Could a falling dollar and pricey oil make manufacturing goods in the USA an economically viable solution again?

Not too sure, says Pete Engardio in the June 30 issue of Business Week.

The main reason it that it would cost too much to revitalize some heavy industries. James Turk, CEMCO’s CFO notes, “American foundries now can compete head-to-head on cost, but there are not many foundries, welders, machinists, and quality-control engineers. What we had 10 years ago is gone.”

Some industries are lost, and won’t come back, no matter how low the dollar goes. It would just require too much up-front investment to recreate the conditions for success. In addition, China’s productivity is climbing quite rapidly, a factor that compensate partially for local increasing wages and soaring shipping costs.

In fact, operating a high-cost manufacturing plant takes much more than just building the plant. An entire surrounding infrastructure, human, material and financial is required.

China has patiently built its own for the past 30 years.

One interviewee suggests applying to the USA some of the same formulas that worked wonders for China.

While certainly an excellent suggestion, I am no too sure about the feasibility and the potential results in the USA, a country with different cultural, political and economical backgrounds.

Einstein once said: “We cannot solve problems by using the same kind of thinking we used when we created them.”

We just need to follow his advice and look at the situation with a creative mind. If the industry has already gone offshore, what can we do in the USA to create jobs? And if the industry has not gone offshore yet, what can we do to make it flourish home?

I will close with an example. A friend of mine has been looking for a US supplier of computer monitors. His company has special requirements that prevent them to use just any basic monitor. They have been looking for months at possible US suppliers, just unsuccessfully. It seems like they are all gone. How many companies have been in a similar situation? I bet thousands, more than enough for a local industry to flourish.

Read the Business Week article online.

Remi
www.outsourcing-vsc.com

Business, China | 9 Comments »

The May issue of INC. magazine features Mitch Free, the founder and CEO of www.mfg.com, an Atlanta-based company, whose business skyrocketed after Free established a presence in China.

I would recognize a lot of my own story in his account. When I started doing business with Mainland China, I was a little concerned. As many Westerners, I was raised in an environment that would see China as a threat, almost similar to the USSR’s. And even today, years after China opened to International trade, many negative rumors are still floating around about doing business in China: “you will never get paid”, “it takes forever to establish a profitable operation”, “IP will be stolen”, “not a good place for a Westerner”, “nobody speaks English”, etc.

It has been years now, and none of these things ever happen to me in China. My business partners there are reliable, and my bills always paid in time and in full. Although I do not speak or read a word of Chinese, I never had any problem communicating with people, nor finding my way back to the hotel or the office; while everything is so different than in the USA, I feel pretty much at home in a city like Shanghai.

Large Chinese cities have infrastructure similar to most US ones; plenty of ATMs, free wireless access in airports and most hotels, and a lot of Internet cafes. Modern US cell phones are likely to work beautifully, and of not, cheap GSM phones are available everywhere, and rechargeable SIM cards are available at most newsstands.

In addition to Chinese food, many restaurants offer all sorts of cuisine: Japanese, Italian, Brazilian, etc. There are several Starbucks in Shanghai (the espresso is more expensive than in the USA, go figure).

Visitors to Shanghai or Beijing, to only name these 2 cities, will certainly “feel” the many business opportunities this booming economy offers (Free talks about feeling the energy). Even better, Chinese people are genuinely interested in doing business with Westerners.

For those contemplating expanding their business in China or simply willing to understand China better, a good way to start is to attend one of the major trade shows. It is a great opportunity first to check the variety and quality of the various local products, and also to establish a good number of quality business contacts.

The beginning of the article reads: “When Mitch Free first went to China, he did not know a thing about the place. He listened. He learned. He was respectful and polite. Now he gets it, and his business is booming.”

Access the full article online.

Mitch Free’s story shows that it does not take a PhD in Asian history and fluency in Mandarin to take advantage of the many opportunities the resurgence of China is creating for us all.

Inc. magazine is a great resource for small to mid-size businesses. Their tagline “the daily resource for entrepreneurs” says it all.

Remi
www.outsourcing-vsc.com

Business, China | 5 Comments »

The McKinsey Quarterly recently conducted an interesting survey on “Competition from China.”

With 41% of the answers, China is widely seen as the country where major competition comes from and is likely to continue to come from in the future. China tops by far India 22%, South East Asia 11%, and Eastern Europe 6%.

What are the reasons that make China such a strong contender?

According to the survey, while higher wages are driving up production costs in China, executives around the world see low-cost production as the primary competitive advantage of Chinese companies and expect little change in the next three years.

The two other key advantages of Chinese companies are support from the Chinese government, and the fact that they are “not being subject to stringent enforcement of patent and copyright regulations”.

That said, a surprising and somewhat conflicting 41% of executives around the world consider Chinese companies as weaker competitors than companies from other countries. They say that, besides lower prices, Chinese companies have little to offer global markets, and particularly dismiss their product quality, marketing skills, and brand strength.

A perception that seems to be changing rapidly, for four out of five of the executives also say that they expect to see rising competition from Chinese companies in the next three years, as superior quality of services and brand attractiveness are expected to become part of China’s competitive advantage.

And what do Chinese managers think of that?

Almost three out of five respondents say their long-term goal is to become a global competitor in their industries.

44% of Chinese leaders recognize that their major impediment is by far the lack of managerial talents, a finding that those of us who do business with China would certainly support.

Think of these last 2 factors. Aren’t they the evidence that the rise of China opens a lot of great job / business opportunities for Westerners?

The whole study is available at http://www.mckinseyquarterly.com/home.aspx.

Remi
www.outsourcing-vsc.com

Business, China | 1 Comment »