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Archive for the ‘China’ Category

In Search of Success

Tuesday, August 3rd, 2010

One has to admit, the Chinese are an industrious society and culture. They’ve come a long way in a few short decades. They have shaped the world in numerous ways - for better and at times for the worst. They’re now the behemoth in the room to study, appreciate and quite often scrutinize, because their industriousness at times has been kown to create huge embarrassments.

Not surprisingly, another story has been surfacing in recent years, this time - academic fraud. The July 24th edition of The Economist delves into this topic. The articleReplicating success, Widespread academic fraud may hamper a drive for innovation states:

CHINA’S president, Hu Jintao, speaks often and forcefully of the need to foster innovation. He makes a strong case: sustaining economic growth and competitiveness requires China to get beyond mere labour-driven manufacturing and into the knowledge-based business of discoveries, inventions and other advances. 

Yet doing so will be hard, not least because of the country’s well-earned reputation for pervasive academic and scientific misconduct. Scholars, both Chinese and Western, say that fraud remains rampant and misconduct ranges from falsified data to fibs about degrees, cheating on tests and extensive plagiarism… 

The implications of widespread academic misconduct could be great. Denis Fred Simon of Penn State University argues that growing evidence of fraud “calls into question the overall credibility of the entire scientific enterprise in China-and unfortunately feeds negatively into the related concerns about the safety of Chinese products and the integrity of information coming out of China.” 

In practical terms foreign scientists may be deterred from China, as they worry about getting caught up in scandals. Early this year, after it was found that 70 papers on crystal structures submitted to an international journal by Chinese scientists had been fabricated, the Lancet medical journal called on China’s government to “assume stronger leadership in scientific integrity”. Measures taken so far, it suggested, had failed to get to the root of why some Chinese scientists lie. 

China’s drive to become a world-class competitor has created “The World Is Flat” phenomenon. Their huge access to human capitol has positioned them for success - including academic. However, being positioned for success and realizing success has become a challenge for many emergent economies. Simply because the world begins to expect more.  And the one thing the world expects more than anything else is excellence. This is the long-term challenge in front of China, and their ability to becoming a world-class player.

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Domestic Manufacturing’s Comeback?

Thursday, July 29th, 2010

In the not too distant past, corporations were flocking to China in search of cheap labor, lax environmental regulations and cheap goods. For many, China was the only place to be. In fact, if a company was conducting business in China, it was a sign that the company was progressive and a world class competitor.

Is a reverse shift possibly underway?

From my perspective, the answer to this question is ”Yes.” In recent months, stories about how production is exiting China and reentering the US are beginning to surface. The reason for this shift is multifold. For instance, Chinese workers have been able to negotiate huge wage increases (greater than 20% in most instances) in factories producing goods as far ranging as automobiles (Honda, Toyota…), electronics (Foxconn, which produces the IPod…) and numerous other consumer products. Second, China has stated that it will allow the yuan to float relative to other world currencies. Third, China is focused on curbing its growth rate by reducing its money supply into the banking system. Each of these and numerous other factors will play a role in China’s export-based economy. And lets not forget, China’s quality is still a huge risk factor for many companies.

Yes, the early stages of a resurrgence of US based manufacturing is beginning to evolve. For instance, a recent article at MachineDesign.com in the article Backshoring Gains Momentum as More U.S. Companies Bring Production Home begins to address this issue. It states:

Ensuring a steady stream of low-cost, high-quality parts is a growing headache for U. S. manufacturers that source parts overseas. Governmental, economic, societal, and cultural factors are forcing U. S. OEMs to rethink the strategies that led them to outsourcing in the past decades, says Mitch Free, CEO of Atlanta-based MFG.com. “But tangible failures of suppliers, quality, training, and logistics have also forced these businesses to recognize and investigate the costs extended supply chains placed on their abilities to respond to customers, innovate, and compete effectively,” he says.

