I recently made a two-week trip to China visiting a variety of businesses and universities. This was my fourth trip to China but my first to the mainland in about 15 years. To say the least, the contrast was dramatic. Even in Shanghai, which appeared to be on steroids when I last visited, had exploded in the interim—gigantic skyscrapers had sprouted from open fields and the infrastructure of elevated highways had become ubiquitous. It was clear that the amazement and praise that we hear about the Chinese economy is well deserved. I was excited to find opportunities to build partnerships that will send our logistics/supply chain students and faculty members to study at a university in Beijing and bring students from China to Massachusetts to study alongside our students and with our faculty members.
My observations, however, were not completely positive. We visited a Hyundai plant outside of Beijing. It was a marvel of automation and production. Thousands of cars rolled off a precise and pristine assembly line while we visited. This was not my first visit to an auto assembly plant. I’ve visited plants in Japan, Germany, the Czech Republic and India as well as the Ford plant in Dearborn. All of these plants were every bit as automated and impressive as was this plant. And to paraphrase Henry Ford, you could have had any color Hyundai that you wanted as long as it was white. Actually, the notable difference was in the number of workers on the assembly line—the difference was huge. Activities that I have seen two or three workers performing in Dearborn or Eastern Europe were being performed by six or seven workers in Beijing. “Just in time” delivery of parts was clearly the driving force for production, but “lean manufacturing” did not appear to be present.
I quickly headed to the library on my return. I confirmed my questions about Chinese productivity. An excellent summary of what I discovered is in Schumpeter’s article in the June 25th Economist: (www.economist.com/news/business/21701151-china-inc-needs-better-management-become-more-productive-sleepy-giant) Schumpeter confirms the suspicions from my observations:
- Half of China’s 20 largest industries operate at a loss;
- Chinese productivity is growing but gross productivity is just 15-30% of OECD averages; and
- Six Sigma and Lean Manufacturing do not dominate Chinese management.
It’s not that different, in some respects, from what I saw 10 years ago in apparel production—quality control was happening at Long Beach because the Chinese manufacturers did not have middle managers with sufficient skills in quality control to execute the processes at the plants. Dramatic improvements in the sophistication of manufacturing have been made, but it is clear that Chinese manufacturing still has a long way to go.
Thus, the recent Chinese “slowdown” should not be surprising. And as Schumpeter suggests, a more important focus for Chinese “corporate chiefs” might be concentrating “on the nuts and bolts of management” as opposed to shifting to “innovation and technology.” On the other hand, how powerful will Chinese companies be when they get around to Six Sigma and Lean Manufacturing? I suspect this emphasizes the need for Western “corporate chiefs” to concentrate even more on “innovation and technology.”