When it all started? In 1978 China adopted the “Open-Door Policy” to promote foreign trade and economic investment.[1] This policy change was under the leadership of Deng Xiaoping which concluded that to modernize, China needed to tap Western technology, management and capital.[2] “It is time to prosper. China has been poor a thousand years,” Deng said. Deng did more than just start a new economic era. He changed the mindset of Chinese setting aside their personal welfare for the emperor or the state. He launched a social upheaval welling up from within each individual citizen.[3] By 1981, foreign investment into China rose to an estimated $1.2 billion.[4] Starting in the early 1990s, China attracted many multinationals as a sourcing base for low-cost and low-value products. Many textile companies and furniture manufactures relocated to China in the effort to reduce cost while increasing margins.
Western manufacturers were allowed to enter China to help create competition for Chinese State Owned Enterprise (SOE.) In fact for the first 15 years China required any multinational to establish its Chinese footprint via joint ventures (JV.) Through these JVs Chinese SOEs garnered the knowledge and processes to compete globally.
However it was not an easy transition for many of these multinationals. Chinese infrastructure was inadequate and the cultural environment was still rooted in the 19th century. Under the realization that both areas needed to be addressed in order to meet Deng’s vision, the government initiated the process of rebuilding its sea,air ports, and roads. The lack of a precedent based legal system was slowly addressed and free flow of information, formally obstructed, was encouraged as significant investment was made in telecommunication networks.
Through these efforts China evolved into the world’s manufacturing center while simultaneously becoming a large imported of finished goods. Today, manufacturing is driving the growth of China’s economy. It accounts for approximate 50% of its gross domestic product (GDP).[5] China is now the world largest exporter of clothing and textiles.[6] It has diversified its manufacturing capabilities and is no longer solely focused on the textile and furniture industries but rather moved upscale in its capabilities in a similar fashion as the Asian tigers in the 1990’s. It now produces:
· 55% of the world’s laptop computer
· 60% of the world’s air conditioners
· 70% of the world’s DVD players
· 50% of the world’s cameras
China has focused its infrastructure development in support the supply chain and logistics needs of large multinationals companies. It now has over 45,000 kilometers of highways that connect the major coastlines cities and provinces while providing deep links into the rural, western China. In our recent visit to Volvo Corporation, we learned that China projects to have 50,000 kilometers of highway by 2010. Additionally, Erik Bethel from ChinaVest, described the scale of annual Chinese infrastructure growth equating it to building two Boston-size cities every year.
Low-cost, Low-value? Cheap and shoddy is the associated perception many have of Chinese manufactured products. Multinationals outsourcing products from China were driven by a cheaper labor force that gave them a competitive cost advantage over competitors. Many of these companies sacrificed, at one point or another, the quality of their products for this lower cost. Since then, the growing competition has forced many companies to search for the lowest cost while simultaneously not compromising on quality. The balanced requirements of western companies have started to show in the transformation of the Chinese manufacturing industry.
Western Influence? During our visit to manufacturing facilities such as Corning, ISTC/IBM, Eaton and Lenovo we found a very different picture than what was expected from “low-cost/low-value” factories perceived to exist in China.
The majority of the factories visited had many, if not all, of the processes that are commonly used by manufacturing companies like John Deere in the U.S.A. The following are some of the similarities of these Chinese facilities in comparison to U.S. manufacturing sites:
- Use of the 5 “S”s - Most production lines were using this system. It is based on the organization of the work place to promote cleanliness and orderliness, thus improving productivity and quality. The main idea is that everything has a place and identification. The 5S’s stand for: Sort, Set in order, Shine and inspect, Standardize and Sustain.
- Use of Lean manufacturing principles – Many of the charts and documents on bulletin boards were listed with information typically associated with lean manufacturing principles. Value Stream Maps, Continuous Improvement Forms, Productivity Gain Reports to name a few were consistently present.
- Use of Operational Method Sheets (OMS) – In Lenovo, assembly lines displayed monitors at each work station where the assemblers could see assembly instruction in pictorial written form. The technicians would know exactly what components were needed and how to assemble the proper configuration for the product by looking at the OMS displayed at their work station.
