Hazard of Sourcing to China 9

[plasgears]

At this point we have had long experience with sourcing to China, and my experience has been negative for the most part. It caused the downfall of my company in an automotive disaster. When Ford mandated a 10% cost reduction, we passed the reqt to our supplier. He promptly sourced plastic material from China. The source and material were not qualified; so much for QS9000.

Why is China such as economical place to get parts made? This warrants in-depth study and intelligence. Some have described the Chinese economy as a 'false' economy. My theory is that oil money from our enemies is undermining American economy by priming China to sell very low to us. The result has been closed enterprises, jobs lost, and spiraling disasters in the housing market and Wall St. Recent visitors to China report that the Chinese revel in these outcomes. If this scenario is true, what an ingenious plan our enemies have plotted to destroy us. Who would have anticipated it.

China doesn't care about our specifications; we should not care about China and their practices. We should withdraw and study what is going on under the surface. It has been confirmed that Chinese are brought down from the western mountains, and they are put to work on our parts. This doesn't fully explain the very low pricing.

We are now hearing American businessmen expressing regrets about associating their production with China. Realization of what it means to do business in China is rising. When Detroit, in response to union demands years ago, expressed that car business would heretofore become international, most didn't anticipate the full import of that statement. We will have to wake up before it is too late.

 

[TheTick]

There are good toolmakers and molders in China. They're just not "China cheap", so the skinflint costcutters blow right past them. Usually Japanese-owned and Taiwanese-run.

 

[ScottyUK]

Seems strange to accuse the enemies of the West of being the architects of the Chinese economic boom and the collapse of indigenous Western manufacturing when Western companies chose to set up their manufacturing operations across in China to increase their profits and reduce their costs. The greed of money men in the West has created this problem, just as surely as it created the other big problems we are all facing at the moment. It is unfair to blame China for taking the opportunity which our companies handed to them.

Sure, China makes a lot of crap, but the West is stupid enough to buy it because it is cheaper than something made properly in our own countries. China is meeting a market need, and we are responsible for creating that market. We have sown the seed, now we are beginning to reap the harvest.


----------------------------------

If we learn from our mistakes I'm getting a great education!

 

[petman]

ScottyUK,

A brilliant synopsis of the situation.

 

[thruthefence]

ScottyUK, I second that. Our bean counters have sent the work overseas, for short term gains; ie higher profits, thus higher stock prices, thus an opportunity to excersize your stock options & take some money off the table.

Meanwhile those folks in the formally undeveloped countries now have 'real jobs', paying 'real money' , and guess what? They want cars, paved roads, tv sets, Ipods & the like. ( just like we do.

Their cars require fuel to operate, the roads require concrete to build, the consumer goods require all the usual commodities to build- and we here in the states whine & cry & wonder why the price of oil has gone up??

Know what? Those "newly civilized" folks like what they have now, Meat four times a week, a little recreation at days end. And they won't easily go back to a bowl of rice & a portable radio.

And to think this all started over a game of ping pong, back in the '70's.

The Chinese have a saying, both a blessing & a curse:

" May you live in interesting times"

 

[jmw]

Er, sorry, Thruthefence,
I've been lambasted by the E-T members when I have used this quotation and attribution so:

"Origin

While purporting to be a blessing, this is in fact a curse. It is widely reported as being of ancient Chinese origin, but is likely to be of recent and western origin, although it seems to be intended to sound Chinese, in the 'Confucious he say' mould.

The earliest citation that has yet come to light is U-Turn, a sci-fi short story by Duncan Munro (one of the pen names of Eric Frank Russell), 1950:

"For centuries the Chinese used an ancient curse: 'May you live in interesting times!' It isn't a curse any more. It's a blessing."

It may be that Russell coined the phrase himself or he may have heard it elsewhere."

http://www.phrases.org.uk/meanings/245000.html

Wikipedia gets us back to 1936:

http://en.wikipedia.org/wiki/May_you_live_in_interesting_times

Anyway, it would be a mistake to underestimate the Chinese or to malign them. We should remember that so much of what we in the west enjoy today was truly invented by the Chinese.. my favourite is fireworks, of course (though today the 'elf and safety types keep us so far from the launch sites that we miss out on the smell), and Marco Polo brought back Pasta.

I do agree that there is much to be regretted in the current Chinese attitude to intellectual property rights, copywrite etc. but even more o be regretted both commercially (the greed mentioned above) and politically... politicians have very kindly agreed to ignore civil rights during the Olympics.. where in earlier years boycotts would be indulged for matters of equal or lesser points of principal.

It is fashionable to decry the employment of "child labour" in India but to overlook other concerns in China. A colleague of mine managed an electronics factory in China for a few years and was appalled by the conditions his workforce had to endure. The climate, the heat and dust, made it very difficult for many workers and when approached he signed off the expenses for a variety of measures only to find his decision (as MD) countermanded by the local Chinese manager and there was nothing he could do about it.

