In our role of helping clients with outsourced supply chain and manufacturing planning since the early 90’s - we have observed many global business practices. It became clear to us at DCRA Inc. through our S&OP solutions deployment that the game with China was one of “tricking” US business to move production to Asia for low labor rates in return for a system that sucked the valuable intellectual capital from the business. It was easy to see in the S&OP solution linked with global transport that the total costs after factoring in excess inventory and long product cycle times that the labor cost advantage was negligible particularly when IP risk was factored in. In essence the Chinese developed a system to bait naïve US CFO’s based on labor rates to move or expand production in return for a system that allows Chinese firms / government to own the intellectual property. Thus for a few quarters of improved EPS (earnings per share) a business might give up brand and IP that took 50 years to create. Obviously this approach is consistent with a 10,000 year old patient society. To further amplify this I was speaking to one of my Chinese colleagues who emigrated from China in his 20’s. Recently over a casual lunch discussion he pointed out a few cultural differences that are worth nothing
Chinese leaders are generally all from an engineering background ? I found this fascinating … President Hu Jintao according to my colleague is of an engineering background
The Chinese system can act without distraction when it wants. Clear land and build a high speed train in a year… not decades ?
There really is no such thing as a lawyer in China… key judges and government officials obtain these roles because they are good party supporters - supporting the system described above. Thus protection for intellectual property is not a skill taught or practiced in the Chinese system. I am not a lawyer - but have managed to obtain several patents over the years - and have to think IP law is the most difficult - and thus for a society without formal legal training is just never going to embrace IP protection ?
Lastly the most stunning anecdote was what my friend described as a cultural difference in children stories we tell our children as he now has a young child. A longer conversation then this note - but essentially the observation from my friend was how - in the US we tell our children fun and fair play type of stories - where all HE remembered from his kindergarten days of the Chinese children stories were stories that told you how to not be tricked ? He described a story about a Fox in charge of splitting a pie for a Bear and a Squirrel. How the fox purposely gave the bear less of the pie knowing the bear would complain and his strategy then to keep the split even was he the Fox kept eating portions of the Fox and Squirrel`s portions of pie until he finally managed to make the two parts even. But in the end the Fox had eaten most of the pie. You draw your own conclusions and maybe your readers should read “The Art of War” before negotiating their next deal in China ?
On an opportunistic note for your readers, there are solutions (in my opinion) that leverage engineering the product for supply chain and business advantage. For example using postponed manufacturing into the supply chain and product design to do final assembly in the US. We have helped nearly all of our client use their S&OP solution to provide a brain to their outsourced operation so they can control costs and positively influence IP control. We believe at DCRA the benefits for JOBS, total cost, reduction of volume on shipping ports, infrastructure are enormous as well as IP protection are available for almost all products. We also believe our government leaders should provide even more incentives. The benefits to solving this current challenge are enormous and supply chain leaders can and have to play a critical role in rebalancing this Chinese / US equation – period. See a “not for profit” knowledgebase site www.TexasLCC.org for case studies and tips and techniques for all roles in an organization to do their part in this rebalancing effort.
Last point… Dan to bring these observations forward is not “political” but purely one of economics of which the proper supply chain measurement systems can provide an early warning system and a measurements system to FIX – period.
Keep up the good work.