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The Secret Engineer
Our anonymous blogger casts his (or her) eye over the day-to-day issues that face engineers in the office and on the shop floor, where she (or he) plies his (or her) trade
Is Chinese manufacturing heading for a crisis?
Welcome to another blog, lovingly handcrafted while slaving away over a hot CAD terminal here at Amalgamated Products Limited, ‘somewhere in England’. Like a lot of companies in this Fair Isle, we design and market our assortment of machines and widgets here, yet manufacture them in China.
I have oft had to counter the occasional passing comment at dinner parties of ‘it’s a shame you don’t still make your machines and/or widgets in Britain’, with the undeniable truism ‘if we did they’d cost so much more than our competitors’ that you wouldn’t buy them’. Such is the tightrope that one has to walk with a fickle public in a capitalistic society.
Of course, it is not without irony that we, like others, have found the solution to our manufacturing conundrum by turning to China. The most successful Communist country in the world has a large resource of people and a reasonable resource of raw materials; did you know, for instance, that it is the fifth-largest producer of oil? This, coupled with a national willingness, has allowed cheap manufacturing to the extent that the problems of the large distance between the business centre and the market have been nullified.
It has to be said as well that, although things may not have been ‘squeaky clean’ in the past, no longer is China generally seen as flying fast and loose with safety or IP protection. It is true that the ubiquitous ‘copy watch’ entrepreneur will still try to accost you like a 1940s spiv on leaving the airport, but things really have come on an awful long way. In many ways, that’s the problem.
“No longer is China seen as flying fast and loose with safety or IP protection”
China has successfully built its economy on the back of its cheap manufacturing and, like Asian tigers before, now finds that the populace are financially empowered to the point where they see a future beyond lengthy shifts stood at machine tools for a piffling wage. Here at Amalgamated Products, we have already heard of one Chinese manufacturing company having to invest in automated plant. This is because the potential staff have their hearts set on going off to be IT experts or accountants, preferring a future where they can swan about in Mercedes and wear Gucci sunglasses - real ones, naturally.
Automated plant is a tad expensive and, assuming this trend continues, the dragon (or tiger) will soon lose its teeth. The obvious question then is ‘where to next?’ Eastern Europe has had a few civil wars in the painful process of reinventing itself but is now settling down as a cheaper manufacturing base than western Europe, while also being somewhat closer than China.
Equally, India is coming to the fore, having the twin advantages of a large resource of people and a large market to sell into. However, your humble servant guesses that China has probably got a planned solution to its own manufacturing conundrum already in place and, what is more, opines it’s no accident that it is currently pouring money into Africa.
Readers' comments (9)
Clifford Webb | 16 May 2012 4:47 pm
In my working life I have seen to Japanese, Taiwan and Korean cycles moving fron cheap labour and subquality goods to the higher value added goods and services. 20 years ago I used to supply from the UK machined goods to Taiwan companies that had subcontracted some maufacturing to China. The cycle will be the same for China and India but will take a bit longer as they have a bigger labour pool but the key for the west is when China releases control of the exchange rate and lets the market forces operate. It has always worked in the past and will again in the future.
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Martin Summers | 17 May 2012 2:02 am
Of course it will be true that at some point China will become too expensive (or transportation costs will do for them) for Western companies to seek cheap goods but it's not going to be tomorrow. You will see manufacturing facilities set up further inland to the West & North where wages can be kept low. In fact, that's already happening.
Does anyone really see any African nation as the next China? Seems doubtful to me.
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Chris Wood | 17 May 2012 11:10 am
Surely a long term investment in a versatile and high tech automated manufacturing plant in the UK would be more cost effective than short term investments in countries that have the risk of 'growing up' and moving on to other things?
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John Merrill | 18 May 2012 1:28 pm
Working for a company that buys from factories in China, and which I visit regularly, I agree with the Secret Engineer. Already we are seeing costs go up as employees look for better paid jobs in other industries. One of our electronic factories is next door to a perfume factory and they pay more (higher profit margins!) with better fringe benefits, so there is a continuous leakage of workers. Replacements have to be trained. Add to the fact that sea freight costs are getting too high, it will not be long before some work comes back to the UK. The main problem is that the tooling is now in China, and they own it, so there is a huge upfront investment needed to produce again back here. India is a possibility but their attention to detail is not yet there, whilst, in my opinion, it will be a long time, if ever, before Africa becomes ready to be a reliable production partner.
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Sunil Gupta | 19 May 2012 2:08 am
This is obviously going to happen. The East coast of China has become prosperous on Govt Subsidies. The Interiors are poor. If the inequality continues, because by natural progression, humans in China will look for greener pastures, a rift and civil war is imminent. USA will stroke this rift as it sees China a big threat to its dominance by holding a big chunk of Dollars and cheap labour. They did this to all of Middle East, Egypt, Iraq, Iran, Afganistan, Eastern Europe and now it is the turn of China. Just another 10 years. Turmoil in Tibet has started. Dont forget the Tianamen Square
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Tom Taylor | 21 May 2012 9:09 pm
The disadvantages of this fashionable outsourcing are:
1. Long term loss of control of cost
2. Long term loss of innovation from the work place and supply chain.
Africa is not a viable option long term because of the problems of tribalism and political instability.
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charles | 22 May 2012 2:04 pm
Maybe it is but I cant help feeling that the the US and Europe are trying to make this happen. We have borrowed from China to buy stuff from China that will be a big problem. So we put pressure on China to improve there workplace safety the local environment and anything else we can do to try to make their goods less competitive.
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Ted Jasiewicz | 23 May 2012 1:37 pm
Is it 'cheap labor' only or also that we can shut a plant down overnight without obligations? China will have to spen billlions to clean up the hazardous waste left by our ventures.
The comment by Tom referring to innovation, which is a 'catch-up' scenario, is ignored by too many. Once you transfer technology and manufacturing for a period of time, you cannot step back in without a learning curve. We need to remember that the Chinese are intelligent, educated and industrious and are very competitive. They will use the tools, technology and machines we used and or sold to them to replicate our technology. The game goes on!
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Paul Marsden | 27 May 2012 1:18 am
Surprisingly, rising labour costs in China has it already outsourcing some manufacturing to Vietnam and it is inevitable that they will be looking closely at Africa.
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