James Fallows, with his family, has lived in China for some time now. From reading his blog, I think about a year since he moved to Shanghai. The fruits of his investment are beginning to bloom. The July/August Atlantic Monthly is a special China issue, lead by Fallows’ China Makes, The World Takes. You may want to begin with the narrated slideshow — a good overview. At over eleven thousand words, Fallows’ survey of China’s factories and the people who man them is a must read.
Why go to China? For cheap? No — for speed and flexibility:
…Why does a foreign company come to our Mr. China? I asked Casey what he would tell me if I were in, say, some branch of the steel industry in Pittsburgh and was looking to cut costs. â€œNot interested,â€ he said. â€œThe productâ€™s too heavy, and youâ€™ve probably already automated the process, so one person is pushing a button. It would cost you almost as much to have someone push the button in China.â€
But what is of intense interest to him, he said, is a company that has built up a brand name and relationships with retailers, and knows what it wants to promote and sell nextâ€”and needs to save time and money in manufacturing a product that requires a fair amount of assembly. â€œThat is where we can help, because you will come here and see factories that are better than the ones youâ€™ve been working with in America or Germany.â€
Here are a few examples, all based on real-world cases: You have announced a major new product, which has gotten great buzz in the press. But close to release time, you discover a design problem that must be fixedâ€”and no U.S. factory can adjust its production process in time.
The Chinese factories can respond more quickly, and not simply because of 12-hour workdays. â€œAnyplace else, youâ€™d have to import different raw materials and components,â€ Casey told me. â€œHere, youâ€™ve got nine different suppliers within a mile, and they can bring a sample over that afternoon. People think China is cheap, but really, itâ€™s fast.â€ Moreover, the Chinese factories use more human labor, and fewer expensive robots or assembly machines, than their counterparts in rich countries. â€œPeople are the most adaptable machines,â€ an American industrial designer who works in China told me. â€œMachines need to be reprogrammed. You can have people doing something entirely different next week.â€
Or: You are an American inventor with a product you think has â€œgreenâ€ potential for household energy savings. But you need to get it to market fast, because you think big companies may be trying the same thing, and you need to meet a target retail price of $100. â€œNo place but China to do this,â€ Mr. China said, as he showed me the finished product.
For the world’s most efficient supply chain:
Or: You are a very famous American company, and you worry that youâ€™ve tied up too much capital keeping inventory for retail stores at several supply depots in America. With Mr. Chinaâ€™s help, you start emphasizing direct retail sales on your Web siteâ€”and do all the shipping and fulfillment from one supply depot, run by young Chinese women in Shenzhen, who can ship directly to specific retail stores.
Over the course of repeated visits to Shenzhenâ€”the breakfasts!â€”and visits to other manufacturing regions, I heard about many similar cases and saw some of the tools that have made it possible for Western countries to view China as their manufacturing heartland.
Some involve computerized knowledge. Caseyâ€™s PCH has a Google Earthâ€“like system that incorporates what he has learned in 10 years of dealing with Chinese subcontractors. You name a product you want to makeâ€”say, a new case or headset for a mobile phone. Casey clicks on the map and shows the companies that can produce the necessary componentsâ€”and exactly how far they are from each other in travel time. This is hard-won knowledge in an area where city maps are out of date as soon as they are published and addresses are approximate. (Caseyâ€™s are keyed in with GPS coordinates, discreetly read from his GPS-equipped mobile phone when he visits each factory.) If a factory looks promising, you click again and get interior and exterior photos, a rundown on the management, in some cases videos of the assembly line in action, plus spec sheets and engineering drawings for orders they have already filled. Similar programs allow Casey and his clients to see which ship, plane, or truck their products are on anywhere in the world, and the amount of stock on hand in any warehouse or depot. (How do they know? Each finished piece and almost every component has an individual bar code that is scanned practically every time it is touched.)
The idea that your supply chain is critical intellectual property is obvious. That is why we know so little of the origins of our shiny new MacBook Pro or HP widescreen display. It also highlights why how a company differentiates through innovation and design [e.g., Apple] because it’s products are likely made on the same assembly line as competitors.
