Tag: outsourcing

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

0

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.

: Economy,Labor Issues,Uncategorized
: , , ,

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

0

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.

: Economy,Labor Issues,Southern China
: , , , , ,

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

1

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.
: Economy,Labor Issues,Southern China,Uncategorized
: , , , , ,

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

1

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?

: Economy,Politics
: , ,

US Cleantech jobs gone to China: Stop bitching & start competing

0

American politicians and pundits should stop complaining about successful Chinese competition for greentech and other “good”  jobs.  Rather than complain, they should get off their soapboxes and work towards incentivizing and encouraging US industry.  They should be asking following question:  ”The Chinese have their plan, what’s ours?”

This article from yesterday’s Industry Week cites a congressional panel which concludes that China’s government is aggressively encouraging the foreign investment in, and development of, key industries– this to the detriment of those industries in the US.  From that article:

China employs a variety of incentives, including subsidized land, energy and water, to foreign companies that relocate their operations there. China uses tax incentives and preferential loans, the report notes, to further reduce the cost of investing in China.

The report says China is selectively targeting industries such as auto parts, machine tools, information technology, optics, photonics and clean renewable energy. This policy, it warns, is contributing to the loss of jobs in the upstate New York area even as the state seeks to become a global leader in the renewable energy field.

The report adds that it is not just manufacturing jobs that are moving to China. “Advanced technology companies in the region that have been moving their manufacturing operations to China are now relocating their research, development and innovation operations there as well,” it finds.

The Chinese have been doing what they should do by building a platform for development by private companies, both local and foreign.  They invest in the development of the industries and they get the jobs associated with those industries.

And here’s an example of the Chinese government’s “can do” approach to clean energy from a report by Reuters posted on November 15th:

China selects 294 solar power plants for subsidy

(Reuters) – China has identified 294 solar power projects with total generating capacity of 642 megawatts (MW) in its first pilot program.

Beijing has said it will subsidies  [sic] at least half of the investment cost.

The capacity will be nearly 30 percent more than the minimum target Beijing set in July when it launched the unprecedented “golden sun” plan, which was part of China’s drive to catch up in a global race to find alternatives to fossil fuels.

One would expect that the Chinese solar panel manufacturer Suntech, or it’s Chinese competitors will get a lot of orders out of this initiative.  Speaking of Suntech,  two days before the above-mentioned article appeared, Reuters ran an article about China’s solar rooftop program:

Suntech to develop 20 pct of China’s Solar rooftop plan

Nov 13 (Reuters) – Chinese Solar panel maker Suntech Power Holdings Co Ltd (STP.N) said it expects to develop about 20 percent of the 91 megawatts of solar projects under China’s solar rooftop program.

The solar rooftop program was launched in March to increase the efficiency of buildings through photovoltaic (PV) solar systems.

Once again it seems that Chinese pols are actually doing something about encouraging clean energy and developing the industries to support it.  (Suntech, by the way, is plowing some of it’s gains into job creation in the USA– t is building a solar power panel factory in Arizona.  Everything’s connected!)

It reminds me of Taiwan in the 90′s. The government targeted computer manufacturing as key industry for development.   They created research institutes devoted to technical and market development, and helped steer local companies into the field.  They gave development loans to the 4 key players and Taiwan’s computer industry developed quite nicely.

Now I know it’s not that simple. There are trade agreements which need to be taken into account, and it might be desirable to establish job-creation metrics which would be tied to government incentives or assistance.

All of which leads me to Charles Schumer and his rant about Shenyang Power Group getting the lion’s share of the jobs associated with a huge wind power project in Texas.  Schumer’s rant fails to mention that:

  • Shenyang Power got the lion’s share of the jobs, but it also invested the lion’s share of the money for the project.  (Yes, there is an application for stimulus money made by the American side, but it’s only for a pretty small minority shareholding).
  • The turbines which will be made by Shenyang will all use a key component made by GE.  I’m guessing it will use other imported (maybe from the US?) components as well, but I don’t know.

So the Chinese government invested and encouraged the turbine industry, and invested in a project in the States that uses turbines.  They are putting up the money and taking risk, and stand to make money and get jobs out of it.   Also,hundreds of thousands of US homes will get cleaner electric power.  GE will get orders for their components.  See how everything’s connected?

Yes, the Chinese government have  focused on being competitive in key industries.  That’s called leadership and that’s what they should be doing. It’s what the US should have been doing as well.

Stop complaining and start competing!

: Economy,Labor Issues,Politics
: , ,

Gobal Times: China still in play for outsourced manufacturing

0

Consider the source, but according to an article in today’s Global Times (a fairly new English-language paper published in the PRC) western manufacturers are increasing their outsourcing activities in China:

Foreign countries have started outsourcing to China again after a brief slowdown last year.

