Category Archives: China

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.

It’s Not Just About Cost!

Editor’s Note: Today’s guest post is from Dick Locke. Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book. (See his archived posts.)

Last week, I bought two home items at Costco. One was a Chinese-assembled and branded 42 inch very thin LED-lit TV for $300. The other was a U.S. made foam mattress for $500. Guess which one had an obvious manufacturing defect and had to be returned and which one worked perfectly right out of the box? The simple product from the US or the complex product from China?

Anyone? Anyone?

It was the U.S. built mattress (and it was so much fun to get it picked up and replaced).

Products aren’t going to come back to the US from anywhere unless our factories not only compete in landed price but have better quality than other countries’ products have.

While China doesn’t have the greatest reputation for quality in some of its products, its electronics (and I’m sure other products) are generally excellent. I’m convinced that quality levels are more a function of the purchasing techniques that buying companies use and less on the country of manufacture.


Thanks, Dick! (Global Supply Training)

Another Reason Why China Will be #1 in GDP by 2021

As part of the 158B in infrastructure spend China recently unleashed, “China’s NRDC approved 25 urban rail transit project plans and feasibility studies in 1 day”. That’s a whole lotta transit. And they’re doing this at a time when the economy slows and growth stabilization becomes the top priority.

They may have spent much of the 20th century hiding behind a red curtain, but they have learned that if they want to again become the dominant economy (which they were uncontested from the beginning of the second millennia to about 1800, although the economy of Europe as a whole was about the same size as China from 1500 to 1800, which was still known as the Age of Chinese Dominance), they have to not only play in the global market, but invest at home to give themselves an edge. While we will spend decades bickering about the need for high-speed rail, they will identify the need and approve a feasibility study within the next five year plan at the latest. And if the feasibility study comes back positive, they’ll get it done. In comparison, California started talking about high-speed rail at least as early as 1996, when the California High Speed Rail Authority was established, did not decide to go for it until 2008, and did not approve the first phase until July of this year.

China realizes that if it is going to go head-to-head with the United States, it has to at least match the United States, if not exceed the United States, it in all of the metrics that matter, including education, R&D investment (to the tune of 2.2% of GDP), and infrastructure. And it’s doing that. It plans to meet its goals of 45,000 km of high-speed railway and 83,000 km of highway networks. The infrastructure will be able to move people and goods as efficiently in the interior as on the coasts, making most of China suitable for new factories and office parks. This will allow China to continue to dominate in global manufacturing and take on more back-office functions.

So when are we going to realize that if we want to maintain our lead a little longer, and push forward the date when India knocks down the USA to #3, that we are going to have to stop wasting money on ineffective broad-based buy-American stimulus programs and invest in infrastructure and R&D in an effort to at least keep pace with China?

What Can be ‘Made in the USA’ – Counterpoint

Today’s guest post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement, and is a counterpoint to Derek Singleton‘s recent post on What Can be ‘Made in the USA’ over on Software Advice.

This is the kind of prediction I like to put in an envelope and promise to open in 5 years to see if it came true.

It’s great that Airbus came to the United States. There’s no doubt that many companies who tried China sourcing weren’t capable of doing it well. There was also a rush to put production in China that didn’t belong there. Those would be items that require flexible scheduling and for which air freight costs make China prohibitive for US consumption. No doubt some of that is in the $200B pie chart of products that are likely to move from China to the US. No doubt that Chinese labor costs are rising, but the 13% figure annual increase figure cited is for Chinese minimum wage, of questionable relevance to exports.

But $122B in computers and electronics? I really doubt that. That’s roughly 100% of the US imports from China of computers, phones, TVs and monitors, and parts for those items. Those aren’t being built in China for anything much to do with labor costs. It’s where the suppliers are. Foxconn has a million people assembling electronics. Why do manufacturers gravitate toward a particular location? Michael Porter, in “The Competitive Advantage of Nations” nailed it. It’s a combination of four factors.

  1. Factor conditions (this includes labor rates and a lot more)
  2. Related and supporting industries
  3. Demanding customers
  4. High degree of competition

China has three out of the four. They are especially strong in item 2. Nearly all the components are built there, except for a few high value parts.

Looking further, if companies pull out of China, where would they go? Phones, other than from Apple, largely come from Korean and Taiwanese companies.

Televisions are also largely from non-US companies. As they drop in price, shipping costs become a larger fraction of total costs, so many TVs for the North American market are being built in Mexico. (Mexican TV and monitor imports to the US passed China’s a few years ago.)

We’ll see how the prediction holds up. In the meantime, strategic sourcing professionals should make up their own minds, not just look at trends or predicted trends.

Thanks, Dick. (Global Supply Training)

This is What Tar and Feathering is For

I get disgusted when I see articles like this recent article in The Economist on how Bogus degrees from non-existent colleges cause headaches for employers.

It’s bad enough when a job candidate, who is actually a con-person, lies about a degree — either by leaving off the field or specialization of the degree in the hopes that you’ll believe an accounting degree was actually a computer science degree (as a certain high-tech CEO did) or by claiming to have a degree from a college / private institution that is no longer in business or, better yet, just had a fire and lost all the records.

But when someone sells a fake degree from a fake institution, as the nine people who stood trial in China in April did, that calls for a public tar and feathering. It’s disgusting. A degree is not only something that should be earned (which is why I also get upset when a celebrity who went to a certain institution gets a degree in something they don’t really know anything about, or the catch all Doctor of Letters degree, just because they are famous*), but something that should be certified as granting the holder a certain degree of knowledge and capability. You should be able to go to a registered, and reasonably respected, body and ascertain that the institution or individual in question had the authority to grant the degree, which conveys that whomever awarded the degree had a reasonable understanding of the knowledge required to verify that the recipient met the minimum requirements for the degree and was worthy.

And if I wasn’t livid enough after reading this point, you can bet I was ranting like a madman after reading that, in China, the really shrewd conmen have gone beyond simply selling fake degrees from fake universities, to pretending to offer real degrees from real, accredited, institutions. In one situation, a group of 68 students had been paying to attend class at what they thought was a programme affiliated with the Shangdong Institute of Light Industry (SILI). After four years they found out that everything about the programme had been a scam, and that the man behind the scheme had vanished. If you buy a degree, and get ripped off, that’s your problem. But in this case, a very enterprising conman leased a building, found some equipment, hired an instructor (who was probably qualified enough to teach the classes), and, as far as I can tell, literally offered the SILI degree program. Yes, the fake institute was not affiliated with SILI, but if the students came out of the four-year fake program with the same skills and knowledge as the students who went through the real-program, they have earned the degree as much as their peers — but because they didn’t get accepted into, and pay, the real institute, they’re screwed. In this situation, they should be allowed equivalency examinations, and get the degree if they pass, but you know this is not going to happen unless they pay the full degree cost — all over again. In this case, we not only need tar and feathering, but the walk of shame through the capital — end to end. Then comes the jail time and mandatory repayments, with damages.

Short story — don’t ever, EVER, EVER offer a fake degree or certification, because if the doctor finds out, he will make sure that the entire world knows and report you to every certification body, law enforcement authority, and regulatory body he can find the phone number or e-mail for and make sure you, or your institution, is publicly humiliated. This goes double if you offer fake degrees or certifications in Supply Management, or make false claims about what a certified or degreed individual will be able to do after obtaining your certification or degree. You have been warned!


* My readers who, like the doctor, earned their Ph.D. (and paid for it in blood, sweat, hair, and mental health) will understand!