Vital Sourcing

The Chinese government has just released the nations currency peg on the US dollar - sort of. They have only allowed for a small variance. While currency traders may laud the move as a step in the right direction the overall effect in the manufacturing and industrial world is minimal.

The greatest factor in rising Chinese manufacturing prices has been the increase in raw material costs. A stronger Yuan means they can buy cheaper raw materials, and this, in effect, nulifies any increase in labor wage and/or operating costs.

The move comes in a fashion typical of China - slow, deliberate, and moderate.

Reports out of China recently have hinted at improved work conditions, particularly for women. A recent article in MANAFN brings this issue to light.

One of the positive effects of the Communist ascendance in China was to vastly improve the role of women. The communists taught millions to read and write and to understand political issues and the larger community - this as opposed to their traditional roles rooted solely within the family. Once Deng Xiao Ping opened Chinese doors to capitalism there came a flood of workers seeking the better paying jobs in China's first Special Economic Zones (SEZ's) located in southern China across from Hong Kong. Most of these workers were sent out of the interior of China to send money back home to their families. With the decrease of communist rhetoric in China there was a resurgence of the traditional family unit and men were expected to provide income while women reared children. This naturally meant most of the workers who went down south were male.

As more and more factories opened and more opportunities for employment opened up factory owners were able to capitalize on the fact that fewer workers were women and they had to accept lower wages to find work.

What is happening in China today is an increase in production in new regions of China - most notably in around the Shanghai area. This has made keeping workers - men and women - much more important to the Southern factories then it had previously been. Better benefits and safer conditions as well as more equal pay for woman have been the result. During a recent visit to Shenzhen, I was fortunate to meet a number of factory owners that are progressive in their thoughts about workplace advancement. It’s simple economic equilibrium between supply and demand.

It is important to bear in mind the conditions in the interior of China are still dismal when compared with the Southern and costal regions most western reporters are familiar with.

As the head of my sourcing company I have the unique pleasure of taking many of my clients on their first visit to China. Inevitably what they see and experience shatters any preconceptions of China being an old oppressive industrial nation with terrible working conditions. Is there room for improvement yes, but as the article that I have brought to you attention clearly shows, improvements are happening.

My personal experience is that each person finds a renewed spirit about business and even more important a better understanding of the Chinese business environment and people.

In a recent article in Wired magazine (April 2005) they have an article entitled " China's Next Cultural Revolution " The article centers around the automotive industry and makes some important points about China's environmental situation.

People often call us to complain about China's environmental situation, but they would do well to note that China only uses 2% of the world's gasoline. The automotive industry is growing fast, but they are estimated to reach only 50% of the US by 2020. And China is doing more for electric and hybrid cars than most any other country - they provide a much more open market condition in which to sell such cars. Shanghai is even going so far as to consider making downtown accessible to only electric cars in the future.

It's a good article with interesting side bars.

In an article in Entrepreneur April 2005 Richard Branson mentions "All our expansion plans are overseas: China, India..." as well he goes on to say that "Even the smallest, youngest companies, should not be frightened to go overseas. The opportunities in the world are immense--China has a growth rate of 9% to 10% a year.....go there and enjoy it."

Bold advice from on of the world's most successful entrepenuers. We could not agree more. Although to rush into China on an enterpreneur's budget is risky business. Minimize this risk by developing a clear "China Strategy" and talk with someone who has experience in China to get a feel for where to go in China.

Remember, China is an immense country divided into many different localities, each with its own customs and business climate. Be prepared and be flexible.

For more info, I have written a white paper titled "The Truth About Sourcing in China" for those interested in taking the first steps in conducting business in China.