Economics of Sustainability: From Commodity to Value-Adding Industries and Nations
Throughout history, countries that have shipped their raw materials to other counties for processing have lost out to the converters. The further along the conversion process a company is, in adding value, the more viable it is through time. Nations, and the businesses in them by and large, become stable and wealthy because they can make and provide goods and services, not because they own a source of basic commodities. Even with soaring international prices, the amount of income generated by mineral resources in a modern advanced economy remains relatively low compared to the converted products into which they are made. The tendency is to seek efficiencies for a competitive advantage, leaving other nations and businesses to make the real wealth off the resource. This is a losing strategy in the long run, and the long run is getting closer every day.
For the economics to improve, the focus must shift into introducing wealth-building processes into commodity-rich nations and their businesses. The intention is to increase understanding and intention to move along the value-adding chain into links that convert the initial product into real, value-based offerings–ones that provide a significant return beyond the extractive value of jobs and income. It is also the only way to participate in green economies with integrity.
The integrity and wealth come from finding the core value (versus just the extracted value) of a raw material as the first step and the “work” it can do for other industries and processes, raising the earnings and margins for the nation and businesses of materials origin. The core value speaks to that which is normally ignored as we see only what it can do for humans for profit. For example, when DuPont discovered that the core value of sodium cyninade was “binding” it was able to move from using it primary for gold mining extraction to medical purposes that had a value-adding contribution for a material that had been, what might be called, a value-absorbing one—the destruction of lakes and streams was a by-product. It was an uplifting experience for DuPont to discover more socially responsible offerings.
This is the most common effect of finding a material’s core value. It is not a matter of just finding possible products and services through brainstorming. The work is to discover the “vocation” —the highest and best work—of the raw material, leading to technological and value offerings that capture a true and vital relative competitive advantage.
Such a revelation of vocation makes possible the creation of offerings that do not currently exist. It calls on national and business leaders to re-examine the raw material, radically increasingly understand from the eyes of a value-adding creator, not as an extractor of raw material. The ultimate aim is to find the base for utility of the material in new and evolved forms and structures. Companies who engage in this process tend to find proprietary technologies that lead to new technical skills and expertise, as did DuPont for sodium cynanide as well as titanium dioxide, boosting the economy of the businesses and thereby the nations they do business in. In commodity-rich countries this is a particularly good strategic direction. Such value-adding processes and offerings tend to more rapidly reduce poverty and associated drains on national assets. They position businesses for non-displace-ability of industry leadership in rapidly shifting economic power plays, and nations are more future proof as they find the offerings that can brand their country as the ultimate provider. The opportunities for wealth expotentially increase when these new skills and expertise are applied to innovation.
The global rush to sustainability is offering just such an opportunity for businesses and nations with extensive commodity industries. The reduction in commodity consumption is being replaced by conscious consumerism and sustainable manufacturing intentions. Industries and businesses that find value-adding sustainability offerings are likely to win market position early, as well as build an industry for the nation that provides long-term development opportunities. History has shown this repeatedly.
This new thinking is especially important for Middle Eastern, South American, and African commodity-producing companies and national leaders who are being impacted by the global sustainability movement. They must take on the challenges of overcoming:
- Lack of satisfactory strategies to position companies, and nations, for the shifting economic patterns
- Struggles with maintaining margins as the world goes green and they think about how to join this direction
- Undifferentiated portfolio of product and service offerings for the emerging market niches and changing buyer classes
- Systemic solutions to problems with exports that are currently into countries and markets that have sustainable or green initiatives and policy that impact growth and earnings
- Authenticity in entering and contributing meaningful offerings to the green space.
These are not easy challenges, especially if a nation and businesses are to take this on authentically, with deep commitment to responsible change, and to take advantage of the green markets by understanding what is required to create green strategies for existing and new markets and buyers. It is a move into sustainable strategies, product offerings and services that are high margin, and financial strategies for transitioning the business and nation into growth and economic viability are the foundation of such thinking.