Day Three - The Darker Side of Globalization

Day Three’s activities included sojourns to NABI (North American Bus Industries) in the morning and Magyar Telecom (a subsidiary of Deutsch Telekom operating T-Mobile, T-Home, and T-Systems) in the afternoon.

NABI is owned by Cerberus Capital. They manufacture and assemble bus shells (frames, side panels, steering wheels, priming, and wheels/tires) before shipping their product to a partner firm in Alabama for finishing. At that point the buses interiors are finished, engines, electrical transmissions installed, paint applied, etc., all the while ensuring that NABI-Hungary’s contribution does not exceed 40% of the total value of the bus. This leaves 60% or more of value to be added in the US, allowing compliance with US federal law on national content. Sadly, the facilities manager—a longtime industry veteran—wants nothing more to build complete buses in Hungary. It’s a matter of personal and national pride, but the parent company’s US-centric mission means that’s not possible.

At Magyar we had the chance to spend 90-minutes with CEO Christopher Mattheisen. He walked us through the evolution of the organization from regional operating company in the land line space to multi-dimensional leading player in a plethora of businesses—wireless, land lines, cable, cable internet, ADSL, satellite, and more.

The key learnings I took from both visits related to potentially hidden downsides of globalization, and I don’t mean the exploited workers/social responsibility angles that we all hear about and which are also relevant considerations.

At NABI, we learned that management created the Hungarian sourcing to take advantage of lower labor rates in Hungary vs. those in the US as well as to garner the benefits of cheaper materials costs. Unfortunately, unanticipated fluctuations in the Hungarian goods & services and labor markets, as well as changes in the market for foreign exchange, have wiped out a sizable chunk of those anticipated advantages. While the global location decision is a long term one, the advantages can be fleeting.

I was also reminded of the need for a high performance organization to capitalize upon the intrinsic motivations of its employees to realize full potential. Our hosts spoke deeply & passionately about their desire to manufacture finished buses (preferably for sale in Hungary and Europe) rather than only producing unfinished bus shells for export to the US. In fact, for each of the 4 questions I posed, they steered the answer back around to the topic of making complete business in Hungary! It’s clear to me that the master organization is missing out on an opportunity to more fully leverage its workforce. The staff have a track record of creating unique value for customers in finished bus manufacture, and I have to think they would perform at 110% if given the option to show their stuff.

At Magyar, we heard about 3 significant challenges associated with operating on the global scene rather than focusing upon a solely domestic market. First there is the challenge of over-regulation. Magyar is regulated by the EU in Brussels, by each of the 3 national markets in which it operates (Hungary, Macedonia, and Montenegro), by Germany through its parent Deutsche Telekom’s stake, and by the US given its stock market listing. The CEO expressed frustration about the agility of the organization in this setting. Second, the CEO expressed deep concern about exchange rate risk. Finally, we heard about the institutional risks and tax consequences of operating in less politically mature countries; the CEO commented that Magyar’s payroll/employee was approximately twice as high as that of rivals in Poland even though the Hungarian employees’ take home pay was lower than that of their Polish counterparts. He also mentioned that—on average—each working Hungarian has to support 5 non-working Hungarians due to social policy related to retirement, incentives for work vs. unemployment, and the like.

We hear a lot about the benefits of globalization which are—on net—seemingly very positive for organizations and their shareholders. We hear less about the risks and challenges of operating a global concern, and today’s visits were a nice reminder. I think we all feel more empowered to make informed decisions about resource allocation on the global business scene as a result of our meetings.