The first nine months of the year saw 3,287 new enterprises providing services that have been outsourced to China launched, offering 585,000 new jobs. International service contracts won by Chinese enterprises in the first nine months are valued at $12.7 billion, up 212 percent from the same period last year, according to Ministry of Commerce (MOFCOM) figures released Tuesday.

As of the end of September, there were 8,060 enterprises with 1.4 million employees operating in the outsourcing industry.

The rest of the article cites the existing and potential threats to China’s outsourcing business, namely India with it’s large English speaking population, but others as well.

For those of us operating the the Pearl River Delta, where most of this outsourcing is being performed, it might mean that the PRD is still an attractive place to set up export-oriented manufacturing.  At the very least, since we assume that the GT writes what Beijing wants written, it means that the authorities are still interested in making China an attractive destination for western export manufacturing.

: ALL,Labor Issues,Southern China
: , ,

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

0

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.

: ALL,Labor Issues,Southern China
: , , , ,

Dumping your waste upstream isn’t LEAN — another view

0

Last month I wrote a post, “Dumping your waste upstream isn’t LEAN“, giving an example of how one large American company I know (and have left unnamed) has been bullying it’s vendors into accepting the costs of wasteful stocking in order to lower it’s own costs and leadtimes, while actually raising their own costs in less obvious but more significant ways.

This month, Bill Waddell of Evolving Excellence gives another example– none other than General Motors. Anyway, for another (more skillfully written) take on a similar issue, go to his post here.

: ALL,Change Leadership
: , , , ,

No, Mr. Kristof– sweatshops are NOT good things.

0

Lots of China-based bloggers are talking about Nicholas Kristof ’s latest Op-Ed in the New York Times, so I thought I’d attack it from my angle.

Basically, Kristof’s argument is that Western intolerance to sweatshops lead to joblessness and misery in poor countries.  After all, a sweatshop job is better than abject poverty.

He writes:

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.

My views on sweatshops are shaped by years living in East Asia, watching as living standards soared — including those in my wife’s ancestral village in southern China — because of sweatshop jobs.

Well, MY views on sweatshops are shaped by  a decade of experience running factories in Southern China and by doing business in the greater China for over two decades.

My comments:

1. If labor standards are constraining the rise of manufacturing in poor countries, and eliminating those standards would help alleviate poverty, why not take it further; why not eliminate safety  and quality standards (UL, CE, et al)  and environmental standards (RoHS, WEEE) at the same time?

2. I’ve seen a number of ugly facilities in China which I would classify as sweatshops, and have found that these factories tend to  waste big bucks through mismanagement of labor and inventory, and then try to draw it back by skimping on workers’ compensation, housing, and benefits.  Simply allowing these factories to run on as sweatshops puts no pressure on them to improve their management.  (Yes, I’m saying here that even in “low cost countries” such strategies as LEAN and JIT can work to improve results for workers, shareholders and customers alike).

: Change Leadership,Labor Issues
: , ,

“Lean” is not a good way to compete against China

4

The “lean vs. China” argument presupposes a false dilemma.

In it’s most recent post, Evolving Excellence cites and agrees with a Manufacturer’s Monthly (Australia) article comparing the total costs of outsourcing to China with the total costs of purchasing from a lean local factory. The conclusion from the Manufacturer’s Monthly article is succinctly stated:

Agility is the key to beat Chinese imports and lean manufacturing the most effective tool to achieve that agility.

Lean enables suppliers to offer faster service, better quality, smaller batch sizes and a greater degree of customisation than traditional manufacturing approaches without increasing unit costs. Lean can drive down total costs for customers by reducing inventory holding and handling costs, obsolescence and the cost of poor quality.

Fair enough– lean leads to competitive and strategic  advantages in inventory costs, lead times, quality and overall operations.    But you can’t count on “lean” to be competitive against the Chinese for one simple reason… the Chinese can be as lean as you can!!

Some (corrected) excerpts from my comment on the Evolving Excellence post:

The comparison cited above (and many like it) assume that the only choices are “lean” on one side and “outsourced” on the other. This is a false dilemma. What happens when you compare “lean domestic” sourcing cost with “lean China” sourcing costs?

My experience in China tells me that the China-based factory can be operated in a lean manner, mitigating the costs of longer transportation lead times, and not incurring the prohibitive costs associated with support functions and poor quality. If that’s the case, then the cost savings associated with low-cost production will in many cases (but not always!!)  be enough to ensure profitability, even though long-distance transportation costs and transportation lead times are an offsetting factor.

By all means if you’re  a manufacturer  go lean… it’s good for you, your shareholders, your employees, your vendors and your customers.  And if you are considering outsourcing, do ensure that you are taking into account total cost when you make your decisions.   But don’t assume that going lean (or buying from lean sources) will offer you a competetive advantage against aggressive pricing in the long run, because the competition has access to the same advantages you do.

: Change Leadership
: , , , ,
Page 1 of 212»
Calotropis theme by itx