As evidence, he cites the most recent MFGWatch survey conducted by MFG.com, where a remarkable 44% of North American participants — from design engineers to purchasing professionals — say they have experienced a significant supply-chain disruption that forced them to find an alternative supplier. This is up from an already significant 35% figure last quarter, and strongly suggests that supply-chain contraction will be the trend well into 2012, says Free.

One consequence: “Backshoring — repatriating work to the U. S. after initially outsourcing it to low-cost countries — is becoming more prevalent as domestic manufacturers reassess the total costs of their products,” he explains.

I’m convinced this new trend will continue for numerous reasons.

  1. Most US based manufacturers have reduced their manufacturing costs significantly by investing in new automation assets and new manufacturing processes. Suddenly when all factors are weighted, the cost differential is minimal.
  2. Companies are doing a more effective job of analyzing their true cost of managing diverse supply-chains scattered around the globe. In many instances, their perceived cost wasn’t close to their true costs.
  3. “Made in China” in some circles raises many issues, especially relating to quality (one I’ve discuss many times here and here).

Yes, the next shift is underway and the unthinkable will emerge. Domestic manufacturing will likely become the next growth engine for the US economy in coming years.

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China’s Volatility Index

Wednesday, January 20th, 2010

Have you noticed recently that whatever China does, the marketplace listens. Google makes a tough decision, whether or not they will continue to comply with the censorship oversight of its search engines. Who notices? You and I.  China expands its money supply. Who notices? China moves to curb lending. Who notices? Of course, we do. In years past, the U.S., Europe, along with parts of Southeast Asia were the economic drivers. Today, Europe suddenly appears irrelevant in the big picture. Nobody really cares what happens in Italy, France or Great Britain, however everybody cares about what happens in China!

The challenge here is that Europe (a transparent economy for the most part) is being displaced by China, an economy with a low degree of transparency. And as transparency declines, the chance for without warning events increases. So as we enter a new decade, I anticipate that marketplace volatility will increase, and its directly related to China becoming an increasingly powerful nation and economic factor.

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The Real Reason…

Sunday, December 27th, 2009

Comic illustrator Gary Larson published a cartoon several years ago that showed 3 dinosaurs hiding in a corner smoking cigarettes with the caption, “The real reason dinosaurs became extinct.” As we exit 2009 and head into 2010, I’m certain that numerous conversations in restaurants, boardrooms and private residences will delve into “The real reason why corporation XYZ failed.” The list of reasons will be numerous, including:

  • China
  • The banking crisis
  • Industry contraction
  • Obsolesence
  • The wrong people in the seats
  • Poor strategic plan
  • Technology
  • Fate - it was eventually going to happen

The list could go on and on. The reasons numerous and varied. They’re all right, and they’re all possibly wrong. I’m convinced that in many situations, “The Real Reason” will be different from what is believed. To the contrary, many companies will fail because of the silent problems inside their organizations. For instance:

  • What problems were being avoided for years, and eventually surfaced with a bang?
  • What problems weren’t being noticed, simply because the organization had adapted to the situaion? Yet in the long run, compromise could only last so long.
  • What problems were being neglected, simply because a good scenario for solving them couldn’t be found?

What I’m presenting here is simple. Over time, silent problems choke the very life and effectiveness of the organziation into submission. YES, silent problems are nasty if left unnoticed and/or unsolved.

New Years Resolution Suggestion: I encourage every organization to conduct a silent problem audit inside their organization and then take steps to solve them.