The best thing that could happen, I guess, is that China advances as quickly as possible. Why? because that insatiable demand for everything that westerners enjoy will mean that somewhere along the path to that goal they will price themselves back into a fair competitive price situation.

The Chinese demand for fuel is partly responsible for the increase in fuel prices. This was reflected by the loss of a contract to supply car seats to the US auto industry (to Mexico, I presume) when the manufacturing + freight equation failed to beat the competition.

However, when it comes to political neglect we should look carefully to the future because what our politicians are doing now is abdicate their responsibility. China is busy buying up mineral resources around the globe. It is also getting a lock on transport.

So of course the Chinese will exploit every opportunity they are gievn in their own interests. In other words, ScottyUk has the right of it.



JMW

http://www.ViscoAnalyser.com

 

[thruthefence]

Thanks, I stand corrected; but whoever the author, Our times today are truly "interesting".

 

[IRstuff]

Sure, that's worked pretty well in Japan. The newest generation of Yuppies are too into acquiring Guccis and iPhones to concentrate on killing US businesses. Likewise, within 20 yrs, the urban Chinese will have been led down the same road.

TTFN

FAQ731-376

 

[escrowe]

Is there any reason the free market cannot handle
US interaction with China?
Perhaps I am naive.

Banks behave badly? Let them fail.
But No! Let's bail them out.

A business makes bad decisions? Another will take its place.
But No! Let's bail out the car manufacturers too.

Chinese companies have poor QA/QC?
Then they will lose business or lower prices.
But wait, let's apply some protectionist strategy instead...

The free market really does work,
but (some of us) seem bent on applying socialism
or tactics otherwise suited for a command economy
when things get a little rough.

 

[IRstuff]

What does this have to do with socialism? If it were socialism, then the companies would have been nationalized. And the fact that they're bailing out the richest 0.5% of the people is hardly in keeping with with socialist ideals.

It's not socialism, but the rawest and crudest form of capitalism, when companies can make governments turn the money crank to keep profits flowing and protect the rich from losing their profits. Meanwhile, the proletariat are losing their homes and their jobs. If were truly socialist, then the company ownership would be diverted to those that suffered the most.

This is clearly a manipulation of public opinion, to divert the people's attention from the real criminals and neer-do-wells. If it were socialist, the CEOs of those companies would he hanging from the nearest tree limb, instead of enjoying their ill-gotten booty.

TTFN

FAQ731-376

 

[KENAT]

Plus escrowe, US may be a relatively 'free' market, but China isn't, and the US govt hasn't really put in place significant efforts to address this that I can see.

You have a free market playing with a not free one. Two competitors/partners playing by different rules.

In the current (or perhaps that should say recent) situation the 'unfree' market seemed to have an advantage in some aspects.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at

http://eng-tips.com/market.cfm?

 

[moltenmetal]

escrowe: free markets work when they're both free and fair.

A country manipulating the value of its currency is not playing fair.

A country without functioning civil courts rewards theft and limits foreign nationals' ability to ensure that their Chinese counterparts live up to their side of any business agreement. That too isn't fair.

Only an idiot continues to play the game by the same old rules against an opponent who feels the rules don't apply to them.

As to the stuff that's going on in the US: that's a simple indication that money equals power. A functioning market economy needs a functioning democratic government to act as a counterlever against the natural tendency for power to accumulate with capital. When governments are too much in bed with those who have the capital, you get this sort of distortion occurring. This is about as far from socialism as you can get.

 

[escrowe]

The preceding make interesting points, and beg the following questions:

---
Given the recent spate of 'bailouts,' and the latest plan
for government to buy equity in private banks,
nationalization may be on the minds of not a few in DC.
At what level should we consider regulation, garantees
and public ownership 'nationalization?'


---
If free market capitalism is a superior economic system,
then why are 'special rules' required to deal with China et.al.?

Are free markets too vulnerable to attack from without,
and therefor (perhaps) not superior at all?(!)

---
If the concept of publicly funded 'public works'
disappered today, how many of us would shortly be
looking for new work?
Of course, thankfully, ASCE is advocating for trillions of
dollars of (mostly public) infrastructure spending.

:]

 

[TheTick]

All of the purists are wrong: free marketeers, socialists, commies, libertarians, greens, etc. It takes varying degrees of government intervention at different times to keep things working. Otherwise we would all be serfs to the Rockefellers.

 

[KENAT]

Untill they take it too far and you get a revolution...

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at

http://eng-tips.com/market.cfm?

 

[gerhardl]

Fact 1:

With a global economy the (moveable) work requiring some amount of manual labour will tend to be done in locations able to supply labour and factories with the lowest prices and a market acceptable quality.

