Why is everything made in China?
ElectricAye
Posts: 4,561
I hope this question doesn't cause some kind of political debate but rather some level-headed, practical insights into the phenomenon. It's hard to escape the feeling that nearly everything is made in China these days and The International Monetary Fund, for example, recently projected that China's economy would surpass the US by the year 2016, just five years from now.
http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25
So my question is this: why do you think so much of the world's production is moving there and why so quickly?
Is it because of cheaper labor? better work ethic?
Is it because of lower taxes?
Is it because of less government regulation (for example lack of environmental regulations, lack of worker safety laws, etc.)?
How does production there compare to places, say, in Mexico, etc.?
I suspect a number of people on this forum have some amount of production going on in China - or have thought about doing so and have opted not to, so I was hoping to get some insights into why it's such an attractive option for so many businesses these days.
http://www.marketwatch.com/story/imf-bombshell-age-of-america-about-to-end-2011-04-25
So my question is this: why do you think so much of the world's production is moving there and why so quickly?
Is it because of cheaper labor? better work ethic?
Is it because of lower taxes?
Is it because of less government regulation (for example lack of environmental regulations, lack of worker safety laws, etc.)?
How does production there compare to places, say, in Mexico, etc.?
I suspect a number of people on this forum have some amount of production going on in China - or have thought about doing so and have opted not to, so I was hoping to get some insights into why it's such an attractive option for so many businesses these days.
Comments
They have had a 20% reduction in business due to email. They need to lay off workers or they will not have enough money to continue operating as of February of next year.
But they can not lay off any workers! i.e. Management knows what they need to do to "save the company", but have their hands tied...
http://www.khanacademy.org/video/american-chinese-debt-loop?playlist=Currency
This will come back to bite China hard because when the currency prices adjust the debt they hold will devalue in relative terms.
That's a great video. Plus the two that follow it. Thanks!
http://madeinusanews.com/2010/04/29/u-s-companies-bringing-production-back-home/
http://brr.berkeley.edu/2011/11/bringing-production-back-home/
http://www.usatoday.com/money/economy/2010-08-06-manufacturing04_CV_N.htm
-Phil
They buy in such huge volumes that they get extraordinary pricing. When you see the main part on the board costs the same in large qties for companies in the US and Australia, etc, as the whole assembled board including shipping, you realise something is not right.
From what I understand, China pools their purchases via a buying house. They go direct to the manufacturer and get an extraordinary low price. This low price is passed to all the manufacturers in China.
Personally, I hate everything being produced there. But, do I buy from there? Yes because its cheaper
I just bought a turbo duct fan made in Canada which is very high quality, well written instructions, detailed specifications. Like the way things used to be! (And that was to replace the piece of junk Made in China fan I bought which did not work.)
The same thing asked of Japan a couple decades ago. My students would suggest maybe it was the "samuri culture" work ethic. When I pointed out that this was in contradiction with the reported "we're al so tired from working so late, work doesn't get done until after 6 PM, that's why we always work so late". My theory was that if a area is bombed flat, all the workers are killed, and factories are rebuilt with the newest technology and new workers are educated in the best methods and latest technology, they might have some advantage. But work ethic? People are people. So cheap labor, yes, better work ethic no.
Remember the big stink a few years ago when all the Smile jobs were sent down to Mexico? Remember the big "tech scare" when all the Smile tech jobs were out-sourced to India, (If you can't get it done right when the guy is across the hall, you sure won't get it right when the guy is across the ocean), only to be re-outsourced someplace else when the India standard of living go too high?
We do hear a constant stream of disasters and tragedies from China due to lax safety in mining, food production, urban crowding, and government crack downs on citizenry. In Japan we encountered http://en.wikipedia.org/wiki/Minamata_disease, in China we have similar accounts of "economic prosperity" resulting in workers being poisoned by the very industries that employ them.
Consider http://en.wikipedia.org/wiki/The_Jungle by Upton Sinclair.
I suggest China is in a similar growing pain. But while China appears to be "making money" in the short term, the long term cost will have great impacts. Market forces demand that they, and us, let things run their course. Its pretty grim for the Chinese, but there is nothing to be done about it.
Pollution was "low tech" when Love Canal caught fire, the took a few decades to clean up. Pollution is "high tech" when the Fukushima plants melted down; it may take MUCH longer before the contamination subsides; isotopes could take centuries. China is in store for horrific tragedies, if they have not already been set in motion.
