ROTOR CLIP CHINA: WINDOW ON AN EMERGING ECONOMY

There has been a lot written about China’s emergence as a world economic power. But it is difficult to fathom in mere words the scope of what is actually taking place on the ground there.

 RotorClip recently opened a sales office, just west of Shanghai. We will be exporting our retaining rings, wave springs and hose clamps to the many manufacturing operations that have sprung up there. Our office is located on the 15^th floor of a high rise building in JH Plaza on Huqingping road, a busy street in this part of town. There are two views from our office windows that really tell the story of growth in China.

The first is a view (above) looking out to the right of our office window from the 15^th floor. It shows fields in the back that were once farmland; the two story structures in the foreground were small attached shops with living quarters on top. The government has bought out the owners of the land and the shops and relocated them to other areas (usually in high rise apartments). They are now in the process of tearing down the structures.

The second (above) is a view looking out to the left of our office window. It shows the kind of building that is taking place on these vacated properties. They are putting up structures like these that will serve as apartment buildings, office buildings and factories.

Not sure how long they can keep this up, but it is certainly happening just about everywhere you go in Shanghai. It’s a city full of energy and enthusiasm, and we are happy to be a part of it.

Joe Cappello is Director of Global Marketing for Rotor Clip Company.

THE TIPPING POINT



The year 2015 will mark the beginning of a “tipping point” where bringing the supply

chain closer to home will outweigh the previous cost advantages of producing

in China.

Building on their previous work last year, Boston Consulting Group released its most recent report confirming outsourcing losing its cost advantage for American companies.  Last August, BCG gave its first release of findings that wages in China- the chief motivator of off-shoring- were increasing by 15 to 20 percent annually.  At that rate, the labor-deficit in cost would shrink to 39 percent of an advantage for China by 2015; not a number most companies would bite on as a savvy move:

“Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over low-cost states in the U.S., from 55 percent today to 39 percent in 2015, when adjusted for the higher productivity of U.S. workers. Because labor accounts for a small portion of a product’s manufacturing costs, the savings gained from outsourcing to China will drop to single digits for many products.”

The previous report in October added to this with a more specific analysis of exactly what types of industry would be relocating jobs and business back stateside:

“In addition to transportation goods, electrical equipment/appliances, and furniture, the sectors most likely to return are plastics and rubber products, machinery, fabricated metal products, and computers/electronics.  Together, these seven industry groups could add $100 billion in output to the U.S. economy and lower the U.S. non-oil trade deficit by 20 to 35 percent, according to BCG.” –

A recent article in The Economist lists a study that confirms the rising wages of Chinese labor dating from even two years ago:

“China has the world’s largest manufacturing workforce: more than 112m people at the end of 2006, according to Erin Lett, formerly of America’s Bureau of Labour Statistics, and Judith Banister of the Conference Board, who include enterprises in China’s towns and villages…But it is not as cheap as it was. Workers’ compensation rose by more than 9% a year in dollar terms from 2002 to 2006, according to Ms Lett and Ms Banister, and by over 11% in the cities. A new study by Dennis Tao Yang of the Chinese University of Hong Kong, Vivian Chen of the Conference Board and Ryan Monarch of the University of Michigan suggests that Chinese workers, in the cities at least, are now as expensive as their Thai or Filipino peers.” –The next China, The Economist, July 29^th, 2010

The resulting numbers prompt BCG to predict that the year 2015 will mark the beginning of a “tipping point” where cost advantages doing business in China will slow to the point that American companies will begin to reel supply chains back closer to home.

It’s probably wise to emphasize that this is what BCG projects could happen within the next few years.  The release is a cheery read and gives a good summary of not just the numbers but also to a general feeling that companies who have outsourced for the past couple decades now have a lengthy body of long-term data to review, and the overall profit margin for most of them isn’t as impressive as it was supposed to be.   There are two tracks of thought here: one is that cheap labor is worth spreading out your operations, the other is that immediacy of communication among the chain is paramount to your overall bottom line.  I suppose the former works when labor is so dirt cheap you can get people to build your product for a cot and a biscuit a day (I don’t know how your conscience holds up in that scenario, but that appears to be a moot point to everyone these days).  However, it’s my opinion that the latter has more sneaky value because of the overall cost efficiency of your whole business; geography counts for a whole lot when your entire mission is to assemble parts from various locations as well as possible.  That’s just an obvious bonus on every level of your business. 