Historical example from more modern times: Shipbuilding in main Europe just after 1945: France and UK, moving and overlapping in turn to Germany, then Scandinavia with Finland, then southern Europe, Spain and Portugal, then East Europe, Japan and in turn Korea, then China. (This is of course only the rough trend)

Left and growing in Scandinavia: high tech equipment and vessels, and high-tech special offshore and submerged offshore.

Lesson 1:

To compete against cheaper and newer producers, which always will be gain fast in capital, momentum and knowledge you have to move faster, be better, automate, think longterm and develop new products meeting market demands on a high quality level.

This is nothing new. The new thing is the global market limitation and that the 'old' capital economical theory in practice demands a market with unlimited expansion possibilities.

The Chinese mainland gouvernment is in this situation thinking longterm. This includes long-term contracts for raw materials from the rest of the world, supplied to the coast where factories are situated.

In reserve is the vast inland mineral reserves wich require a better infrastructure (roads, railroads, energy) being built up by export surplus.

It also includes a mony policy as a gain to China, but 'unfair' seen from outside.

Question 1.

US seems to be lacking in a firm nationwide industrial policy, trying to coast along on the wave of dominance created by the expansion brought by the second world-war and world econmy expansion in the fifties and sixties.

The normal US company is thinking shortterm with quartal reports to stock owners - expecting an increasing short-term profit.

The actual US adaption to expansing economies in Easter Europe, Asia and other developing economies seems also to be lacking in long-term strategies.

Please present me with a US company board of directors agreeing to hold down profits for three years, investing and working for a more secured market share for the next five.

Part of the first lesson is to get a firm grip of QA - also total control on quality of all producing, purchasing and marketing processes.

Or is my European view of US companies all wrong?

 

[TheTick]

Please present me with a US company board of directors agreeing to hold down profits for three years, investing and working for a more secured market share for the next five.

Probably not in the S&P 500 or NASDAQ, but there are privately held companies doing this.

Americans in general are rabid free market capitalists. The idea of even allowing the government to plan for industry is outrageous and repugnant to all but the most left-leaning Yanks.

Another major difference in the U.S. is the banking system. In Europe, there is much closer coordination between banking and industry. Many banks' board members are also on boards for major manufacturers.

American corporations rely more heavily on the stock market to generate captial, compelling them to do unsound things to prop up stock prices. American stockholders are generally twitchier and more shortsighted than their European counterparts, leaving CEOs and board members much more vulnerable to stockholder rebellions.

 

[gerhardl]

OK, TheTick, thank you for the comment.

Story continues:

Fact 2.

I am a European in the valve business.

Act 1.
Situation 15 years ago in a European general industrial Exhibition / Trade Fair:

Meeting one of the the mainland Chinese valve suppliers as a dark-suited, elderly, old generation communist factory director, partaking with his company in a a mutual, arranged by the state, larger stand.

Speaking no foreign language, but politely communicating to you through a younger, equally dressed, english-speaking translator (man or woman), eagerly asking for your visit-card and business.

About his product line: 'We supply very good valves, they are exact copies of Japanese valves!'

Act 2
Situation 3 years ago in a specialized European valve trade Fair in Germany.

Remember the gag about development of Japanese quality in the picture 'Back to the future'? (The younger, present time hero, explaining to the professor from an older time that he is wrong, Japanese quality is not the worst, it is the best?).

Anyway, met in the trade-fair about three years ago:

One of the many large mainland Chinese valve producers, with a very broad specter of valves. Represented by a young Taiwanese-Chinese man. (Dont trust the media only presenting the conflict).

He is 'normal european' dressed, speaking fluent english, explaining to me the constructual details on his valve, differing, and in his mind, improving on the specialized large regulating valves produced in Germany that we are representing elsewhere. Product knowledge is top class.

On quality and marketing and financial means : support and owned by Taiwaneese, which again have learned from US and European sources.

On experience and quality in practise: large projects in China and nearer markets, full material and other quality control and certificates.

On export and expanding: nearer markets first, then Europe.

On ability and competition: 'The US producers are the largest valve suppliers in the market, (to keep US and Japanese at hand) we have selected to go mainly for European norm flanges, but can of course also supply to US and JIS standards.

Lesson 2.

Things are happening fast in all types of manufacturing companies in developing economies, what you believe is the present state is very often a stage already being passed.


Question 2.

Are US based business philosophy able to take advantage of the opportunities in theese markets and renew the old type companies?

Or is the alternative to let the lesser adaptive US-owned companies operate as is, get financial problems, and being bought from outside US sources?

 

[TheTick]

re: Taiwan--see my post from Oct. 4

 

[jmw]

You know, it always amazes me that the US doesn't understand the European market that well, never mind the Far east and are strangely reluctant to address the markets properly and professionally.