More unfortunate is the fact, that for us at least, it has been more difficult to get North American investors to buy into North American companies than it is to get Asian invetors to participate. So naturally the shift will continue in that direction until North America "wakes up".
Cheers
Peter (pjv)
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In response to this big gap in certain costs, Parallax has both a Hong Kong and Chinese business. This is a normal setup for western investments in China. The Chinese business is considered a Representative Office with a license for trading, parts procurement, and QA/QC. It is run by three engineers you've probably seen on these forums or even at Parallax (Raymond, John and Martin) with our Managing Director Aristides. The Hong Kong business is the holding company for the Chinese operation. In our view the only way to buy parts or manufacture products in China is to have our own staff there to validate every product (literally), at the factory. Without that, you're guaranteed to get a full container of wasted effort now and then. This doesn't happen to Parallax.
We're very "awake" on this particular issue and the mixed bag of benefits and costs that go with it. I'll tell you about my viewpoint in case it helps anyone.
So what's the draw? Mostly cost, but access to the sources is also important. Is it worth it? Sometimes. If certain conditions are met, you could save 50% on a board type of product but it also has a cost. First, your minimum order quantity (MOQ) is low enough to have an inventory turn a couple of times a year. Next, all of the parts should come from China because sending "controlled" parts into China is a hassle - involving tariffs, import/export fees, and inspection. Also, better be prepared to communicate in pictures and in person because few will care about your pile of specifications, JEDEC standards, and related requirements unless you're making 100K unit runs. The kinds of things we might make in China our generally free of intellectual property, involve through-hole and hand assembly, etc. The S2 robot is a great example of a product that wouldn't be available for the price it is if it were made in North America, period. Keep in mind that you're only going to get what you want at the expense of a significant management cost from your domestic office. After you consider all the costs of working in China that savings just won't look the same.
You also need to be able to stomach some corruption because it's there. I'd say it's only visible if you have a presence in China, not if you're traveling back and forth to the manufacturer. And since relationships are very sincere and more important than any agreement, you'll play by their rules and not your own.
And other financial benefits? All this talk about stuffing profits overseas in tax havens like Hong Kong is only a big corporation game and not for little guys. Here's how it works. Chinese profits are kept in Hong Kong, where you pay a flat 17% corporate income tax. Sounds great, especially considering USA's corporate income tax is 48%. But what good is money in Hong Kong if you're not going to shuttle it back into China to build a giant factory? No good, so you bring it to the USA and the net result is the same. It becomes a question of where you want to pay taxes - in Hong Kong or in the USA. You would probably rather just pay the taxes in the USA because you are American. I know all of this is because I had to study it for a long time before we invested in China. None of this matters to us since our goal is to simply provide a legal means to have our engineers inspect, test, approve and ship our products.Having staff requires a company in China.
It's a different story for big companies. They make profits and keep them in Hong Kong, Caymans, or anywhere else. They run their own factories and reinvest in China, unlike small companies who use contract manufacturers. Corporations have international tax accountants who help them comply and actually benefit from the 17% tax rate by keeping money in the offshore entity. The IRS watches the owners closely and it's fair to say that tax evasion is a big problem. America has lost zillions of tax through this problem. You might remember the Federal government asking the Swiss banks for a list of their top customers a while back.
Parallax has shifted much Chinese production back to the USA in recent years. In fact, most of our core products are made in California even though raw materials may come from elsewhere. The manufacturing team is truly effective and communicates very well within the company. Our machines are running at capacity and we're figuring out how to increase output every week, through double shifts or additional manufacturing lines. The benefits are far different than saving a few dollars. Lead times are very short, inventory turnovers are much higher, the absolute highest level of quality is attained, the engineers get to work on the production line when their products are produced, and any problems are solved in a flash. When the Propeller BOE (PropBOE) rolls off the production line in December it will come with a Lifetime Warranty [and an educational program]. We'll have the confidence to offer this totally unusual commitment to our customers because we will own the whole assembly process, from parts procurement to packaging. Everybody realizes that we're fighting the trend to offshore, so we're working as effectively as possible to be more productive through effective planning and collaboration.
This is a real investment in the USA and will continue to increase our production throughput by 25-50% this year.
What can the government do to help us grow manufacturing here? We've got to get this home foreclosure problem over and behind us, bringing housing costs down to a realistic and affordable level so it doesn't take such a large percentage of income. Government should not require permits for certain manufacturing equipment when the only option is using (here comes a real EPA acronym) the Best Available Control Technology. It would help if they ended some of the silly employment rules that prevent non-exempt employees from thriving in their positions. The federal government should continue offering the Section 179 Capital Equipment deduction and improve the corporate benefits of contributing to 401K funds (debatable benefit given the concern around our fiat currency). Creative learning and education must be improved (see http://www.fareedzakaria.com viewpoint). Match the "green economy" with incentives that make it viable at all levels. There's so much more, but ElectricAye didn't want us to get political and I'd hate to lose a customer over a personal opinion.
