SinoFactory » Economy

PRC govt. (China Daily) to foreign manufacturers: Time to go. Can’t you take a hint? …. Just kidding!

David — Sun, 25 Jul 2010 04:26:55 +0000

Just because I in my infinite wisdom, say rising labor costs are no big deal, and that China is still competitive for lots of manufacturing, doesn’t mean everyone agrees with me. In fact, the PRC government, via it’s China Daily article “‘Made in China’ – but for how long“, ask the rhetorical question:

How long will companies be able to afford to manufacture in China?

The answer, it seems (at first), is “not very long”:

Manufacturing wages across China have increased by 14 percent over the past year (see inside cover story), making the prospect of producing goods in nearby Southeast Asian countries such as Vietnam or in Bangladesh, Sri Lanka and even Africa seem a viable alternative.

To paraphrase the first half of the article, China is no longer a competitive manufacturing base for foreign companies. The second half of the article goes on to agree that labor costs are not always that significant, but this viewpoint is not introduced until the second half. Until you get there, the article seems to be telling us foreign factories to head for the door. If you don’t read through to the surprise ending, that’s what you are left with. It seems to be telling us foreign manufacturers that we should consider leaving China because…

Ann Taylor and Coach are moving out to chase cheap labor in neighboring countries:

Two large US companies, Ann Taylor Stores, the women’s clothing retailer, and Coach, the luxury handbag maker, are poised to relocate production to countries, where labor rates are cheaper.

A bunch of unnamed British manufacturers are considering moving from China back to the UK.

A recent survey by EEF, Britain’s leading manufacturing association, said one in seven of its members were looking at shifting production back to the UK, fed up with problems in countries such as China.

“Getting goods of the right quality, issues such as time to market and rising fuel costs have been driving this trend,” said Lee Hopley, EEF’s chief economist.

Reading the first half of this article makes me feel like the last guest left at a party, where the hosts are starting to yawn, stretch and grouse about how early they have to get up in the morning. They are thinking… Just get out and leave us alone! Go to Vietnam! Go to Africa for all I care! Everyone else is rushing for the door, almost gone! You brought a great casserole which everyone (including you) enjoyed, but it’s long been finished and complimented by all. The dishes have been done (thanks for helping). We’ve locked the liquor cabinet– no more scotch for you. Why are you still hanging around?

If even the China Daily says manufacturers are headed for the door who am I to disagree?

Actually, the bit about Ann Taylor and Coach are from a Wall Street Journal article U.S. Apparel Retailers Turn Their Gaze Beyond China, which quotes executives from Ann Taylor and Coach but also from Guess, Guess and JC Penny. Looking at the original article, here’s why I wouldn’t take it too seriously:

1. The original article was specifically about apparel retailers, not about manufacturing in general. Apparel manufacturing has a relatively high labor content and are particularly sensitive to labor rate fluctuations.

2. Even so, most of those mentioned already had operations in neighboring countries, and were simply considering altering the mix of products made in China with those made outside China. They were largely (not completely) discussing adjustments in strategy, not a major transition from China to lower cost counties.

3. The original WSJ article also contains “balancing” quotes from apparel industry experts who people who believe that, even for apparel manufacturers, China is difficult to replace.

Indeed, for the money, the quality of Chinese-made goods is tough to match, and labor is just one of the costs of production. Others include the costs of raw materials like textiles, production facilities, transportation and quality control and training.

The skills of China’s labor force and its familiarity with the ways and expectations of U.S. companies, exceed that of any other Asian country, said Mr. Rubman, the retail strategist.

Vietnam has a big labor pool, but textiles aren’t as available there as in China, meaning retailers would have to ship in fabrics, said Andrew Jassin, managing director of fashion consulting firm Jassin Consulting Group.

“The only replacement for China is China,” said Li & Fung’s Mr. Darling, adding that his firm is scouting production possibilities in northern and western China. Since those areas have played only a minor role in the country’s manufacturing boom, wages there remain relatively low.

