China accounts for 20% of the world’s population and is the world’s largest manufacturer, em- ploying more production workers than the Unites States, United Kingdom, Germany, Japan, Italy, Canada, and France combined. Its 1.3 billion people represent not only an immense labor market, but a huge consumer market as well. As China’s industrial base multiplies, so does its need for machinery and basic materials, and as more companies move to China, so do their suppliers and their supplier’s suppliers. Although initially the preferred location for the production of low-tech goods such as toys, textiles, and furniture, China has become a strategic manufacturing base for nearly every industry worldwide.
The scale of manufacturing in China is mind-boggling. For example, Foxconn (the trade name of Taiwan’s Hon Hai Precision Industry Company) has two enormous industrial complexes in mainland China. The Guangdong Province site employs and houses approximately 270,000 work- ers, with its own dormitories, restaurants, hospital, police force, chicken farm, and soccer sta- dium. There are 40 separate production facilities “on campus,” each dedicated to one of its major customers such as Apple, Dell, Motorola, Sony, Nintendo, and HP. Foxconn is the world’s largest electronics manufacturer and China’s largest exporter. It also represents a shorter supply chain because it makes components as well as assembles final products. Currently, Foxconn is making a bid to enter the retail market in China and is expanding production into Mexico to better serve the U.S. market.
Figure 1.7 shows the gross domestic product (GDP) per capita for the United State and the largest emerging economies. China’s GDP per capita is about 12% of the U.S. level. However, as shown in Figure 1.8, China’s trade as a percent of GDP is almost triple that of the United States.
Having a producer economy and healthy trade balance is an advantage in a global slump. China has problems with pollution, quality, and corruption but is steering its way out of the recession and entering into what it calls “the decade of China.”
Sri Lanka China Philippines Mexico Brazil Taiwan Czech Republic Singapore South Korea Japan United States Ireland Australia Germany Denmark Norway
$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00
$0.61
$0.81
$1.10
$2.92
$5.96
$6.58
$8.20
$8.35
$16.02
$19.75
$24.59
$29.04
$30.17
$37.66
$42.29
$48.56
Figure 1.6 Hourly
Compensation Costs for Production Workers (in U.S.
Dollars)
Source: Bureau of Labor Statistics, International Comparisons of Hourly Compensation Costs in Manufacturing 2007, Washington, DC: March 26, 2009, p. 23.
United States
Russian Federation
South Africa
Brazil
China
Indonesia
India
45.8
14.7
9.7
9.6
5.3
3.7
2.8
0 10 20 30
Thousands of U.S. dollars
40 50
Figure 1.7 GDP per Capita
Source: U.S. Department of Labor, A Chartbook of International Labor Comparisons, Washington, DC:
March 2009, p. 39.
China
South Africa
Indonesia
Russian Federation
India
United States
Brazil
66.3
57.9
48.5
44.8
30.9
23.0
21.9
0 10 20 30
Percent
40 50 60 70
Figure 1.8
Trade in Goods as a Percent of GDP
Source: U.S. Department of Labor, A Chartbook of International Labor Comparisons, Washington, DC:
March 2009, p. 43.
While China’s manufacturing prowess may seem unbeatable, many companies have sought to reduce the risk of sourcing from only one country by expanding trade relationships with other low-cost countries, particularly India, Bangladesh, Pakistan, Vietnam, and to a lesser extent, Indonesia and Eastern Europe. Because of its proximity to the United States, Mexico and several Central American countries are popular sources for shorter lifecycle products.
Whether or not a company decides to do business with China, every company must consider the implications of the “China factor” on their profitability and competitive position. Managing global operations and quality in a far-reaching supply chain is an added challenge for opera- tions and supply chain managers. Keeping domestic production competitive is an even bigger challenge. The New Balance “Along the Supply Chain” box shows how one company has met that challenge.
With over 18 million people, 5,000 skyscrapers, and the world’s largest deep sea container port, Shanghai is China’s largest city, and the financial heart of the burgeoning economy.
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The Balancing Act at New Balance
Boston-based New Balance Corporation is a nonconformist in many ways. It refuses to hire superstars to endorse its product, it shuns style in favor of performance, it holds fast to its emphasis on running shoes, and it is committed to manu- facturing at least some of its product in the United States.
New Balance currently has five factories in the United States, the last of its kind of makers of athletic shoes. It also has wholly-owned subsidiaries in 13 countries and a number of licensees, joint ventures, and distributors all over the globe.
Of its domestic production, owner Jim Davis says “it’s part of the company’s culture to design and manufacture here.” Producing close to their customers also allows quick turnarounds on new designs and order fulfillment. At New
Balance’s factory in Norridgewock, Maine, well-trained employees make $14 an hour working in small teams per- forming half-a-dozen different jobs and switching tasks every few minutes. They operate computerized sewing equipment and automated stitchers that allow one person to do the work of 20.
New Balance is able to remain competitive at home by creatively adapting new technologies to shoemaking and con- stantly training their employees in teamwork and technical skills. Employees start with 22 hours of classroom training on teamwork and get constant training on the factory floor. They work in teams of five or six, sharing tasks and helping one an- other to make sure everything gets done. Many of the ideas for process improvement come from shop floor workers.
(Continued)
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