You could also make a solid argument that the expense going overseas has always been there, and that it took the Recession for American manufacturing to really look at the actual numbers involved in how much a stretched supply chain actually costs.

All in all, the numbers could be heralded as good news to those who believe rising wages in China translate directly to a flood of jobs back to the States.  It is important to note, however, that off-shoring was a trend exacerbated from globalization and the global economy isn’t going away here.  China may have lost its luster from a labor perspective, but that does not at all in any way mean it is not a major player here to stay.  China’s heavy dependence on exports and sheer volume of available labor all but guarantees its position as a chief importer, to say nothing of the Chinese government’s manipulation of its currency.  Even if jobs do leave, they’re likely to end up in Mexico or Korea before coming back here.  The US is doing its best to stay competitive for the work, but if we want more domestic jobs, a strategy to create new work will be more realistically viable than trying to lure old ones back.

Donal Thoms-Cappello is a freelance writer for Rotor Clip Company.

SME Education Foundation’s Excellent Example



SME provides "cool" manufacturing site for elementary students.

I’ve posted on here before lamenting the missed opportunities we’ve had the previous few decades to incorporate more incentives to educate a whole new generation of manufacturers.  There are certainly a lot of outside uncontrollable factors that went into the shifting global landscape.  Labor advantages, third-world modernization, take your pick; life does not happen in a vacuum, and that goes for the U.S. manufacturing industry as well.

 However, there are those of us who still believe that we wouldn’t be having the issues of unemployment and brain drain we have today (or at least as large a problem as they are today) had we not invested more in educating our youth the past twenty years. That’s why it’s rather refreshing for me to see the Science, Math, and Engineering Education Foundation, or SMEEF,  spread awareness to students at the elementary level about subjects relating to manufacturing, and doing it through their chief medium of communication nowadays:

 SME recently updated their website, Manufacturing Is Cool, a wonderfully interactive site targeting young students by featuring examples of science and engineering in their everyday life.  It’s broken down into categories like technology, food, entertainment and mechanics.  Each category not only explains how certain products are made, providing YouTube links to illustrate the factory process, but they also allow for students to explore the engineering process itself.

The language is a tad precious (the designers make the classic mistake of assuming hip kid lingo amounts to a lot of alliterations like “snacking solutions, distracting diversions, chatting contraptions”, etc.)  but the site’s concept is a brilliant example of how the internet should be used:  bridging areas of life and industry that on the surface look completely unrelated.  Students can learn how cell phone technology works, then jump with one click to a press release about NASA’s next Mars probe.

There’s a feature on Xerox’s history, as well as how Xerox’s digital printing process translates into successful mass publishing; a genius way to lure more literature-minded students to manufacturing (if this site had been around when I was in elementary school, my career choices might have turned out differently.  Of course the internet wasn’t a “thing” back then, so I probably would’ve just gone back into the living room and watched TV.  Ah, the ambitions of a suburban pre-teen in the 90’s…).  Additionally, the site features social media links, scholarship information, and sponsor links as well.

The site’s subtitle: “Be An Original Thinker!”  summarizes the forward-thinking approach of its designers.  Nowhere here are students lectured on what jobs they should do, or what careers they should be preparing for, or even that they should necessarily be preparing right now anyway.  Instead, SME’s site just tries to reveal the hidden connections in the everyday world, get students to see beyond the colorful shell of a smartphone and be aware of the different kinds of jobs and sectors that converge in order to make that smartphone function.  This way, students are introduced to knowledge concepts through the world around them, and as someone whose taught students before, trust me when I say this kind of approach is phenomenally more successful in results than pushing information on them in the form of traditional subjects, like “study this math lesson or you won’t pass this test we use to say whether you’re smart or not.”

So as the kids say, “Big Ups” to the SME Foundation for meeting students on their playing field with an original and clever educational site.  I encourage  everyone reading to hop onto the link provided (here it is again, in case you missed it, and you just don’t feel like going two paragraphs all the way back, poor thing) and lend them your attention.  You’ll be helping out a terrific educational effort.

Donal Thoms-Cappello is a freelance writer for Rotor Clip Company.