Regarding the British manufacturers who are going home, note that labor costs are not mentioned as contributing factors. Also, note that they are only “looking” at moving out. It would be interesting to know more about those British manufacturers who can’t hack it here in China. What are their quality and delivery problems, and why are they so intractable?

Once again, the second half of the article tells us why we needn’t be rushing for the door just yet, but that that viewpoint is not evident in the articles introductory paragraphs. Unfortunately, I think that a large percentage of the readers, having their pre-existing premise validated, won’t make it to the happy ending.

Share/Save

Labor rates rising, but labor is still “cheap” if you get more value.

David — Wed, 21 Jul 2010 12:33:24 +0000

In a response to the much blogged and tweeted Economist article “Is the era of cheap Chinese labour over?“, Economist guest contributor Tyler Cowen answers the question intelligently in his response “The important thing is Chinese productivity is rising“.

Anyway, the money quote comes at the end of the article:

In the question stated above, “cheap” is a misleading word. The more productive China becomes, the cheaper its labour will be, at least relative to what you get.

Share/Save

China Labor: Yes, The Times They Are A Changing but no, the sky is NOT falling.

David — Fri, 16 Jul 2010 04:17:35 +0000

There was some balanced perspective on the China labor situation from a July 1 Reuters article.

Just wanted to share some of the main points:

Yes, the fact that there were strikes is significant. But no, the actual effect of those strikes has not been significant because of their limited scope. (It is, however, important to get at the underlying reasons for those strikes.)

Yes, workers are becoming more demanding and more vocal.

[My favorite] Yes labor costs are rising but no, this is not the end of China as a production base. This is because rising labor (and other) costs are not a new phenomenon, and because labor costs constitute a fraction of overall manufacturing costs in China. Some manufacturers may move inland or out of China, but…

“China is still an attractive option for most companies looking for an effective manufacturing base, although many companies have been pursuing a China plus one or a China plus two strategy in recent years to diversify their manufacturing operations,” said Geoffrey Crothall of the China Labour Bulletin in Hong Kong, which advocates for improved workers’ rights.

“I really don’t think we’re going to see companies suddenly leaving China en masse.”

Yes, in some cases supply chains may be impacted, but no, it doesn’t look like a significant issue with regards to stocking strategies.

Yes, the Chinese government will likely to play a greater role (by more stringent enforcement of labor laws, and by encouraging collective bargaining) in balancing the needs of a more assertive workerforce with those of industry. But no, it will not allow independent labor unions.

Share/Save

China’s getting greentech jobs because they invested. The US didn’t

David — Mon, 23 Nov 2009 02:16:49 +0000

In my last post I bitch and moan about US politicians and their bitching and moaning. But really, look at China’s pro-active stance on turning the requirement for clean energy into value-added economic activity. On Nov. 20th, the WSJ online posted an article China’s CIC to Invest in 2 Clean-Energy Firms. Subscription is required (I’m not subscribed) but here’s the teaser:

HONG KONG—Sovereign-wealth fund China Investment Corp. aims to tap rising demand for clean energy in the country by investing as much as $1.21 billion in two companies in the renewable-energy sector, people familiar with the matter say.

The transactions are among the US$300 billion sovereign-wealth fund’s first equity investments in a domestic power producer and underscore China’s support for renewable energy.

Hong Kong-listed GCL-Poly Energy Holdings Ltd. said CIC would buy a 20% stake in the co-generation power-plant operator …
So what did the US do with the trillions it had to spend on stimulus funds? Did it invest in lots and lots of clean energy projects which would spur near immediate demands? Did it invest in encouraging and developing lean energy technologies which would add value to the economy?

Share/Save

CNN: Mexico is the new go-to place for manufacturing U.S. bound products

David — Sat, 07 Nov 2009 14:38:22 +0000

According to a CNN report, NAFTA, proximity to the U.S. market, and lower costs (largely the results of inverse currency fluctuations of the peso and yuan) have tipped the scales in favor of Mexico (and against China) as the new manufacturing destination of choice for U.S.- bound products.