- Use of 6 Sigma Quality metrics - Lenovo and ISTC/IBM measured First-Pass-Yield, Quality audit points and Non-conforming defects. Each production line was rated accordingly to its performance and all results were display for general viewing.
- Structure of workforce – The production lines were structured into three layers of personnel responsibilities; the production supervisor, a team leader and line fills.
- Safety measurements – Many of the facilities had on display the non-recordable hours worked and their requirements for use of Personal Protective Equipment (PPE). However, it was interesting to observe that although the requirements of PPE existed the enforcement of such measurements was very lenient.
I am certain all these processes and guidelines were introduced by western multinationals in an effort to maintain the product quality and consistency expected of their brands. These are proven processes based on the Toyota Production System (TPS) established by the Japanese and used widely today by multinational manufactures. An interesting fact to consider is that Japan struggled to produce quality products for many years. Its was only through strong processes like TPS that Japanese companies eventually increased their level of manufacturing quality to meet or exceed global standards. Today Japanese systems have become a benchmark for many international factories.
The spotlight is now on China. Will Chinese manufacturing systems be able to revolutionize the manufacturing world as the Japanese did? Time will tell. What is evident is all of the above processes already introduced into China will certainly increase quality, making Chinese products more globally competitive. The perception of poor quality will slowly wane and China will emerge as an even stronger force in the global economy; combining both low cost manufacturing with high quality.
A good example of this improvement in quality is the presence of Honda in China. Honda’s Jazz subcompact cars are now being manufactured in China. Hironori Kanayama, President of Honda Automobile possesses a belief that China could exceed his expectations on quality. “My target was that quality should be better than Japanese-made,” Kanayama says. “I think we have almost achieved the target.”[7]
Risks to this rise in manufacturing excellence for China include the lax enforcement of Japanese manufacturing processes and the human and environmental impact that unchecked manufacturing plants create. During some of the plant tours we noticed that many employees were violating minimum safety guidelines and no correction processes were in place to prevent such actions. Additionally, in some of the facilities chemicals were used without available Material Safety Data Sheets (MSDS) or properly labeled containers. Observing these spot instances, I cannot help to wonder if the employees are even trained to properly handle or dispose of chemicals. Perhaps, that is one of the reasons China faces such huge environmental problems.
By no means can I say that Western influence in China is the driving force behind all of its manufacturing improvements. The Chinese are hungry for growth and self-improvement. They are taking any opportunity presented to them and are running with it. In most of our company visits, the common theme was the Chinese workers’ desire and determination to improve. This was also evident to me while reading an article comparing two factories, one in Shanghai and one in Michigan, making the same products for the same company.[8] While the U.S. facility is still by far more productive than the Chinese facility, both facilities are in a continuous search for improvements. The Chinese workers, working for a tenth of their U.S. counter partners’ wages, are willing to work harder. For example, while in the Michigan plant 10% of the workforce does not make it into work any given day, in China the absenteeism rate is less than 1%.
Although China is not yet at the same level of the USA manufacturing, the signs indicate that it is learning fast and will soon catch up. A great Napoleon quote shown to us at the Eaton Company visit summarizes the potential of China:
“There lies a sleeping giant. Let him sleep. For when he wakes he will move the world.” [9]
- Laura Alvarado
[1] http://en.wikipedia.org/wiki/Open_Door_Policy
[2] “Nike in China;” Harvard Business School; Ref 9-386-065
[3] http://www.asiaweek.com/asiaweek/features/aoc/aoc.deng.html
[4] “Nike in China;” Harvard Business School; Ref 9-386-065
[5] “Manufacturing in China”, GIE Industry report by Andrews, Fleming, Love & Murray
[6] “China-Factory of the World: Why China’s importance to retailers will continue” China Forum; May 2007, pg 13-15.
[7] “Chinese workers pass Honda’s export test.” Automotive News; 3/12/2007, Vol. 81 Issue 6246.
[8] Alex Taylor III. “A tale of two factories.” Fortune Magazine; 9/14/2006.
[9] Napoleon, 1803. Eaton Corporation, UNC MBA Global Immersion Elective Company visit 05/14/2006.
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