Industryweek 1536 15131chinaowned
Industryweek 1536 15131chinaowned
Industryweek 1536 15131chinaowned
Industryweek 1536 15131chinaowned
Industryweek 1536 15131chinaowned

Special Report: Manufacturing in China: Taming the Dragon

Oct. 12, 2007
A look at the current state of manufacturing operations in China.

The first thing you need to know about Chinese manufacturers is the first thing they want you to know -- they take product quality very seriously. Any hint or suggestion that the "Made in China" label is synonymous with inferior products is met with a prompt, and sometimes extreme, response.

When U.S. toy company Mattel Inc. recalled 21 million of its toys and dolls, the immediate culprit appeared to be one of its Chinese suppliers that sprayed excessive amounts of lead paint on some toys (See "How to Avoid a Costly Recall"). The executive of that company ended up committing suicide, an act that apparently is not uncommon among disgraced Chinese officials. U.S. consumers were understandably outraged to think that their children could have been exposed to hazardous levels of lead paint. It seemed possible, at least for a moment, that the U.S. government might insist that Mattel move its factories back stateside, where it would be easier to monitor their production.

See Also

Charts and Tables

As more was learned about the recalled toys, however, it became obvious the vast majority of the recalls had nothing to do with the Chinese and everything to do with Mattel -- namely, a product design flaw that caused magnets on some toys to come loose. When Mattel CEO Robert Eckert issued a public mea culpa to China for damage done to the country's reputation -- "Mattel does not hold Chinese manufacturers responsible for the design in relation to the recalled magnet toys" -- it was a clear sign of exactly how important China's factories are to the U.S. toy industry, as roughly 80% of all toys sold in the U.S. are made in China. And it's an even clearer sign that Mattel has no plans to pull its manufacturing out of China any time soon. Nor, in all likelihood, do any other U.S. companies who rely on Chinese manufacturers to produce the vast majority of their goods.

According to a recent study conducted by the Deloitte Global Manufacturing Industry Group, 59% of the U.S. companies surveyed have operations in China, but as we've learned from the Mattel example, those "operations" are being managed under quite different conditions, with much different goals, than are typical in the United States. To get a better idea of exactly what manufacturing processes are like in China, IndustryWeek partnered with the Manufacturing Performance Institute (MPI) to develop a study that reveals the current state of manufacturing in China.

As the charts on the following pages illustrate, Chinese manufacturers have set themselves the objective of achieving high quality with their products, but it's a fact that China's "low-cost" reputation is one that'll probably stick for quite some time, with hourly wages for production workers well under a dollar (while typical U.S. workers earn over $15 an hour).

In line with China's push toward high quality, the country's predominant improvement methodology is total quality management, with more than 80% of respondents saying they use TQM to measure their performance. Lean manufacturing, on the other hand, is more of a rumor than a fact of life throughout Chinese plants, with just 25% of respondents pursuing lean initiatives. In terms of strategic practices, the Chinese focus above all else on customer satisfaction surveys (nearly 60%), whereas U.S. manufacturers most typically pursue continuous improvement practices (nearly 77%).

The relative youth of most Chinese manufacturing facilities (56.8% of China's plants are less than 10 years old, compared with 9.4% for U.S. factories) is perhaps also borne out in the overall lack of progress toward world-class manufacturing status. According to the study, 53.8% of China's manufacturers have made "no progress" at all toward world-class, compared with only 12.8% for U.S. companies. As the core strategy of many U.S. manufacturers is to ensure that their products adhere to international quality standards, while still enjoying the benefits of China's low-cost labor force, it becomes a matter of considerable importance to ensure that productivity goes hand in hand with solid management practices (see "Five Practical Strategies for Building a Chinese Workforce").

How to Get It Right in China

Taking all the above into consideration, then, what should U.S. companies be doing in order to "tame the dragon" so to speak, and become globally competitive with -- rather than merely reliant on -- Chinese manufacturers? Jimmy Hexter and Jonathan Woetzel, two China-based directors of McKinsey & Company and authors of Operation China (Harvard Business School Press, 2007), suggest that successful companies focus on getting four things done very well:

  1. "They systematically identify all the relevant stakeholders, at various levels of government, who may have a role to play (by influencing regulation or making decisions) in the company's various business areas in China."
  2. They closely monitor and study the agendas of these individual leaders and governmental bodies.
  3. Then, "best-practice multinational companies in China take a good hard look at how they can adjust plans to align with these multiple agendas in order to create a balanced approach across parties."
  4. As the final step, "they develop systematic processes and clear organizational structures (with accountability baked-in) to get all this done and to manage critical relationships on an ongoing basis -- a capability for learning and for continuing to improve upon what has been built."

