Chinese Manufacturing Miracle
Posted : February 23, 2005 at 12:35 am [IST]
The other day, Anand took me to Borders- one of the bookstore chains in US. I came across two books on China- Ted C. Fishmans China Inc. and Oded Shenkars The Chinese Century I cant give up the temptation of sharing some facts and figures from the two books.
The authors propound that if the 20th was American century, the 21st belongs to China. From 1982 through 2002, China’s economy grew at an annual rate of 9.5 percent, meaning it “doubled nearly three times over,” in the generation since it initiated the market reforms.
In 2003, China bought 7 percent of the world’s oil, a quarter of its aluminum and steel, almost a third of its iron ore and coal, and 40 percent of its cement. China is also now the biggest buyer of factory machinery.
China is the largest market for Volkswagens vehicles, Boeings commercial aircrafts and Machine Tools and machinery from US, Germany and Japan. China needs them to produce the machinery and electronics that Germany and Japan make today
The achievement of its manufacturing sector just mesmerizes one and everyone.
China based factories make 70% of the worlds toys, 60% of its bicycles, half of its shoes and one third of its luggage. China makes 40 percent of all furniture sold in the United States. Its 3,000 Christmas-decoration factories exported more than $900 million tree trimmings and plastic Santas in the first 10 months of 2003. (I remember during last Dipawali (Festival of Lights), Indian markets got flooded with the statutes of Ganesha and Laxshmi made in China.)
Even in areas where technology plays a significant role and labor cost is not dominant, China has gone far ahead.
China builds half of the worlds microwave ovens, one-third of its TV sets and air-conditioners, a quarter of its washers, and one-fifth of its refrigerators. As per a report of as late as 21s February 2005, China has become the world’s largest mobile phone producer by churning out 240 million units in 2004 and the figure is expected to increase to over 500 million this year. Out of the total production, about 140 million units were exported. Industry experts predict the production capacity was set to rise further this year as new producers begin manufacturing.
Chinese are going in every area- the infinite number and variety of components that make up everything else that is made, whether it is the hundred of parts in a washing machine or computers or the hundreds and thousands of parts in an plane. Manufacturers in other countries increasingly rely on Chinese components or subassemblies to remain competitive even in their domestic market. China manufactures big products-cars, trucks, planes and ships, switching networks for national phone system, submarines, satellites and rockets.
And what has it meant for some competing countries?
The Japanese have lost their TV business. The Italians are loosing the fine silk business. Germany cant any more compete in Christmas ornaments. With going of quota, very soon every one will loose textile and clothing factories.
China still only makes one-twentieth of everything produced in the world, but, look at its competitive strength. It can spend, it can bully, it can hire and dictate wages, it can throw old-line competitors out of work. It changes the way everyone does business.”
One of the most powerful weapons in China’s economic arsenal is “the China price.” A vast low-wage army, working for an average of 40 cents an hour turn out consumer goods of every description even cheaper than Mexican or Malaysian factories can. American factories couldnt deliver to Wal-Mart or General Motors at the China price. They went under or set up shop in China. And why should we not appreciate its benefits to consumers?
Since 1998, prices in the U.S. have risen 16%, but they’ve fallen in nearly every category where China is the top exporter; a pair of Levis bought at Wal-Mart costs less today, adjusted for inflation, than it did 20 years ago (though the company no longer makes clothes in China).
The Chinese are great at copying and quite loose in their interpretation of intellectual property rights. The Chinese keep on surprising. At the 2003 Shanghai auto show, G.M. executives unveiled a new $9,000 small family van, only to discover an identical vehicle, priced at $6,000, at a Chinese booth in the same row. The clonewas made by Chery, a Chinese company owned in part by Shanghai Auto, G.M.’s joint-venture partner.
Foreign companies, salivates at the thought of 100 million Chinese customers, and so, cannot stop themselves from signing on the dotted line. Chinas huge domestic market makes China succeed in getting technology transfer as condition for the entry of MNCs. It happened to the giants like GM and Toyota too. GM set up its R&D in China and Toyota is going to share its hybrid technology with Chinese. One of the more striking examples is the auto industry where American and Japanese companies spend $1 billion to $2 billion to develop a new car. The Chinese, by forcing foreign car companies to form joint ventures with their companies and to share their technology in order to enter China, hope to leapfrog over those kinds of development costs.
Unlike Japan and Korea, Chinas top universities are flexible in their approach and seeking alliances with Western institutions and companies and actively courting foreign trained faculty. Chinese are giving tumultuous welcome to teachers and experts from US and other Western countries. It reminds one of the roles Deming, Juran, and Drucker played in Japan.
The whole world has become mute spectator of the China’s miracle economy with a mixture of fear and admiration. Shanghai is today the showcase city of the new China. China may have 7 of the world’s 10 most polluted cities, but it hardly matters. The countries all over the world today keep China happy as customer, efficient as supplier, and at bay as competitor.
Can India learn some things from this China’s success story? It must, as it is the second after China to take care of billion plus well fed, engaged and satisfied.
- Indra
Category: Industry/Management |
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