Leave it to the Chinese

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Supply Chains are increasingly becoming more competitive, global, complex and Intelligent. Innovation, is leading to creation of new business models, new business processes. One such Innovation is the ability to produce a good or service at a very low-cost with quality ranging from exceptional to low. This discontinuous change has been brought into manufacturing industry by the rise of mega factories in China with massive scale of operations and flexibility. Most of the manufacturing in the world today is happening in factories of China, and at times low labour costs have little to do with decisions to move manufacturing operations to China.

Over a last decade, ODM (Original Design Manufacturers) or CM (Contract Manufacturers) have grown at an unparalleled rate, for the benefit of readers, ODM or CM are the organizations that undertake design and factory production for a customer or multiple customers. They work behind the scene, and have dedicated business units with product development and mass production  capacity, only for some of the best clients.

To give the readers a feel of the role ODM are playing in manufacturing industry, the largest footwear manufacturer in the world is not Nike, Adidas or Reebok. Its Yue Yuen Industrial Ltd a subsidiary of Pou Chen Group from Taiwan, It reported annual revenue of $ 7.04 billion in 2011, and employs more than 300,000 people and churns close to 186 million pairs of shoes every year, one out of every 6 shoes in the world is manufactured here [1].

In notebook manufacturing industry, Quanta Computers is the world’s largest manufacturer and makes laptops for Apple, HP, Dell, Lenovo, Sony, Toshiba etc. One out of every three laptops in the world is manufactured here. Besides continuous high growth, high quality, and high value creation in notebook computers, Quanta has extended its businesses into enterprise network systems, home entertainment, mobile communication, automotive electronics, and digital home markets as well. The Business Philosophy of Quanta is Humble, Hungry and Hardworking.

Hon Hai Precision Industry Co. manufactures the phones, tablet PCs etc, 40% of all the electronic devices are manufactured here. It’s nearly an impossibility that none of the parts in your phone or tablet are manufactured by this ODM . Foxconn’s (popular name for Hon Hai Precision Industry) scale of operations is just unimaginable, its factory in Shenzhen which assembles iPhone has close to 250,000 people working 12 hrs a day to churn out the electronic items. As per NY times, the central kitchen of the facility cooks 13 tonnes of rice and 3 tonnes of pork everyday for its workers. Additionally 300 guards are employed to direct foot traffic, so that people do not get crushed by a sea of humanity moving inside the complex.

Foxconn employs around 1 million workers in China to assemble Apple’s products, cellphones for Nokia and Motorola, Nintendo’s video game consoles, and Sony’s PlayStation, among many other things

Even the flexibility that Foxconn offers is state of the art, just in case if Apple wants to do some design changes in iPad or iPhone, or increase the production. Jennifer Rigoni, a former Apple supply demand manager, contends that a Foxconn factory has the ability to hire 3,000 additional workers overnight. Another factory in Chengdu where iPad is assembled, around 70K people live next door in Factory owned dormitories, even if Apple decides to do some design changes in its products, this manpower can come at a moment’s notice to scale up the production,in line with Apple’s requirements. [2]

No factory in the world could ever hope to have a similar level of flexibility or manpower!!!

One of the articles in NY Times details, when Apple decided to build a factory in US, after doing the initial assessment they found that they would require 8700 industrial engineers, and an assembly line with 200,000 line positions. In US finding that many number of people with such a skill set would have taken around nine months, however, In China it was done within 15 days!!!!

This mammoth scale and flexibility of operations which is offered by China will continue to ensure that it remains the manufacturing playground for the world. I recollect from the movie 2012, when Adrian and others from White house reach those colossal submarines in South China, they say, “Leave it to the Chinese” “I didn’t think it was possible in the time we had”. Even in the real life Chinese factories continue to create significant value for their customers.

References:-

1) Communications of ACM 0711, Mari Sako, Driving power in global supply chains

2) NY Times Jan 21, 2012, Article on How the U.S. Lost Out on iPhone Work

3) http://www.yueyuen.com/press_file/12M_Yue_Yuen_FY2011_ENG-3.pdf

4) http://www.quanta.com.tw/Quanta/english/Default.aspx

5 Responses to Leave it to the Chinese

  1. Ravi Prakash says:

    Amazing Study and very well summarized outlook sir…Look ahead to more such posts from you.. :)

  2. Excellent write up Anu. And very well written too.

    Even in the automobile industry, we are seeing participation and leadership of the Chinese.

    China is now officially the largest autmobile market in the world, ahead of the united states.

    The traditional auto biggies GM, Ford and Daimler are fighting it out for getting a piece of the Chinese market.

  3. Anukool says:

    Thanks sir.. check out http://www.byd.com, you may find all the major car models here :-)

  4. Instead of leaving it to the chinese, let’s beat china :)
    Well written article, mate.

  5. Anukool says:

    Yes Saurabh, we should internally try to boost manufacturing, unfortunately the focus is all on Services. We were struggling with License Raj and internal bureaucracies while China was preparing to become World’s Largest Economy!!!

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