While China is often pointed to as emblematic of everything that's gone wrong with U.S. manufacturing, there's no escaping the reality that the sheer size of the Chinese market makes it an almost irresistible opportunity for growth. In fact, China bought more than $55 billion worth of U.S. goods in 2006. Product quality issues and intellectual property protection are two very real concerns for U.S. manufacturers, but by closely studying both China's culture and its manufacturing initiatives, U.S. companies are finding that the rewards can be worth the risks.

Methodology


The IW/MPI China Manufacturing Study 2007 was designed to collect operational and business metrics and practices at manufacturing facilities within China. In July 2007 at the direction of MPI, BNC Resources Co. Ltd. contacted approximately 950 plants throughout China and across major industries, requesting their participation in the study, which consisted of a four-page questionnaire with more than 100 questions. BNC Resources is based in Beijing and conducts industrial research, including supplier audits. There were 402 facilities that confidentially responded by fax, mail or via an in-person interview; facilities were ISO 9001 certified or in the process of certification or recertification to ISO 9001:2000. Details on how to obtain a complete summary of survey results are available from the Manufacturing Performance Institute (MPI) at www.mpi-group.net.

Charts and Tables

How Low Can They Go?

The perception that China is a low-cost source of labor is in fact a reality, with median hourly wages of production workers still well under a dollar.

China U.S.
Median Hourly Wage ($US) $0.53 $15
Median Starting Hourly Wage ($US) $0.43 $11
Top Objectives

When asked to name the top three objectives describing their market strategy, both Chinese and U.S. manufacturers ranked "high quality" the highest. However, the similarities end there. Not surprisingly, "low cost" is No. 2 for the Chinese, while U.S. companies see "service and support" as their second-most important objective.

Chinese Manufacturers
High Quality 83.3%
Low Cost 56.6%
Innovation 53.9%
Service and Support 28.2%
Fast Delivery 23.9%
U.S. Manufacturers
High Quality 73.7%
Service and Support 55.8%
Total Value 41.2%
Fast Delivery 32.0%
Customization 26.6%
(multiple responses allowed)
Improvement Methodologies Used In China

While lean manufacturing is the predominant improvement methodology of choice in the U.S., Chinese manufacturers are focused primarily on TQM, with lean coming in a distant second.

Total Quality Management 81.7%
Lean Manufacturing 25.1%
Agile Manufacturing 19.3%
Theory of Constraints 7.8%
Toyota Production System 6.3%
Six Sigma 3.0%
Other 3.5%
None 11.0%
(multiple responses allowed)
Chinese Plants Participating In This Study:Are most likely owned by Chinese...
Are most likely discrete producers...
Are younger than plants in the U.S.
Age China U.S.
Less than 5 years 21.9% 4.0%
5 to 10 years 34.9% 5.4%
11 to 20 years 25.4% 19.1%
More than 20 years 17.8% 71.6%
Strategic Practices Within Plants
China U.S.
Customer Satisfaction Surveys 59.6% 51.4%
Quality Certifications (e.g., ISO) 54.6% 55.9%
Continuous Improvement 47.4% 76.9%
Total Productive Maintenance 40.2% 34.2%
Environmental Management 33.9% 43.6%
Open-Book Management 24.9% 16.0%
Kaizen Events/Blitzes 19.5% 45.5%
Recycling/Reuse Programs 16.5% 56.1%
Value Stream Mapping 9.2% 45.5%
(multiple responses allowed)
Progress Toward World-Class Status
China U.S.
No Progress 53.8% 12.8%
Some Progress 37.3% 61.1%
Significant Progress 7.0% 24.2%
Fully Achieved 2.0% 1.9%
Source: IW/MPI China Manufacturing Study; IW/MPI Census of U.S. Manufacturers

See Also

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

How Manufacturers Can Optimize Operations with Weather Intelligence

Nov. 2, 2023
The bad news? Severe weather has emerged as one of the biggest threats to continuity and safety in manufacturing. The good news? The intelligence solutions that build weather ...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!