Talk of China's economic impact on the global economy is all the rage at most business meetings and in media articles focused on improving North American competitiveness. The barrage of news and numbers coming out of China seems relentless. It makes even the strongest quiver.
- Growing technological expertise - 360,000 new engineers per year join China's workforce
- Low wages for both skilled and unskilled labor - Fortune Magazine (Dec. 6/04) cites 39 cents per hour for industry laborers, $2,000 per month for design engineers, and $20 per month for general laborers
- China is experiencing more than 10% growth per year
- At the same time, hundreds of thousands of jobs are disappearing in North America
- Fortune 1000 companies are being bought up or heavily invested in by Chinese companies
- Natural resource and energy prices are skyrocketing, in part because of increased global demand
China seems to have become a world economic power practically overnight. As we woke up to the new environment, market pressures had increased at a phenomenal rate and our margins were spiraling downwards out of sight.
As with any change we think is outside of our control, our natural reaction is fear. The resulting panic can stimulate business leaders into a range of knee jerk reactions. Prices are cut, people are laid off, operations are moved offshore, and some businesses even give up. We rationalize these short-term decisions as solutions but, in reality, they only delay the inevitable. We are caught trying to buy time in the hope that the crisis will go away.
If we were to stand back and look at the situation more calmly, we would see alternatives and opportunities to actually transform our businesses to renewed levels of success. Quick solutions are usually not solutions at all. They are, all too often, highly visible indicators that we are desperate.
There are no miracles without ‘sweat equity’. We have to thoroughly understand the competitive situation and develop solid plans that work for the long term rather than simply give us a temporary blip in stock value. It's just not good enough to say we tried but failed.
The question from business leaders is - how do we compete with low labor costs, a seemingly unlimited supply of labor, a highly educated workforce, rapidly increasing costs of commodities and resources as well as a competitor poised to become the economic power worldwide?
The first thing we have to realize is that our competitor shares many of the same pressures that we ourselves feel. To paraphrase George Santayana, “Those who do not know history are doomed to repeat it. " We have to remember that Japan, post World War 2, had a huge but fleeting advantage based on low labor costs and low-tech mass production. It doesn't last. There is always another country or group of companies waiting to come at you the same way.
So what happened with Japan? Their companies and government brought in experts (remember Deming and Juran) and worked out how they could increase quality and technical expertise without sacrificing market share or profits. Oh yes, they also started to focus more intensely on that all-important part of the equation - the customer! Toyota, Lean principles, customer focus - success! That's what grew a country's economy to become one of the most successful worldwide - not cheap labor, not low-tech mass production. China is going to have to do this and so are we - price is not what satisfies the customer - it's value.
China has to struggle hard with this value proposition. The logistics of reliable delivery to the customer must improve, their infrastructure has to get more efficient in dealing with resource needs and pollution, their companies are going to have to pay more for labor as their population grows into one of the world's largest consumer forces. Their tasks are daunting - as much as our fears that it's game over when we look at cheap offshore labor as the monster that ate our profits.
Chinese investors may be buying some of North America's biggest companies but North American businesses are also in China selling goods and services to one of the world's largest markets. If their government would allow it, we'd be there buying their companies at an even greater rate. Let's start thinking of China as a huge opportunity for our companies!
We need to look at the China phenomenon in the context of economic history - it's a wake up call that we must never forget. The customer comes first and unless we become Lean Enterprises we will lose the competition game, not to other nations, but to competitors in business everywhere, including our own back yard.
Before any of you give up or, even worse, react without a solid plan, realize you do have options. China is not a threat unless you allow them to be. China is just our newest challenge as business leaders.
Note - after China, there will be another challenge - it never ends. China is driving all of us to be better. As leaders, our role is to establish an environment where the organization is constantly driving transformation with a solid direction and a detailed, customer-driven Future State plan to get there.
About The Author
Larry Coté is well known for his penetrating analysis and creative energy. He was with the Lean Enterprise Institute in Boston for almost two years as C. O. O. /E. V. P. He was the Founder and President of the Lean Enterprise Institute Canada.
Over the years, Larry has worked with 100's of companies at various stages of their Lean journey in many different business sectors. Larry has expertise in Toyota Production System concepts, diagnostics and assessment of Lean readiness. He works with the corporate leaders to develop effective plans for transforming organizations using Lean and adapting it to their particular culture.
Lean Advisors Inc .
Lean Advisors Inc. (LEAD) provides Lean Training And Lean Implementation support to organizations of all sizes and sectors including healthcare, office, service, manufacturing, mining, aerospace, food processing, high tech.