Why Chinese Manufacturing Industry Failed to be Upgraded in the Past Decade?

In the era of Industry 4.0, China, unfortunately, finds it’s already too late to catch up with western countries. After all, China can never catch up through another “Great Leap Forward” campaign.

(Chinese Version)

Before 2014, everybody in China seemed to be thinking low of the manufacturing industry in the country. Workers always complained about working overtime while being low-paid, while college students were reluctant to work in the manufacturing industry and preferred to work in electronics, computer, finance, or real estate industry, etc.

The inconvenient truth is that manufacturing industry was treated as a secondary industry in China. After the US financial crisis and Europe debt crisis stroke the western world, western countries began to re-attach importance to manufacturing industry. Thus, while the US was promoting Made in USA and Germany carrying out plans to reboot manufacturing industry and adapt Germany to the Industry 4.0 era, Chinese manufacturing industry suffered from withdrawal of foreign capital and orders, since Chinese manufacturing industry failed to be upgraded in time. Moreover, China's demographic dividend has also been disappearing.

While western countries began to reboot their manufacturing industry, China suddenly realized that Chinese manufacturing industry boasted nothing but low labor cost, while western countries are more competent in terms of advanced manufacturing technologies and spare parts manufacturing. China is far from a manufacturing giant yet.

In the era of Industry 4.0, China, unfortunately, finds it’s already too late to catch up with western countries. After all, China can never catch up through another “Great Leap Forward” campaign.

When we look back at the past decade, we might wonder what held back the upgrading of Chinese manufacturing industry?

Chinese manufacturing industry was held back by the whole society’s craze for fortune

Chinese manufacturing industry is indeed very “Chinese”, since it is highly labor-intensive. In 1990s, Chinese manufacturing industry boomed due to the huge demographic dividend in China. One awful thing about labor-intensive industries is that while labor is low paid, the overall revenue is significant. After UPH system was introduced to Chinese manufacturing industry, things got even worse, since workers were put to extremes and had to work incredibly efficiently in order to meet the production task. In fact, the boom of Chinese manufacturing industry during the 1990s came at the expense of Chinese workers’ hard work. Chinese manufacturing industry should have upgraded at that time.

However, in an age of waste and extravagance, everybody was daydreaming about getting rich overnight, especially getting compensation from the government in return for knocking down their houses, while nobody cast much attention on manufacturing industry. This mentality is a perfect showcase of how Chinese people were blindly investing in the real estate industry. With the rise of house price and local governments’ support, investing in the real estate industry seemed to be highly profitable (a net profit margin of over 35%), despite the high land price and bribe, etc.

The profit margin of the manufacturing industry, however, is especially low. Even TV and air-conditioner manufacturers only get a net profit margin of 10%, let alone OEMs. FOXCONN, OEM of the best smart phones in the world, only profited by 2%, while OEMs of Nike, Adidas, etc. might profit by less than 2%.

That’s why many manufacturers, such as Haier, Konka, Lining and Youngor turned to real estate industry with the hope of making big money in a short time. They did make some quick money in real estate industry, though at the expense of missing the best opportunity to upgrade themselves. To be more accurate, they did spare some efforts on upgrading themselves, but since they paid more attention on other businesses, their effort on upgrading is comparatively limited.

In an age of waste and extravagance, the whole society becomes disordered. Everybody is investing in the real estate industry: banks are unwilling to lend money to manufacturers (Why should they when they could invest in real estate industry and make a fortune?); individual investors are also influenced by this trend. Although each of them invests a little in the real estate industry, they still make a big impact on the industry when you think of them as a whole.

Moreover, more and more people begin to find that even though they work really hard in manufacturing industry, they still can’t earn a lot of money. So some people just quit and turn to more profitable businesses, such as finance, stock market, and real estate, etc. To wrap up, the craze for fortune of the whole society holds back the upgrading of Chinese manufacturing industry, which requires much more patience and persistence.

And by the failure for OEMs to strike a good balance between their customers and workers

If the whole society’s craze for fortune is the exterior reason for the delay, then the failure to strike a good balance between customers and workers is the interior reason. As is known to all, “Made in China” mode features high efficiency and overwork. In fact, there are a lot of jokes and reports on this topic.

I do admit that Chinese workers is one of the most hard-working peoples in the world and even admire Chinese workers for their diligence in work However, in the era of Industry 4.0, “diligence” is not enough to support a business at all, while automation&computing technology and proper management are at the core of a business.

In the past decade, although Chinese manufacturing industry seemingly boomed due to the huge demographic dividend and natural resources China used to have, Chinese manufacturers failed to gain enough brand premium, that is, have a say in negotiation with the customers. To survive, they are forced to improve efficiency and lower cost to extremes.

FOXCONN, the number one OEM in the world in scale, has gradually developed a proper management system and got several patents for their technologies after years of development.

Guo Taiming, CEO of FOXCONN, claimed to the press that FOXCONN would never enter real estate industry, instead, it would focus solely on manufacturing. However, the fact is that in the face of the massive order from Apple, FOXCONN was forced to put most of its efforts on finishing endless orders, instead of developing new technologies and upgrading itself. A case in point is that Mr, Guo came up with the “Millions of Robots” plan in 2011 and expected to achieve his plan in three years. Up till now, however, nothing has happened, and his plan was delayed.

Fortunately, the harsh standard Apple put on FOXCONN is helping its product chain upgrade, though slowly. To finish Apple’s order in time, FOXCONN has to upgrade itself and improve efficiency. The problem is that FOXCONN is the in the minority, while the large majority of OEMs failed to meet the high standard and take the opportunity to upgrade themselves.

After the US financial crisis and Europe debt crisis stroke the western world, western countries began to re-attach importance to manufacturing industry. Thus, while the US was promoting “Made in USA” and Germany carrying out plans to reboot manufacturing industry and adapt Germany to the Industry 4.0 era, China also released Made in China 2025 Plan. However, it is harder for China to adapt to Industry 4.0, since the US still owns some of the most valuable brands in the world, 15 of the 20 best universities in the world, most advanced technologies etc., while Germany is always known for their excellence in product development, though it has just stepped out of a financial crisis.

In this case, there is a lot to do for China to catch up and upgrade Chinese manufacturing industry. Many experts have offered their advice on this matter, so I won’t mention those proposed plans and analyses in this article. Still, I have one piece of advice: withdrawing a tiny part of your investment in the stock market and invest it in the manufacturing industry. Finally, good luck to Chinese manufacturing industry.

 

[The article is published and edited with authorization from the author @Constantine, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.

转载请注明出处、作者和本文链接
声明:文章内容仅供参考、交流、学习、不构成投资建议。
想和千万钛媒体用户分享你的新奇观点和发现,点击这里投稿 。创业或融资寻求报道,点击这里

敬原创,有钛度,得赞赏

赞赏支持
发表评论
0 / 300

根据《网络安全法》实名制要求,请绑定手机号后发表评论

登录后输入评论内容
81
70

扫描下载App