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China’s Exposed Underbelley

Friday, October 23rd, 2009

China is easy to praise, and equally easy to dismiss. Over the past decade they’ve become the go-to country for everything from textiles to the manufacturing of hi-tech gadgetry. And of course, they’ve also been the source of numerous product recalls. Generally speaking, China has been the place for low cost products. However, China has bigger plans, and a huge desire to move up the food chain, so to speak.This week, Business Week ran an interesting article titled The China Hype suggesting that China is coming up short when it comes to innovation - the catalyst for its new future. It states:

As the West struggles to recover, China is on track for 8% growth this year and is about to overtake Japan as the world’s No. 2 economy and Germany as the No. 1 exporter. Now the mainland is charging ahead in new industries, unveiling homegrown airliners, electric cars, and high-speed trains. But delve beneath the muscular statistics and hype about advances in strategic industries, and China doesn’t seem so prepared to catapult into a role of global economic leadership. Experts familiar with highly touted Chinese achievements such as commercial jets and high-speed trains say the technologies that underpin them were largely developed elsewhere. There is no Chinese Sony, Toyota, or Samsung on the horizon

By Beijing’s own admission, the economic model that has powered China for three decades can no longer be counted on to move it forward. The mainland has prospered largely through construction and by exporting all manner of consumer goods churned out in low-wage factories; workers parked their savings in state-run banks, which then loaned the money to companies to make more stuff. But technology and managerial knowhow came mostly from multinationals, and the costs—pollution, decaying social services, and a yawning gap between the urban rich and rural poor—were largely ignored. Though that model has fueled phenomenal growth, Hu and others now call it “unbalanced” and “unsustainable.”

I find it interesting that a similar scenario played out 20 years ago, except then it was Japan. Japan became an economic giant following World War II. Names like Sony and Panasonic and Toyota emerged. Large trading groups formed. Management philosophies were developed and implemented. Japan was the country to fear, because it appeared they had it all.

Over the past decade, China has become the new Japan. They have cheap labor. They have a growing economy. They have… But behind it all, China has a multitude of challenges. And as the article points out, they’re simply not an innovation culture and this will be difficult to change. As I stated in an earlier entry, China feels like its a constant Without Warning event waiting to happen.

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China’s Without Warning Nature

Wednesday, August 5th, 2009

Over the past decade, the world has become the go-to country. If you want something manufactured, China is at the top of the list. If you want engineering services completed, China is gaining in stature. Yes, China has become the go-to nation on so many products and services. It has also become an integral component of the World economy.

I’ve written about the woes of China many times (China’s Silent Problem), and we now realize there is a consistent and persistant quality challenge for many products sourced there. To help curtail this issue, the FDA set up a Chinese office and now the Consumer Product Safety Commission is setting up a Bejing office. The AP reports.

U.S. regulators announced plans Thursday to set up a Beijing office to help ensure Chinese exports are safe for Americans following a slew of recalls involving everything from pet food to children’s toys.

The U.S. Consumer Product Safety Commission was seeking to establish a permanent presence overseas for the first time to better cooperate with Chinese regulators and companies so the country’s products are up to U.S. standards, the agency’s chairwoman Inez Tenenbaum said.

However, even as one gets past the quality challenges of doing business with China, bigger and potentially more toxic problem likely exist. For one, political and social unrest is present in many sectors of this vast country. For instance, in this weeks edition of ”The Economist,” an article on the growing labor discontent  is on page 37. It states:

WORKERS’ opposition to privatisation and job cuts is widespread but rarely takes so brutal a form as it did on July 24th in northeastern Jilin province, when steel workers chased down and killed an executive who had reportedly come to tell them that an imminent privatisation of their factory would bring massive job cuts… The incident highlights not only China’s labour discontent but the country’s difficulty in dealing with it. Last year, China introduced a series of labour laws that improved mediation and set up an arbitration process to give workers better formal recourse for their grievances, both individual and collective. Workers have indeed been using the process in greater numbers. But only a small share of disputes are taken up, whereas discontents are multiplying.

China chose to become a world leader for many reasons, including improving the standard of living for its’ people. However as a world leader (which they are), comes with it increasing transparency and disclosure. And with each passing day, one has to wonder if another Without Warning Event like toys tainted with lead, a civil uprising, or an economic bubble will present itself. Yes, China is a world power. However, China also feels like its just a minute away from another Without Warning Event, which will be heard and felt around the world.

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