China’s Manufacturing Luster Diminishes

One of the fundamental problems confronting the new Obama administration is that the flat world is working against American manufacturing jobs. For example, the Obama team  is picking up the crescendo of calls for a US lead Green Revolution in technology and manufacturing not just in Energy and Cars but throughout all industries. But the problem is that US manufacturing base, manufacturing expertise, and able mangers has been so badly gutted by 20 years of ever increasing exporting  to “lower cost” areas in the world, that the US is in a very poor position to be competitive in the Flat World.

However, just in time China, which has imported the bulk of US manufacturing jobs, has become less than enamoring as a manufacturing platform. See this article in Business Week which summarize the latest thinking from AMR research. They cite  the following problems associated with serious and recurring  manufacturing  quality problems plus outright intellectual capital piracy:
<em>'”China is in a league of its own in terms of risks associated with intellectual property and quality,” says Kevin O’Marah, AMR’s chief strategist.

In fact, China ranked highest in 9 of the 15 risk factors. Rising labor costs are still an important factor for businesses, with 35% citing China as the leading source of concern. Other risk categories where China ranked highest included regulatory compliance, commodity price volatility, supply-chain security breaches, and information technology problems. The shortage of Chinese managerial talent€”long one of the top risk factors during the go-go era that ended last year€”has tailed off as a major worry’…

The AMR study suggests, however, that U.S. companies are starting to better appreciate the less-visible costs of producing in China. Quality problems, rampant piracy (BusinessWeek, 10/2/08), allegations of sweatshop abuses, worker protests, and other factors not only drive up costs but also harm the value of brands and corporate reputations. “Companies are realizing that the fully loaded costs of importing from China are a lot higher than they imagined,” says O’Marah.

Trouble is, China will not be able to improve its quality problem overnight. It will require a long-term transformation of China’s regulatory bureaucracy, legal system, and management practices. And Beijing has been promising to control intellectual-property theft for decades, with unimpressive results. If China doesn’t start making progress fast, the current slump in export manufacturing (BusinessWeek, 3/27/08) could be the beginning of a longer-term pullback.'</em>

The problem is that these arguments don’t consider the tremendous environmental costs that will have to be absorbed by Chinese companies and states as the chronic air and water pollution problems facing the country are confronted. Right now China is on the cusp of an environmental disaster of huge and as yet unfathomed proportions.

So not by any imagine on the US policy side, there  will be a reprieve of some sorts granted to US manufacturing and corporates. What will be interesting is what the will to succeed will be.

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