There is a danger that this may well end up becoming a habit, I publishing notes on an article written by Gulzar Natarajan, but well, it’ll be a worthwhile habit.
Here’s the one sentence take-away: “Good luck trying to move these chains away from China. Especially India.”
Ok, two sentences. My blog, my rules.
The article begins on a fairly upbeat note, if you think that a re-balancing of these chains away from China is a good idea. Japan has been mulling on this idea for a while, and the trend has only accelerated since the pandemic struck.
It goes on to speak about how the USA, and ‘like-minded’ nations such as Australia, India and Japan have also been considering walking down this path.
But then we enter into problematic territory:
- The pandemic has only accelerated this trend, as we already mentioned.
- Good luck.
Gulzar Natarajan pulls an extensive quote by Tim Cook from Inc. A part of it is quoted below:
“And the part that’s the most unknown is there’s almost two million application developers in China that write apps for the iOS App Store. These are some of the most innovative mobile apps in the world, and the entrepreneurs that run them are some of the most inspiring and entrepreneurial in the world. Those are sold not only here but exported around the world… China has moved into very advanced manufacturing, so you find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world.”
Tim Ferris had a useful insight that is relevant in this context. I’m paraphrasing here, but my takeaway is that it is perhaps better to be very good at a few things than be perfect at one and abysmal at everything else.
China is very good at a few things, and that makes it difficult to shift away from that country. It’s not enough, any longer, to be very good at cheap manufacturing. Not if you want to compete with China, because they’re still very good at that – and so much more.
And speaking of being very good at manufacturing:
“She is just one of dozens of workers we see at sewing machines and assembly tables at this umbrella factory. The factory tells us each worker will sew 40 umbrellas an hour, 1,600 a week. By year’s end, that’s 80,000 umbrellas a year from each worker like Chang. More than half those umbrellas will be sold in the United States. The factory chairman Lu Xinmiao reveals to us one of their biggest clients is Costco.”
And, from the same article…
“The head of the factory, Zhejiang Qingyi Knitting Company, tells us that if they could, they would hire 200 more workers today. He tells us that there is now more competition for workers. Some estimate it will take another 45 million workers from rural China within the next five years just to keep up with the demand for product. Here in Datang, Lu Xinmiao has given his employees 20 percent raises to make sure they stay. Cheng now makes 2,500 yuan a month, equal to $357.”
The article I quoted from speaks about umbrellas. Gulzar Natarajan speaks about coffins and bras.
Sample this, from The Economist:
“In this “Town of Underwear”, as the local government likes to call it, there are thousands of similar factories. Gurao produces 350m bras and 430m vests and pairs of knickers a year for sale at home and abroad. Undies account for 80% of its industrial output.”
But we can go on and on – specialized manufacturing that is still relatively cheap, especially when you take into account scale and (at least adjusted for the price that you’re paying) quality, means that China is still – even now! – a world beater in the manufacture of almost anything.
And the days of the bottom of the “manufacturing smile” are long since past for China as a whole:
“China now ranks second only to the United States in terms of start-up investment. From 2014 through 2016, China provided just under 20 percent of the world’s venture capital.”
That is from a McKinsey report titled Asia’s Future is Now. Left unsaid in the title is the fact that this is so because China would want it to be so.
In tomorrow’s essay, we’ll take a (big picture only) overview of how much of this cheap manufacturing shift away from China – to the extent that it happens at all – will actually come to India.
EconForEverybody 