Keep in mind China is not the way most of us envision it. It has the fastest trains, amazing buildings, giant cities and the best modern features but it's combined with the China we thought about 30 years ago, too.
Chip and Parallax have strong conviction that we must develop our abilities domestically. If we don't do it then we'll only be marketing and sales people 20 years from now, living in a service economy. Throw in a bit of Wall-E lifestyle and you'll be plenty motivated. And maybe most importantly of all, who doesn't want to design products, run a pick & place, stay late and use the laser cutter, run the mill for a new robot part, or learn to weld aluminum? The real reward is being part of the process from start to finish.
And that's just my viewpoint, as clear as I can make it.
Ken Gracey
P.S. I'd like to hear from our international forum members too. What's the vibe in your country on this topic?
I loathe cheap toys and cheaper/knockoff equipments made there due to the potential health hazards. I had the cheap knockoff Legos bought from Tesco. Guess what - the cheap ABS smell burned my nose and my eyes water everytime I smell it. I bought them because they have the nice props (beret, M1 Helmet, some weapons not present in Danish Lego World) and nothing else.
I stand on the fence. I'm a Chinese in SE-Asia, but I do not consider myself 100% Chinese due to the probable cause of mixed marraiges a few generations ago.
I needed a bunch of silicon carbide heating elements and the Chinese quoted me a price 1/10 that of local manufacturers. This is surely a product of many factors: Lower wages, fewer government restrictions, a less litigious legal climate, and perhaps the patience to allow the business to grow.
On-shore: $65 per board with a minimum order of 3.
China: $29 for 10 with e-testing of 5.
The On-Shore company mandates it being looked over by one of their engineers.
The Chinese company just hits "print".
We all know the costs here are mainly in the labor. So, where is the "just hit print" service?
I did a project for Make magazine where they asked me to furnish a kit. Part of the kit included a universal remote. I got two boxes of 48 from a large LA-based importer, at I think about a buck a piece. I got a funny feeling I should actually check the stuff and I found half were bad. Bad in that they would never work because of a manufacturing defect that would have been impossible for them to miss. Clearly, they simply shipped a couple gross of bad product, knowing it would never get returned because -- after all -- it cost less than a dollar each.
Early on in the history of my sideline robot biz I thought I'd offer some RC toys that folks could use to hack for their robots. I found some outfits in the LA wholesale district and bought about $1,000 in trial stock. OVER HALF were defective in some way. With these guys you can only return things in the first 2-3 days, and they blackball you if you return too many goods for replacement because of defective merchandise. They expect you to eat the cost because the per-piece wholesale price is so low. Sorry, but that's not right.
In the end I had to salvage components off the toys and sell things separately, which worked okay for items like tanks were the pieces could sell for more than the whole thing (I couldn't sell the tank for $10, but I could sell the tracks for $15 -- go figure!), but it involved a ton of extra work.
Today I shy away from imported Chinese goods unless I buy from a US retailer with a return policy. I can't tell you how many tools I've returned to Harbor Freight and gotten replacements. Fortunately, they don't bat an eye and the replacement process is smooth and simple. (Try that at Fry's -- ha!!)
-- Gordon
As for the thread topic: my understanding is that for any one worker in China who is willing to complain about their job, there are hundreds of others who are eager to happily take that job and submit to the conditions.
As taught in ECON 101, and as we are starting to see in some places, free trade may eventually benefit the whole world. Whether we can all live long enough to see the benefit is another question entirely.
China does not make everything they manufacture everything. Almost all new and older technology was or is made in the USA by engineers / backyard mechanics. China just manufactures the products. :thumb:
Wait a year or so on those imported PCB's for the truth to appear.
They always use short rinse cycles on ALL Chinese plating, and the
result is corrosion or failure due to residuals within 2 years.
This is on all their metal plating as well as PCB etch/plate,
go check that brass plated lamp you bought a couple of years ago.
It costs as much to evaluate the quality as getting it right the first time
from US suppliers that follow quality rules.
jack
If you'd like to read an entertaining, amusing, and eye-opening book about manufacturing in China, I highly recommend this one:
I won't divulge who gave me my copy, though.
