Some might get excited about the beautiful game, but I must confess that I don’t care much for soccer. Given a choice, I would go to my son’s little league game over the World Cup. Still it turns out that soccer can provide some interesting insight into the evolving nature of global manufacturing. Or more accurate soccer balls can. This is about the city of Sialkot, Pakistan (Pakistan Defends Its Soccer Industry, Apr 26, Wall Street Journal). Here are the relevant numbers:
This is the city the soccer ball built, a global manufacturing hub in a nation starved for foreign capital and mired in terrorist violence. Nike Inc., the official soccer-ball supplier to Britain’s Premier League, gets soccer balls here. So does Denmark’s Select Sport A/S, which sells to the Danish national league and clubs across Europe. The city exports 30 million balls a year, or about 70% of the global output of hand-stitched soccer balls, and an estimated 40% of the total market.
So Sialkot has enjoyed an enviable position in the global soccer ball market. But as this video explains, they are under threat.
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There are several aspects of this story that are interesting. We have evolving product technology that leads to market segmentation. We have a location that has succeeded (presumably) because of low labor costs being threatened by China. The most interesting thing to my mind is that China — home of low labor costs — is giving Pakistan a run for its money by using automation. One machine is way more productive than a single worker so that labor savings should be second order. So why is China betting on machine sewn balls? One possibility is that China’s labor cost advantage wouldn’t be that great. The residents of Sialkot have years of experience in sewing balls and a start up operation may have trouble lining up enough skilled workers. For China to be a volume player in this market, they need to get moving quickly. Automation allows that. There is also the question of whether machine sewing actually leads to a lower quality ball. Intuitively, I would expect that automation to lead to more consistent soccer balls. Even if they are not more uniform, there is the question of whether the difference is enough to be noticeable by the average user.