Some years back the UK company I worked for was part of a US giant. They acquired a dP transmitter company that produced dP sensors for the US nuclear and power industries. They flew in an expert, set him up in the office and tasked him to take on the European market. He was very well resourced and had a cupboard full of desirable give-aways.
Unfortunately he had a hard time understanding that the European power industry already had a source of dP transmitters designed and manufactured for the industry and to European standards. He couldn't seem to understand that there wasnothng special about his dP transmitters except that they had all the wrong certificates and were incompatible with the European approach to instrumentation.
He finally found and signed up a European distributor who did a lot of hard work and finally began to make some headway. The moment they got an enquiry for these expensive transmitters the US factory put up the prices and the distributor dropped it like a hot potato.

I've seen quite a few sensors arrive across the water that all suffered similarly from the wrong approvals, too high a price, too high an expectation and poor aestheics.
OK, so UL listed and CSA approved is fine over there but we need ATEX, we need CE testing and approval and we like 4-20mA not 0/1-5volts and we like DI standard enclosures, 12 DIN ect not something like a night watchmans hut and that looks about a 40 year old design and not very god even then.

That isn't the whole picture. Many companies, notably those in the global market place for some time, do try to get it right but far too many don't and don't seem to want to try and then wonder why they have a hard time. Not so the far east manufacturers. What you want you seem to get. It ain't rocket science but it appears beyond many US manufacturers.
And don't get me started on the software problems or the circuit board layouts.

I recently took a fact finding tour into Germany with one such product in mind. The German distributor gave us a long tale of woe about US companies with their rotten products and high pressure sales and said the last US company he dealt with insisted on sending its top sales team over and he had to find them a good potential client to see. Against his better judgement he did. He says he has now lost that client forever because they responded badly not just to the product which despite the price looked like it had been built in a garage out of a selection of second rate off the shelf components but mostly because of the over the top sales pitch.

We can whinge all we like about China offering cheap labour and undercutting the US suppliers (and European) but if the manufacturer can't even get the basics right, this is the wrong approach. I'm not saying that China isn't a problem, it obviously is and China, like Japan seems to have a very clear vision of its long term objectives and has alignment between manufacturers and government which sees China acquiring all the resources it needs around the world to supply its industry from fuel and minerals, ports the Panama canal and so on.

In the US and Europe governments seem obsessed with "the service industry" (and look what a mess that has truned out to be with the Big Brun with his begging bowl crawling round the Middle east looking for handouts to prp up the collapsing economy with the plea that it's a "global problem". Recession maybe bu the mess with the financial markets is the result of poor governance and who knows what else.

In the UK the government seems to think manufacturing is a something dark and Dickensian and such manufacturing as there is is to be taxed out of existence and fenced around with as much red tape as possible and some of the most ill-conceived labour law imaginable.

Yes there are gong to be balance of trade problems with the Far East and China and yes there is much to deplore but until western governments get on the side of western industry until they start to worry about the realities and not the abstracts then in a dog eat dog world the western industries are being eaten alive, dogs and all, by lean mean tigers.

Every time a politician goes abroad on fact finding or to conferences they come back with a new Kyoto or something that adds further shackles to western manufacturing while and tilts the playing field even further out of kilter.

JMW

http://www.ViscoAnalyser.com

 

[lz5pl]

gerhardl, jmw, excellent comments, just in line with my vision on the problem !
I would add to your comments about long term visions a part of my talk with a Chinese coleagues. Several years ago we were on a pre-tender site visit for new electric substations project in one African country. The group consisted with people from almost 10 countries, starting from Portugal and finishing to China.
In the evening in the restaurant we remain alone with one of Chinese engineers. I said him I am impressed by their fast progress from misery of communist society, because our country (Bulgaria) was much better than China during the communism, but now it is not developing so well. His answer was - don't be wrong from shining views of Shanghai and other free zones, in the countryside it is still almost the same misery. But it is normal, we started our changes just 20 years ago! Listening to that I understood how correct is the sentence: "West thinks in years, East thinks in generations."

And something about their business strategy: There were people from two Chinese companies. I asked them - how you will compete each other, you both are government-owned companies ? They said - no, each of us will prepare his offer, they will study them in Beijing and will decide who will participate and with what price.
I don't know who won that tender, because the new owner of our (just privatized) company forbade us to participate in order not to freeze some money (urgently needed for it's new BMW 7.50 !). We had very good chances to win due to our good price, first class equipment, very good references from another just completed project in same country and even good relations with somebody important in the Tender committee. But short-term income was more important for our boss comparing with more than one million USD profit which will come next year.
Not necessary to say that this company doesn't exist anymore. High qualified engineers and commercial specialists left and everybody found some better place. As far as I know, turn-key projects market in that African country is now almost completely taken by Chinese.

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It may be like this in theory and practice, but in real life it is completely different.
The favourite sentence of my army sergeant