Simply put, the objective of the Society of the Plastics Industry Inc.'s recent China trade mission was to learn more about our competitors, determine if and how we can compete with them and to find the opportunities. In reality, many of the participants felt that producing in China is an inevitability that we can only put off temporarily but ultimately will not be able to avoid.
I believe that many, myself included, were so angry and preoccupied about the predatory competitive situation and unfair trade issues that it had not dawned on us that there was another option in addition to going to China to “make cheap stuff and ship it back to North America.”
Our findings were simply stunning. We not only found that the Chinese consider the United States to be a good trading partner, but that we are a preferred partner. There are things that can and must be done to accomplish the dual purpose of reducing the trade deficit and helping our manufacturing companies without importing goods produced with cheap labor back into the United States.
My participation in the 1996 SPI China trade mission gave me the unique opportunity to see China “before and after.” They've really stepped up their efforts to modernize and become efficient. 'Tis truly amazing what they can accomplish when they put their minds to a single task and focus intensely upon that goal.
In 1996 we found the typical Chinese plastics manufacturing plant to be rather rough: poorly lit and heated, often with open or canvas outside walls, minimal res-troom facilities, poor housekeeping and primitive systems. Most noteworthy was the reliance on large doses of labor to get things done with little or no automation. Massive amounts of manual paper record keeping resulted in armies of clerks tabulating columns of numbers that went into reports that were collated by other clerks and somehow made their way up into the production reporting and management control systems. It was obvious that they used massive doses of cheap labor to cover up for significant inefficiencies.
From a macro viewpoint, the country itself reflected many of the same issues: roads were inadequate to handle gridlock; deliveries in big cities were routinely made at night because of impossible daytime logistics; trash littered streets, empty lots and rural highways; a massive building construction program had been initiated, but the existing structures were antiquated; use of technology was not widespread; and the most common transportation mode was thousands and thousands of bicycles.
In 2004 we found everything to be different! The factories are modern — often state-of-the-art. They are very clean, and an obvious reliance on lean manufacturing and Five S housekeeping techniques has been implemented. We frequently saw rows and rows of computer-assisted-design work-stations operating in a totally “paperless” environment, and not once did we see any clerical staff tabulating production numbers with paper and pencil.
Statistics show that manufacturing employment is declining in China! It was readily apparent that the reason for this decline is that China has focused on efficiency despite the low cost of labor.
With regard to the city environments — we were limited to Hong Kong, Guangzhou and Shanghai — we saw amazing modernity. The most impressive single factor was the concentration of modern, high-rise, architectural glass towers. New York wishes its skyline were as sleek and modern.
No trash was evident anywhere. Vehicles moved efficiently with very few traffic jams; modern six-, eight-, 10- and 12-lane highways have proliferated. Land-scaping, modern architecture and sculpture predominate the scene. Most divided highways have floral gardens in the median and landscaped trees, shrubs and sculpture on the shoulders. Clearly, the equivalent of billions of U.S. dollars has been spent making China more eye-appealing.
All of this reflects a very conscious strategy to become not only world-class competitive — but to dominate industrial development and certain markets.
For example, a typical busy tool shop in North America, if there still are any, should put out 50-100 molds per year. The Chinese have targeted the tool-building industry and, as a consequence, promote mold building as a core competency. We toured a number of plants that claim to build more than 1,000 molds per year and one shop boasted a workload of 5,000 molds per year.
Scary stuff — but, again, keep in mind that many of those molds are not destined to run in North America. They go to every market in the world, including Asia, Europe, South America, the United States and, significantly, China itself.
The most impressive development, however, is in the new industrial parks. The massive investment is both significant and alarming. Most of the investment is “foreign direct investment,” meaning that it is not Chinese money building these parks. And this is the conundrum: about 25 percent, typically, of the foreign direct investment comes from the United States. Therefore, when people like myself rally against unfair trade, we are essentially shouting at ourselves in that so much of the investment comes from U.S. corporations.
For example, 130 Fortune 500 companies have local headquarters in Hong Kong alone. So the bottom line is that one of the biggest engines of Chinese growth is American firms and investors.
All of this is interesting, scary, eye-opening and significant. But, by far our biggest surprise was being told, over and over, how the Chinese would like to do more business with the United States and to import more from the United States rather than much of what they now get from Europe, other Asian countries and other continents.
How many American business owners realize that China is a net importer? How many know that only one country has a negative trade balance with China — obviously, the United States? That's right — every other country in the world exports more machinery, equipment, raw materials, training, software, etc., to China than they import back from China. All of the materials and purchases from other nations are converted into products, typically shipped to our big-box retailers and sold at low prices to American citizens. That much we already know — but did we know and think about the fact that they would rather buy and import more from us?
We heard case study after case study of Chinese companies that have been thwarted in their efforts to visit the United States, meet with American producers and sales people and buy American.
Our post-9-11 visa policies have made it nearly impossible for them to get into the country, either to shop for new goods or to arrange for purchases already made.
Just one example involved a Chinese airline that was delayed in getting visas for its pilots to pick up an airplane that it already owned. The plane was built and completed in the United States, and parked on the runway for six months, at a cost of over $150 million.
The Chinese feel that we are more likely to stand behind the warranty of the goods that we've produced, to provide technical support, to be trustworthy in our dealings and to have the best technology. Can anybody tell me why we would not want to sell both capital and consumer goods to the Chinese market?
It would literally take hours to convey all of the learning to which our group of 23 plastics missionaries were exposed in our two-week journey. Some of us have been invited to speak at a variety of upcoming conferences and would love to share our experience — for example, at the upcoming Mid-America Plastics Partners Inc. conference Aug. 27 in Indianapolis. You must learn about specific opportunities for your own company. I believe that, to a person, every trade mission attendee would tell you to forget about your past prejudices and beliefs and start thinking about what opportunity you could have to sell your product in China, especially if you find a way to produce it there.
Think about a country with 80 million new middle-class consumers with a personal savings rate of 30-45 percent who are just gaining the ability to buy consumer products for the first time in their lives. Think about a market where you increase sales by providing a product that a new consumer craves, rather than by stealing market share from a competitor. Think about a market that prefers American consumer products and technology. Think about a market where people are buying new cars for the first time. (Buicks are already being made there, with Cadillacs coming soon.)
Finally — think about whether you want to be a leader or follower in the world's fastest-growing consumer market!
No, I have definitely not gone soft on fair vs. free trade. The abuses must be corrected. But, I have become more cynical/skeptical that Washington can or will take the necessary steps to remedy the abuses. This just makes the argument even stronger that each of us must fight for and take care of our own companies however we can, including jumping aboard the global production and supply merry-go-round!
Hoop Roche led SPI's 2004 China trade mission, and is chairman and chief marketing officer of Erie Plastics Corp. in Corry, Pa.