China's Lean Journey

Oct. 28, 2006
China is determined to become lean and take advantage of technology instead of relying solely on cheap labor.

Recently, a colleague of mine and I accepted an invitation to go to China for the purpose of facilitating Lean Manufacturing workshops for a client near Hong Kong, and at a Lean Manufacturing symposium in Shanghai. I looked forward to being able to observe manufacturing in China first hand and compare the situation in China to that in the U.S. and Mexico. This opportunity provided us with access to representatives from a couple dozen manufacturers in China. Some of these companies were multi-nationals with operations in China, and some were Chinese companies. Our business dealings in China have continued since our visit and we continue to learn more about manufacturing in China.

I must confess that prior to our visit I believed China's dramatic economic growth was largely sustained by a combination of low cost labor and the government's increasingly free enterprise-friendly policies. I also expected to encounter, at best mild interest in, or at worst distain for Lean Manufacturing. I was wrong. Our workshop participants were all keenly interested in Lean Manufacturing. Some of their companies had active lean initiatives in place.

Prior to visiting China, I was often told that automation and technology were generally not considered advantageous in comparison to cheap labor in China. Yet, the first factory complex we toured in China, owned by a Taiwan-based company, had the most modern and automated plating systems I've ever seen. This same company was in the process of installing very sophisticated robotics in its assembly operations.

I was also aware that the Chinese government is challenged to provide more jobs in order to spread prosperity that as yet has not reached much of the population. In view of this and their low cost labor, I had to wonder: Why are these companies interested in automated systems and Lean Manufacturing?

During discussions with our workshop participants, they told us they are losing their low cost labor advantage to Vietnam and India. Further, they said they had seen Mexico gradually lose its low cost labor advantage and they did not want China to lose its competitive position to other economies that can supply cheaper labor. They realize that their low cost labor advantage is temporary.

China has a well educated, disciplined and highly motivated work force. Its government is investing heavily in infrastructure. They seem determined to become lean and take advantage of technology instead of continuing to rely solely on cheap labor. Chinese companies are also beginning to develop innovative new technologies, rather than being content to manufacture technologies that are developed in other parts of the world. It seems that no country can sustain superior competitiveness on the back of cheap labor forever. Eventually, a cheaper labor market will be found.

I am aware that I am not the first person to make these observations, but when seen first hand, the vitality and potential of the Chinese economy is no longer a far away abstraction. It becomes real and forces more urgent consideration of its potential long-term effects.

The lean initiative in China is still in its infancy, and not every company in China is inclined to invest in the latest technology, but the challenge from China to our manufacturing base is not likely to get any easier to meet. Modernization and Lean manufacturing are trends that will gain momentum as China meets increasing challenges from other low cost producers.

If China is able to maintain political and social stability, despite its many challenges, they will continue to be an economic force that will be increasingly difficult to compete with. And, if the labor advantage the Chinese have enjoyed isn't enough, other nations are entering the world economy with even cheaper labor.

This is not a hopeless situation for U.S. industry. Not everything can, or should be outsourced. Other factors being equal, or even competitive, China, Vietnam and India still cannot easily overcome some of their disadvantages, including socio-political challenges and the distance and time restraints of the Pacific Ocean in today's world of shrinking lead times, supply chains and inventory levels.

U.S. industries can preserve their U.S. manufacturing base and remain competitive in the long term if they leverage these advantages by continuing to increase industrial productivity and developing innovative leading edge scientific and technological products.

Dennis J. Stamm is vice president, Enterprise Solutions Group of CH2M HILL. Headquartered in Denver, employee-owned CH2M HILL is a global firm providing engineering, construction, operations, consulting and related technical services to public and private clients. The firm's work is concentrated in the areas of manufacturing, chemicals, pharmaceuticals & biotech, electronics, energy, power, communications, transportation, water and environment.

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