Skip to content

Posts Tagged ‘China’

The Growing U.S. Economic Engine - Manufacturing

Sunday, September 19th, 2010

Over the past 6-months, the U.S. economic landscape has been a rollercoaster. Depending on the day, the outlook is encouraging or quite dire. And its probably a matter of where one looks. And just maybe we’ve been spending too much time looking in the wrong places.

What may surprise most is the next wave in the U.S. industrial engine - manufacturing.

What most economists have been missing is a subtle, yet accelerating shift in the outsourcing - insourcing equation. Ten years ago, the outsourcing move to China was growing by leaps and bounds. The U.S. manufacturing base was weakened as companies downsized and at times, went out of business. But something has happened in recent years, I guess maybe one could attribute it to wisdom. Many companies are beginning to figure out that outsourcing to China was not the holy grail they had bought into. Especially for small to mid-sized companies. The stories from issues related to quality, contamination, slow turn-around times, increasing prices…

Today for many companies, the reasons to pull production back out of China are growing daily.In the Sep/Oct 2010 edition of Chief Executive, they did a feature article titled “the case for ONSHORING.” Here are a few of the key takeaways for that article.

  • China is no longer the cheap play it once was.
  • Long supply chains are proving themselves too extended and too slow, particularly when middlemen or contract manufacturing are involved.
  • Increasing evidence suggests that placing manufacturing offshore and in the hands of outsourcers threatens to disrupt the process of innovation.
  • With costs increasing in China and the operating environment toughening, the overall difference in the cost and risks of manufacturing there versus here has decreased.

Today the path to bringing production back into the hands of U.S. manufacturer is growing for good reason. It’s cost effective. Lead times are slashed. Innovation is enhanced. Intellectual property loss is diminished. Supply chain management is enhanced.

Yes, the early stages of a resurgence in the U.S. manufacturing is underway. However, one very important question remains. How much productive capacity remains following years of plant closures and consolidations. This is the question that remains unanswered.

Tags: , ,
Posted in ONSHORING | No Comments »

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.

Tags: , , ,
Posted in China | No Comments »

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.

Tags: , ,
Posted in China | No Comments »

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.

Tags: , , ,
Posted in China | No Comments »

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.

Tags: ,
Posted in China, Uncategorized | No Comments »

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.

Tags: , ,
Posted in China, Without Warning Event | No Comments »

Silent Problems Review - June 29

Monday, June 29th, 2009

Since publishing the book Without Warning earlier this year, the interest in Silent Problems has grown. As a means to capture some of the more significant issues on the horizon, I’ll be compiling a list weekly pointing out a few of the silent problems entering the marketplace (note: One of the blogs I follow is threestarleadership by Wally Bock and this is a concept that Wally utilizes with great effectiveness. Thanks Wally for this idea). I encourage you to take notice, and watch how these problems unfold. But more importantly, prepare so they don’t become Without Warning Events. So for the week of June 29, here they are.

China Bank Risk - from the WSJ:  Chinese banks have lent freely to state-owned enterprises and local governments, partly on expectations that the central government will ultimately underwrite the risk…  Some lenders have let credit standards slip for stimulus loans even though such loans could bear some risks in the long term, the paper said. Most of the lending goes to railroad, highway and airport building projects that eventually are handed over to local governments to manage, and it’s the local authorities — not central government — that will guarantee loan repayments, it said. Banks often lack accurate and full information about local governments and their financial viability, increasing their credit risks, it said. Lenders’ asset quality undoubtedly will suffer if local governments later find themselves in financial trouble, it said.

My Take: China is a growing nation with economic might. Unfortunately, many of its processes and procedures are generally inadequate and untested. Little slip-ups will have an increasing impact on the global economy.

A Slow Burning Fuse - from The Economist: The Econimist is a great publication, and this week’s edition is no different. A special report on the world’s agining population is included. It’s a fascinating read with many charts that begin to show how big this problem is becoming.

My Take: Increasing life spans coupled with declining birth rates is a problem of immense magnitude. It’s impact is being felt by every segment of the population and will have a greater impact going into the future.

Organic Farmers Feel The Pressure - TwinCities.com: A year ago I wrote an article for an agribusiness publication about how organic farming would be one of the fallouts from the economic crisis. This quote begins to show how consumer spending habits can change. Sales in the U.S. of organic foods sold mostly at supermarkets are expected to drop 1.1 percent to $5.07 billion this year, according to the Chicago-based research firm Mintel. Whil the drop is small, it is the first in an industry that has seen annual growth of 12 percent to 23 percent.

My Take: The economic crisis has changed the buying habits of large segments of the population. Areas like “organic farming” which were considered recession proof are not immune, and will continue to feel the impact.

Social Media Amongst Fortune 100 CEOs: from estrategy.com: We researched the Fortune 100 CEOs in the US to see how many were using social media services like Twitter, LinkedIn, Facebook and Wikipedia. The results are shocking - not one CEO has a blog and only 13 have LinkedIn profiles. We found the top CEOs to be disconnected from the rest of the world. If they want to connect with their target audience and raise their company’s visibility, they need to change how they interact online.

My Take: Social media is coming of age, and impacting everything tied to sales and marketing. CEOs are more visible and vulnerable than ever.

Madoff Sentenced, from Bloomberg: Bernard Madoff was sentenced to 150 years in prison for masterminding the largest Ponzi scheme in history. Madoff appeared in court today before U.S. District Judge Denny Chin for the first time since his March 12 guilty plea for an epic swindle that may have reached $65 billion. “I don’t ask for any forgiveness,” Madoff, 71, told Chin. He said he deceived his brothers, his two sons and his wife. The courtroom burst into applause as Chin imposed the sentence, which is about six times longer than those meted out to the chief executives of WorldCom Inc. and Enron Corp.

