublike structures in those nations. But no company that we know of has yet taken the concept to its most powerful end, operating most or all functions under a hub structure, and creating a seamless global network to integrate it all together.

A gateway–hub structure can be flexible. A Chinese hub could manufacture goods for Greater China, other Asian markets, the Middle East, Europe, and the U.S. Conversely, a vibrant consumer market need not depend on a single hub: A hub in the U.S. could draw in goods from Brazil, China, and Mexico. All the hubs would probably be involved in manufacturing, but only some might incorporate research and development. The configuration of these R&D hubs does not have to match the manufacturing and logistics footprint; R&D and services are more talent intensive, and concerns about protecting intellectual property are greater in the R&D arena.

Perhaps the greatest advantage of this structure has to do with the changed role of the center. In a fully realized gateway–hub MNC, the topmost executive committee contains leaders from all the hubs; management is diversified across the key countries of the developed and developing world. For the first time, the people at the top of the global hierarchy are close to where the action is — they are physically near their customers and markets. It is now far more possible to promote talented individuals all the way up to the CEO’s position, no matter which hub they come from. Core corporate platforms for manufacturing, marketing, and R&D now exist around the world, extending the business day to 24 hours without a reliance on outsourced services. This is the modern version of an empire on which the sun never sets.

 
 
 
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