Saturday, December 11, 2010

Poory Made in China - Paul Midler

Known as the world's factory, China is the epicentre of every manufacturing activities of the universe. China's undisputed growth to the leader of the manufacturing had been carefully and methodicaly orchastrated over the past 30 years. There are many economic and financial studies available on this exponential growth, most of them written by academics. However, there aren't many that gives us the inside story of the phenomenon. Paul Midler, who spent a large part of his early career in South China - the hub of the manufacturing activities- tells us a story of the typical manufacturing business and their relationship with the western world.

Off shore manufacturing is now inevitable for every business, if they want to remain in business and be profitable. Midler, stationed at Guangzhou, working for various US and European corporates as their consultant, takes us through the interesting journey of his experiences with some of the manufacturing companies and their clients.

One of the initial question which pops up the mind of the readers is why China. ? Many of the other south Asian economies are equally competitive if not cheaper.
"One of the questions many were asking was: Why China? Why weren't importers looking to other markets ? The answer most often given was the low cost of labor, but that was only part of it; factory labor in other economies was actually cheaper. Speed and convenience were two other important areas where China performed particularly well."
He also says ( with a soft 'below the belt' remark on India ) the difference between Chinese approach to the business and interaction with foreigners to that of some of the other economies..

"China was exotic, but it was not bizarre. Chinese did not dress in native costumes, they wore no headdresses or long robes, they did not go around in sandals. They did not have the habit of sitting on the floor. Chinese did not bow or require that visitor make unfamiliar hand gestures, and the people were pleasantly irreligious...The Chinese were traditional, but not fanatical. They did not paint their faces or tattoo or pierce their bodies. Such colorful native traditions made for interesting tourism, but people or business were not vacationers."
Getting into the thick of the action, he explains some of the methods used by Chinese Manufacturers to win business. As one of his client wondered, how are they manage to produce them so cheap. Its only later he realise the terrain he is getting into. To win business, the enterpreuners are willing to go to any extend. However, once the manufacturing contract is signed, the ball is now on the importers court. The original specification is often tampered with , without any consultation and confirmation from the client. It starts with the packaging, the quality of the bottles used, the measure and quality deviations, etc. Quality cost then passed on to the importer. The importer is now in a fix. Sitting on a larger order from the retail chain in the US, he is now forced to concede. Any changes to the original plan is to be paid by the importer. By now, the manufacturer has already know the 'product specification' and can be reproduced on his own. He could eve by pass the importer and deal with the retail chains directly. The game of one up-manship continues until the importer concedes and often goes out of business.

Some of the smarter ones gets into a joint venture agreement with their Chinese counter parts. This is often turns out to be a bigger mess. Invariably loosing money in the JV, while the local manufacturer continue to build newer factories at the expense of is global JV partner, it usually ends in bitter separation.The local authorities and the law aren't very supportive, hence most of the fooled ones wind up their operations and return.

There are issues of counterfeit, the perennial issue of quality, the arrogant attitude once the business is secured, managing the books of accounts, the fear of bypassing the importer; issues are many. "Chinese manufacturing had serious issues, and these were not very well understood while looking at them from a great distance."

But, why is that the world is still going to China for manufacturing. Mostly because, there is no alternative. Moreover, it is now globally accepted that goods made in China is the cheapest. As he mentions..

If an item was quoted at 65c and made in the USA, the buyer figured it could be purchased somewhere cheaper. When the same product was quoted 65c and was said to have been made in China, the buyer figured it could not be found for any less.
The extra focus and development in the manufacturing leaves lot of the other areas a lot to be desired.

At one time, China had a reputation for innovation, having invented paper, gunpowder and the compass; but in more recent centuries, that spark of discovery was replaced by an instinct for copying - not just technologies, but also entire business model"..
He says this model is not sustainable. "No economy could ever win a race by merely catching the wind off another's sail.."

Having said all this, where are they headed. Midler says, over the years it will be difficult to sustain the same level of growth. Domestic consumption is heralded as one of the alternate growth story. There are other political and economical issues and related tensions between states. But there is no change expected in the near future. On a long run, Milder says it could be "The rise and fall of China ?"..."More like the rise and stall of China"

Very very interesting read, very curious for me as an Indian. Fast paced, funny and and easy read.
Poorly Made in China ( 2010 )

Paul Midler

John Wiley & Sons

242 Pages

Rs 395
Other read : INSEAD , Danwei

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