Share/Save

Foreign Manufacturers: at least Dongguang still loves you

David — Sat, 07 Nov 2009 13:24:07 +0000

There is talk that the Beijing and and Guangdong governments are starting to play hard-to-get with foreign investors, downplaying their importance in upgrading China’s manufacturing, R&D and local market offerings.

However one report in The Japan Times indicates that Dongguan, at least, is still welcoming foreign investment.

A vice mayor of the Chinese industrial city of Dongguan urged Japanese manufacturers Friday to expand on its turf and exploit its domestic market to help the city recover from the global economic crisis and fall in exports.

“We are looking for more Japanese manufacturers to build R&D (research and development) centers in our city and create domestic brands, securing distribution routes,” Jiang Ling, vice mayor of Dongguan in Guangzhou Province, said at a news conference in a hotel in Minato Ward, Tokyo.

In many ways, what Jiang is saying is in lockstep with what the central and Guangdong governments seem to be promoting– focus on domestic consumption, R&D and high-tech manufacturing.

But what makes Jiang’s comments interesting are that he’s actively courting foreign investment, stating clearly that it essential for the area’s recovery. Moreover, he’s speaking on behalf of Dongguan’s townships and villages, and these are the organizations which will be interpreting and implementing whatever policies flow down from Beijing and Guangzhou.

While this doesn’t mean that Dongguan is a good place to set up labor-intensive manufacturing, it does indicate that Dongguan, at least, is still Foreign Investment friendly.

Share/Save

A famous Chinese labor activist goes right to the GEMBA

David — Fri, 17 Apr 2009 16:26:05 +0000

A new article in the Financial Times discusses the new face of migrant labor in Dongguan. The article basically says that the oft-predicted worker unreast didn’t materialize because those predicting it envisioned the migrant workers of yesteryear (hordes of rural, unsophisticated “factory girls”) rather than the migrant workers of today (semi-urbanized, getting more sophisticated, with more connection to the communities in which they work).

Seems accurate enough. But what caught my eye were the last two paragraphs, sharing the stated views of a famous Chinese labor activist:

[The activist]…once incarcerated for his efforts to establish an independent alternative to the government-sanctioned All China Federation of Trade Unions, notes that the last thing the country’s labour movement needs is more martyrs rotting away in Chinese prisons for daring to challenge the Communist party’s authority. Far better, he adds, to focus on factory-floor issues that affect workers’ daily lives. [emphasis mine]

As [he] said in an address to Hong Kong’s Foreign Correspondents’ Club earlier this year: “Why not let workers and employers settle their problems [independently] at factory level? That’s the best way to make a harmonious society.”

What does he mean by “factory-floor issues that affect workers’ daily lives”? It looks like he’s telling us workers rights will improve not by workers banding together to cause unrest, but by going to the gemba and working together with management to ensure that their working lives are safer, more comfortable, and more productive (with the assumption that increased productivity means increased compensation for the worker).

Not news to me… I’ve said elsewhere that LEAN, JIT, and related strategies and concepts can do more than just add value for shareholders and customers, but can add value for the workers and for the community as well. What surprises me is hearing it from labor.

Share/Save

China factory closures: perspective from The Times (UK)

David — Mon, 02 Feb 2009 08:10:56 +0000

I’ve argued in the past that the labor unrest in Dongguan and Shenzhen was overplayed and over-emphasised by the western media. Here’s another article, “Violent unrest rocks China as crisis hits” which contradicts my view.

It just doesn’t scare me as it might. As with the articles of the past, it highlights a few anecdotes (albeit fresh ones) about unpaid workers protesting, official malfeasance in controlling the press, an extortion scheme perpetrated by an unemployed worker.

I guess if I didn’t live here and have the perspective that I do, this article might send shivers up my spine.

Maybe not.

Share/Save