-Phil
Looks like a good read. I wonder where it was printed.
Aww, come on - no need to keep a secret.
Truthfully, the guy who gave you that book has read every single book on business and manufacturing in China. And that's what it takes to get the results you expect, else you'll be telling many of the stories we're reading above.
Ken Gracey
I particularly enjoy the efforts made to manufacture here, while sourcing there. That's one area of growth I see great potential in. Integration, assembly, sub-systems, controls, capital equipment, etc... Way to hit the sweet spot guys.
My professional employment surrounds mechanical, and some electronics related engineering software systems and automation / data management. We've been in the mid-west now for a few years, and it's been very eye opening. Many companies "sold out" becoming mere shells doing sales, light service, etc... They are struggling huge right now, and have difficulty innovating to the next level necessary today. I honestly do not believe many of them will remain viable. There are also a lot of niche companies running on very old tech and systems. They are now investing in new stuff, about to repeat the cycle that established them the first time. Many of these will be viable and growing in no time flat, but they have a slog to get through updating their systems and overall level of acumen in the niche they serve. That's what I do, and it's exciting to see! For a long while I thought I might have to move overseas to continue. It was that bad for a while.
There are a few that have pulled it all back here, sourcing a few things there, but only where it cannot be done elsewhere. What they are finding is people today are increasingly sensitive to that, willing to pay a premium for a US product again, when they are told about the processes, people and passion. That was not entirely true 10 years ago. To me, that signals we are getting ready to build again, and it can't come a moment too soon. Ken, you guys are knocking it right out of the park every day. Great job, and that is one of the reasons I enjoy being here and learning the technology.
As for politics, everything is political. Sad but true. That's a life lesson I've had to come to grips with over the last 10 years as well! Having experienced the full range of politics now, due to the people I interact with, I can say this: We have ideologies as reasoning tools, not as means to a pre-defined end. The people who understand that, and use them as tools to realize means, methods, processes get the most out of the politics and generally will support and help to render policy that makes sense.
And policy has to make sense, or we will struggle. It's that simple. That's the lesson for me personally. So, I embrace that, looking for differences, and where those overlap, there are possibilities, and it's those that get us there in my experience.
Carry on, I just wanted to express my general pleasure reading this discussion. I too am very curious to hear what our International members of the community have to say.
Unfortunately for small businessmen, when China buys up raw materials in California
in large quantities, they drive up our costs. They create shortages, and prices are
raised daily basis. Then the importers sell their products to retail customers, at or
below our manufacturing costs.
Entirely correct. Steel, wood products, uranium, copper and coal are among these materials. One industry I'd like to study more is furniture manufacturing. Much furniture used to come from the Carolinas, but now it all comes from Dongguan, China (province near Hong Kong). A while back my wife bought a nice cabinet from Pottery Barn. While putting it together I encountered all the Chinese characters identifying the part - it was the first time I'd seen Chinese-made furniture. And the quality was very good, I might add! Another reason we should be concerned - it looks like this industry has left and has no reason to come back.
Thanks for posting that!
I ordered one and will be interested to learn why they seem to be "shooting themselves in the foot" with the quality problems???
It is interesting to learn about and understand other cultures, why they do things, etc.
For example I have had trouble in the past with some Asian customers in the U.S. not telling me exactly what is wrong with a gizmo. I have been mislead by what they said and thought something else was wrong with it. (And with an intermittent problem, I have to go by what the customer says, as it of course works perfectly for me!)
Anyway I learned it is rude in some cultures to point out what is wrong with someone or something, so perhaps they were being polite?
Then in China the language is very extensive and complex. I've read that even after a lifetime of living there, people still do not know the language. So perhaps they just give up trying to communicate exactly what they want to say? Maybe just the general idea is an acceptable communication?
Anyway I have had trouble "communicating".
It all comes down to Requirements and Planning. If there is no agreed criterion for success, and method for measuring degree of compliance to requirements, then you get what you get. If you can't get it right when the guys are just down the hall, you won't get it right when the guys are across the ocean. Examples are several epic failures outsourcing software development to India in the 90's. The lesson applies equally to electronics and manufacturing.
This is not limited to Asian culture, if the customer and supplier have not specifically agreed what constitutes "working perfectly" versus "wrong" (and how to demonstrate compliance or not), the gizmo has a very low likelihood of meeting both parties expectations. This is the core of the problems with China, and is also the core of the problems locally. Usually when a customer stops talking, it simply means they are giving up on your or their ability to deal with the problem.