Category Archives: China

A Great Post on Home-Shoring on the Manufacturing Innovation Blog

The Manufacturing Innovation Blog recently published a great post on why you should be HomeShoring. And while they are choosing to use the less precise term of re-shoring, they are making the same point that SI has been trying to make for six years – for many of you, it’s probably time to bring manufacturing home (or at least back to North America as a starting point).

Asia is not the low-cast locale that it used to be. When you factor in:

  • steadily (and sometimes rapidly) increasing labour costs
    with senior managers in several emerging markets now earning compensation that matches or exceeds compensation for the same position in the Americas and Europe
  • the high costs related to supply disruptions
    as it can easily take 45 days to replace a lost shipment or correct a stock-out
  • quality and rework problems
    that are very expensive to fix when the defect isn’t noticed until the first shipment arrives in the Americas
  • intellectual property theft that is very common
    and the cheap copycats that sometimes hit the Asian market before your own product is ready
  • the costs of dealing with the bureaucracy and red tape associated with foreign (and even local) governments when off-shoring
  • steadily increasing transportation costs
    as the price of oil continues to rise, the price of insurance continues to rise as piracy increases, and carrier profit margins continue to rise as demand rises and supply stays steady
  • the cost of communication and management
    as regular travel and site visits are required, and airfare keeps going up
  • steadily rising utility costs
    as demand for energy is soaring in the developing world
  • the cost of non-patriotism
    and the inability to sell to governments and other agencies that have to “Buy American” (and frown on companies that produce all their wares overseas)
  • the other hidden costs that

the reality is that, when you do the Total Cost of Ownership equation, and also factor in the productivity you can get in a modern manufacturing plant with lean processes and a well educated workforce, it’s often cheaper to produce the product at home in America! Unless you’re talking Fortune 100 economies like scale, and are ordering millions of units like Apple does, you’re not getting Foxconn economies of scale and the 10% to 20% savings that lured you over there a decade ago just aren’t there anymore.

It’s time for North America to rebuild and strengthen its manufacturing role as the world’s manufacturing leader. The industrial revolution and the manufacturing era that followed is what allowed America to overtake Britain as the number one country in the world (in terms of GDP). I truly believe that if America does not immediately embark down the manufacturing path again, China will overtake America by the end of the decade. While it might be inevitable that someday China will overtake the United States of America as the number one producer of GDP with four times the population size and a mission to reclaim their former glory, there’s no reason that such a rise to prominence can’t be delayed for a couple of decades. But that will only happen if America focuses on what made it great, not pointless political agendas and filibustering in the Senate.

Should you “Mandarin-ize” Your Supply Chain?

After reading a recent post on the HBR Blog Network on how to unify your global company through a common language, which discussed Hiroshi Mikitani’s attempt to unify Rakuten, the third largest e-Marketplace company in the world (with a presence in the Americas, Europe, Asia, and Oceania) through a common language, this question surfaces.

In 2010, Mikitani, founder and CEO of Rakuten, decided that he was going to unify the global company through Englishnization — a commitment to make English the company’s official language. This commitment had three phases.

  1. All workers were required to take a 2-hour 200-question test (TOEIC) to assess their reading and listening comprehension of business English, and continue to take the test until they passed. (Failure to do so could result in demotion.)
  2. Outside help was brought in to coach employees on how to study and manage the process of learning English.
  3. English was made the language of meetings.

Why English? Practicality. Many of the most talented individuals in the industries important to Rakuten, such as technology and finance, already spoke English as a first or second language. Many of these individuals were educated in English-speaking institutions. Thirty percent of new hires in Rakuten are non-Japanese, with 50% of new engineer hires non-Japanese. The vast majority do not speak Japanese, but the vast majority do speak English. Their top engineers all over the world can communicate with their top engineers in Japan, who (now) speak English, with the average company TOEIC score having reached 737.3 out of a possible 990 (or 74.5%).

A common language will allow an organization to achieve a true unity of corporate purpose, because it will allow a unity of understanding. And then the organization will be able to manage and innovate as one with speed and precision and truly be global.

But should the language be English? For some multi-nationals, I am beginning to think it should be Mandarin. Despite the fact the cost of fuel keeps rising, that wages in China keep rising, and that supply chains have to adapt and respond faster and faster, outsourcing to China is still rapidly increasing. As per SourcingLine, China’s current outsourcing market is growing an estimated 30% annually, and many companies (like IBM) have relocated division or global headquarters to China to grow and strengthen their global business (and to try and get a dominant foothold in the market that consists of 1.3 Billion potential consumers).