My Take: Bernard Madoff had a problem that he intentionally silenced for over a decade. The wealth he gained access to and the lives he destroyed was huge. Unfortunately, it was a text book case about Silent Problems and how they can turn into Without Warning Events.

That’s it for Week One, and thanks for visiting. And of course if you have a silent problem story you’d like to share, feel free to drop me a line.

Tags: , , , , , ,
Posted in Uncategorized | No Comments »

China’s Silent Problem

Thursday, June 11th, 2009

If I were a newspaper boy trying to hawk newspapers on a street corner in New York City, my mantra might be, “Extra. Extra. Read All About It. China’s Exports Off  26.4%.” Yes, that was the news yesterday. China’s exports off 26.4% in May, when compared to a year ago. Now many economists and other smart people will place this under the moniker, “It’s the economy stupid” umbrella. And this might be the case. However, I’m convinced that a bigger problem lies over the horizon, and this problem is “Quality.” This is China’s silent problem. A problem they are avoiding, since much of it lies in the Culturism silo.

Let’s go back a decade or so and why companies started their sourcing frenzy from China in the first place. This excerpt is from Paul Midler’s book, Poorly Made In China.

Concerns about business risk weighed heavily in the decision-making process. What importers needed to know before they moved their business to China was whether the economy was safe. One important contributing factor was a changing perception of China as a low-risk environment.

There were still economies in the world where an importer could wire-transfer funds and find that the recipient and the cash had both disappeared. Importers who came to China were reporting to others that this sort of thing did not happen. Factories delivered the goods, and outright fraud was more rare than in other corners of the world.

Compared with other economies, China came to be seen as a sanctuary. Latin America remained a place where kidnappings by professional criminals was common. In other countries, you could at least count on having your luggage stolen. Vietnam, which was just next door to China—and which had even lower labor costs—was one of those markets where such stories of petty theft were commonplace.

 The common perception on the street at the time was that “Made in China” was due to low manufacturing and labor costs. In reality, “Made in China” was a hybrid of sorts. Low manufacturing and labor costs. And, it was a low risk country from which to conduct business. This “low risk” perception enabled small to mid-size companies to suddenly enter the import - export marketplace with relative ease, and of course low risk.

Today, “Made is China” is still regarded as a place where low manufacturing and labor costs exist. It remains a low risk country from which to transact business and send business executives to. However, it is losing its low risk moniker when it comes to quality. And this is the Silent Problem that is beginning to face importers in the eye. And as the Chinese export market has waned, quality issues are increasing and becoming more visible. From my perspective, here’s why they’re becoming more prevalent. Chinese companies that are dependent on exports are finding it increasingly difficult to maintain financial stability as exports have waned. Therefore, they’ve been forced to cut corners where ever possible, leading to persistant quality problems for many importers. This may be viewed as short term thinking, yet is one where much of the Chinese culture lives.

And this is why China has a Silent Problem of immense proportion. And if it continues, it begins to change everything.

 

Tags: , , ,
Posted in International Trade, Risk, Silent Problems, Without Warning Event | No Comments »

Silent Problem Inside China

Tuesday, May 26th, 2009

In my book Without Warning, I refer to ISMs as a place where manysilent problems reside. In this classification, ISMs related to gender, race, generation and culture exist.  The challenge for the ISM category relates to how difficult they can be to dislodge. In effect, they’re engrained inside the organization, the culture, the society. And since they’re engrained, they’re difficult to dislodge.

Recently I was reading “The Economist” and came across the book review “Poorly Made In China” by Paul Midler. It states:

Factories will do anything to please. Prices are famously low and production cycles short. His clients returned from their initial trips to China stunned by how quickly factories became proficient and puzzled by how much could be done so well, so fast, so cheaply. They were right to wonder.

Most of Mr Midler’s work is coping with what he calls “quality fade” as the Chinese factories transform what were, in fact, profitless contracts into lucrative relationships. The production cycle he sees is the opposite of the theoretical model of continuous improvement. After resolving teething problems and making products that match specifications, innovation inside the factory turns to cutting costs, often in ways that range from unsavoury to dangerous. Packaging is cheapened, chemical formulations altered, sanitary standards curtailed, and on and on, in a series of continual product debasements.

The first line of defence against compromised products are the factory’s clients, the importers. The moment they begin suspecting a Chinese manufacturing “partner” and want to discover what might be unfolding is the moment they become particularly eager to find people in China like Mr Midler. That suggests they want information. But, as Mr Midler discovers, they are finicky about what is found. When suspicions turn out to be reality, all too often they become unhappy—miserable about resolving something costly and disruptive, yet terrified about being complicit in peddling a dangerous product. This is particularly true if the problems could go undetected by customers. Better, to some extent, not to know.

It’s the last paragraph that spells out the Silent Problem phenomenon and the “why we avoid” stigma. A place where problems reside unsolved and often times, morphing into a new and higher form. When they’re unleashed, they’re commonly toxic. So if you’ve been following “Made in China” news in recent years, you’re likely not surprised that China has strong cultural underpinnings. After all, its a culture steeped in history dating back thousands of years. Yet I find it surprising that many companies look at the cost side of the ledger, while avoiding the risk side. To avoid a Without Warning event such as lead tainted paint in toys, companies must look at both sides of the equation. Risk & Reward. Unfortunately, many companies are just now beginning to understand the risks.

Although I have yet to read Poorly Made in China, this excerpt adds context to this important subject. And if the quality drift is cultural in scope, changing it will be difficult for companies to a achieve.

Tags: , ,
Posted in International Trade, Risk, Silent Problems, Without Warning Event | No Comments »

Be the one to see it coming!

The first leadership book to point out the problem, then hand-deliver the solution.

Without Warning - Rondey Johnson

Learn More

Order Info