If you purchase from China, there is one thing you have noticed: prices are going up, often by 10-25% a year. The reason is not that manufacturers are increasing their margins, but that their costs are rising very fast.
Yet, these same factories are under more and more intense pricing pressure from their customers.
Which manufacturers will survive and turn out a profit over the next 10 years? Those who increase their efficiency (by reducing waste in their operations or by increasing throughput) and/or who raise their production quality.
What will it take for them to reach these goals? I see 7 obstacles they will need to address:
1. Short term focus
Right now, most exporters are focused on surviving, and if possible on getting enough for the boss to get a new car (or for his wife to buy another apartment).
But there also seems to be an aspect of Chinese culture that pushes every one to focus on the short term. It makes it extremely hard for companies to sustain a long-term investment aiming at improving the organization.
2. No pride of workmanship
Why are they in business? For money, of course. Very few manufacturers here care about a nice workmanship, a new design, or a defect-free production run.
It is very frustrating to explain to factory technicians that products must look better, and to realize that people nod politely (if at all) and actually don’t care. All they want to know is “what is the absolute lowest effort we can make?” Not a great customer retention strategy…
3. Focus on “making production”
Go inside a factory building, and you will see everyone trying to get the products out of the door. In 95% of cases, the shop floor is an absolute chaos.
The problem is, no one wants to stop the line when they notice bad quality, since they are paid by the number of pieces they make. As long as this attitude subsists, quality will be inconsistent.
4. No respect of workers
Ten years ago, it seemed like the Chinese workforce was endless. Unskilled workers were easily disposable. Fear was an effective motivator (“follow the rules, or you are out”).
The problem is, the situation has changed much faster than managerial methods. Training the operators and retaining them should become one of the top objectives.
5. Compartmentalization of activities
It is very common for factories to prepare prototypes in one place, and to produce the corresponding order in another floor (or to subcontract it to a different company). But development, engineering, and production should work hand in hand.
Another problem is the young and aggressive salespeople who say ‘yes’ to all requests, in their search for new orders. In the end, customers are disappointed and look for another source.
6. No analytical accounting
To reduce costs, it is important to know where they come from. Not only don’t most Chinese companies use analytical accounting tools, but their tax evasion tactics often deprive them of any accurate accounting!
They have no idea how much non-quality (rework, re-order of components, discounts, lost customers) costs them, for example. So why make an effort?
7. No interest in best practices
Most factory bosses have copied the way another manufacturer — often a previous employer — was organized. To them, the way to make money is to grow up, while keeping costs down… and occasionally screwing a few customers.
They are usually not interested in running experiments or purchasing software/machinery to improve their organization. If there is one thing that makes me pessimistic about Chinese manufacturing, it is this lack of curiosity in new methods.
I guess my 7 “deadly sins” are related. But where does it start? Probably by seeing good examples and copying them. Or maybe by starting new factories from scratch, with better management?
You forgot one of the most important issues with production companies in China: The management gets promoted to their position based on how much they go drinking with the boss and buddy up, not on their skills or performance.
Without good, qualified management, no supplier can be effective or efficient.
This is probably the most serious problem in the Chinese economy.
Jarome,
Factory management is usually awful, you are right. And it all starts with the boss, who likes to hire his family members and his good friends…
I am Chinese and I pretty agreed the 7 deadly sins that happened in a lot of China manufacturies.
Jarome, we call “Guangxi” to descripte that relationship, and “Guangxi” can make everything happen.
Sometimes it is good thing because it helps me to solve the problem quickly. I am personally doing the purchasing service for my client, and I use that relationship to solve problems. The ultimate goal is to sovle the problem and get the good quality cargo delivery on time.
Simon,
Thanks for your comment. Yes, a dose of good guanxi definitely helps when problems come up.
Renaud, this may be one of my favorite posts by you…and you’ve written a lot of my favorites. I would advise any importer to print this and hang it up so they can reference it during their projects and see if they are falling in to the hands of any of these kinds of factories – because sooner than later, it’s going to play out in quality that the final end-user / retail chain receives.
Along with tightening margins and increased cost of materials, comes the factory skimping on material and like you said….putting forth the least effort.
Thanks Jacob, I appreciate it.
Some people told me I exaggerate how bad things are. I wrote about the “bottom 95%” of Chinese manufacturers. It’s actually hard to avoid them 😉
I’d be interested in hearing more about these “you’re-exaggerating-things” folks (a blog?). Many people you can’t tell anything to…they need to get burned one time to understand the depth of the control a successful order takes.
Jacob,
A lawyer that I respect, and who is based in Beijing, wrote “Some big over-generalizations here, but this does apply to many shops.” when he posted it on Google+.
people that work in the chinese factories are working in very bad conditions they work with muck everywere they donn’t even use toliet paper in their toilet they use a bucket of water or a hose children even work in their factories i find this a very dangerious manner for these young kids and they have the right to have a life as little kids and hang around with their friends and family also since their productions of clothes have moved to china, people have lost or gained jobs from these chinese factories.
my antie livees in china so i’m not taking the p.ss out of anyones family or friends but it’s true so i would like to tell everyone thats out their try and change the ways that the factories are and put a charity up saying please save our factories so we can ship clothes over to the uk.. 🙂
Good article.Write very comprehensive. I took a Chinese, see this article, very sincerely, at present we Chinese factories, is heading for a comprehensive idea change. I, as a private factory owners, is gradually change, optimization, ascension. Only the thought can upgrade upgrade products, the enterprise can upgrade.
Ruliblinds,
I am glad you see things the way I do!