In other words, these companies are sourcing from, managing in, and selling to China, where the dominant language is Mandarin – the language with the most native speakers in the world (that outnumber native English speakers almost 3 to 1). Plus, China is on the fast track to become the dominant economy in the world, an event that could happen in as little as three years (according to recent data from the International Monetary Fund, see the China Digital Times), and will most definitely happen in the next five to ten years if China’s economy keeps growing by leaps and bounds and America’s stays stagnant.

I will admit it will be much harder to Mandarin-ize your Supply Chain that it will be to English-ize, especially since Spanish, Portuguese, and French, which are other dominant global languages, use the same character set (A to Z) while Mandarin uses logograms known as hanzi (which are the counterparts to the Japanese kanji for those of you who speak Nihongo). Furthermore, there’s the special grammar rules for Germanic language speakers who are used to inflection, affixes that denote plurality and tense, and different rules for topic-prominence. However, if China is the heart of your Supply Chain, and thus the heart of your organization, it’s certainly worth considering!

Despite the fact that the US has a 100 year lead on China on the rails

China is kicking the USA’s @ss when it comes to rail. A couple of months ago, China launched the world’s longest high-speed rail route from Beijing to Guangzhou, in South China, which connects the two cities that are 2,298 km apart, in an eight-hour commute! (Source: China Daily) That’s about two and a half times faster than you can commute between two cities using the fastest ground transportation in the US.

It’s bad enough that there’s no Free Market on the Rails, but the fact that this appears to have completely stalled Rail development in the US is just insane. There’s only one route in the entire US that exceeds 175 kph, official high speed, and the average speed over the line is 135 kph. In comparison, the high-speed trains in Japan and China operate at an average of 220 kph and 285 kph!

The sad thing is that it will be at least 15 more years before the US has a decent high-speed rail line, and that’s only if the California High-Speed Rail Authority actually starts to build their high-speed rail line between Anaheim and San Francisco, which seems to be perpetually stalled (as construction has not yet begun and the completion date for the first phase has been pushed until 2018 in their efforts to save a dime while losing the dollar). And if the California High Speed Rail Authority fails, then we’re looking at 2040 before Amtrak builds its high-speed rail between New York and Washington. (Wow! Twenty-seven years to build two hundred and thirty miles worth of track. Are they serious? At the rate China builds high-speed rail lines, they’d have it built in five and a half months! The railroad tycoons must be doing cartwheels in their graves!)

If China continues to progress in leaps and bound across the board in supply chain infrastructure while the US sits still, the Economist will be right and China will overtake America as the world leader before the end of the current administration (which is too busy appeasing the fat cats and slashing its own productivity to notice). It’s a sorry state of affairs, but maybe you should be manufacturing in China — for the emerging Chinese consumer!

Mexico’s Education System Improves Overnight!

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are archived for your perpetual enjoyment.)

I believe that one of China’s long term advantages over Mexico has been that the Chinese are more serious about education. Education in Mexico has not been as high of a priority in policy as it has been in China.

Yesterday, the extremely powerful head of the Mexican teachers union was arrested for corruption. It was a little matter of allegedly siphoning off 200 million USD for her personal benefit and sometimes for the benefit of high ranking union officials. They didn’t mention that teachers sometimes have to buy their jobs from the union.

Details in the: Idaho Statesman
     and in the: New York Times

Thanks, Dick!

All Hail the Old China!

And by that I mean Mexico! I was thrilled to see this recent opinion piece in the New York times on The Tijuana Connection, a Template for Growth that said, for many (North) American manufacturers that need to beat Chinese Rivals that Mexico is the New China because it shows that a new generation of entrepreneurs are discovering what a few old greybeards have known all along — Mexico is cheap, efficient, and full of potential (like the 115,000 engineering students it graduates each year, which, per capita, is triple the U.S. graduate count).

Plus, it has little known secrets like Tijuana which, in addition to its reputation of party central is also electronics central — with a growing number of North American, European and Asian (including Sony and Samsung) companies opening and running factories that assemble consumer goods (such as TVs and Computers), medical devices, and even aerospace assemblies. And its prime location, just across the border from San Diego, means that an American company with an engineering office in San Diego can quickly and easily supervise production in the Mexican factory as needed, as it’s a quick drive across the border (for business people in the fast-track lane). (Plus, as the article notes, there is Juárez where Foxconn has a factory; Querétaro, which builds GM engines; and Boeing factories.)

But the sad thing is that the beardless don’t remember that this is not a new Mexico — this is the old Mexico finally being recognized for the value it has always provided. There’s a reason the outsourced manufacturing craze started with Mexico and will return to Mexico — labour costs are relatively cheap, capability is high, logistics and (remote) management costs are extremely affordable and manageable, English is relatively common (and fluency is at least 7 times that of China), and culture is a close fit.

Si quieres dinero y fama, que no te agarre el sol en la cama.