I could describe many installations, but I was fascinated by two. The first represents one extreme in automation. It is owned and operated by Inventec, one of five companies based in Taiwan that together produce the vast majority of laptop and notebook computers sold under any brand anywhere in the world. Everyone in America has heard of Dell, Sony, Compaq, HP, Lenovo-IBM ThinkPad, Apple, NEC, Gateway, Toshiba. Almost no one has heard of Quanta, Compal, Inventec, Wistron, Asustek. Yet nearly 90 percent of laptops and notebooks sold under the famous brand names are actually made by one of these five companies in their factories in mainland China. I have seen a factory with three â€œcompetingâ€ brand names coming off the same line.
The Inventec installation I saw was in an export-processing zone in Shanghai specially created for the company, in which imported components for manufacturing and finished products for export were free of the usual duties or taxes. It turns out more than 30,000 notebook computers per day, under one of the brand names listed above. Each day, an Inventec plant on the same campus produces hundreds of large, famous-brand-name server computers to run Internet traffic.
This is todayâ€™s rough counterpart to the Ford Motor Companyâ€™s old River Rouge works. In the heyday of The Rouge, rubber, steel, and other raw materials would come into the plant, and finished autos would come out. Here, naked green circuit boards, capacitors, chip sets, and other components come in each day, and notebook computers come out. Some advanced components arrive already assembled: disk drives from Taiwan or Singapore, LCD screens from Korea or Japan, keyboards and power supplies from other plants in China.
The overall process looks the way you would expect a high-tech assembly line to. Conveyers and robots take the evolving computer from station to station; each unit arrives in front of a worker a split second after she has finished with the previous one. Before a component goes into a machine, its bar code is scanned to be sure it is the right part; after it is added, the machine is â€œcheck-weighedâ€ to see that its new weight is correct. Hundreds of tiny transistors, chips, and other electronic parts are attached to each circuit board by â€œpick and placeâ€ robots, whose multiple arms move almost too fast to follow. The welds on the board are scanned with lasers for defects. Any with problems are set aside for women specialists, looking through huge magnifying glasses, to reweld. Why did this factory invest so much in robots and machine tools? I asked a supervisor from Taiwan. â€œPeople canâ€™t do it precisely enough,â€ was his answer. These factories automate not whatâ€™s too expensive but whatâ€™s too delicate for human beings to perform.
Did you know that new USB headset you just bought was packed and shipped from China?
The other facility that intrigued me, one of Liam Caseyâ€™s in Shenzhen, handled online orders for a different well-known American company. I was there around dawn, which was crunch time. Because of the 12-hour time difference from the U.S. East Coast, orders Americans place in the late afternoon arrive in China in the dead of night. As I watched, a customer in Palatine, Illinois, perhaps shopping from his office, clicked on the American companyâ€™s Web site to order two $25 accessories. A few seconds later, the order appeared on the screen 7,800 miles away in Shenzhen. It automatically generated a packing and address slip and several bar-code labels. One young woman put the address label on a brown cardboard shipping box and the packing slip inside. The box moved down a conveyer belt to another woman working a â€œpick to lightâ€ system: She stood in front of a kind of cupboard with a separate open-fronted bin for each item customers might order from the Web site; a light turned on over each bin holding a part specified in the latest order. She picked the item out of that bin, ran it past a scanner that checked its number (and signaled the light to go off), and put it in the box. More check- weighing and rescanning followed, and when the box was sealed, young men added it to a shipping pallet.
By the time the night shift was ready to leaveâ€”8 a.m. China time, 7 p.m. in Palatine, 8 p.m. on the U.S. East Coastâ€”the volume of orders from America was tapering off. More important, the FedEx pickup time was drawing near. At 9 a.m. couriers would arrive and rush the pallets to the Hong Kong airport. The FedEx flight to Anchorage would leave by 6 p.m., and when it got there, the goods on this companyâ€™s pallets would be combined with other Chinese exports and re-sorted for destinations in America. Forty-eight hours after the man in Palatine clicked â€œBuy it now!â€ on his computer, the item showed up at his door. Its return address was a company warehouse in the United States; a small Made in China label was on the bottom of the box.
Read on, enjoy…