China Isn’t Being Displaced

I find myself confused between what I read in the press and my personal experience. One example is the exodus of manufacturing from China to North America. While this widely espoused turn of events may play well to nationalism and hope for local job creation, I don’t see it.

My clients are being well served by Chinese manufacturers with good delivery, quality, and costs. When I have seen movement out of China, it is mostly to emerging low-cost regions as China’s labor costs are increasing. Anything that I see returning to North America seems to be driven by logistics costs, not other performance considerations. How do I rationalize this gap?

I have gained some new insights about perception and reality from Pankaj Ghemawat’s 2012 Technology, Entertainment, and Design (TED) lecture titled “Actually, the world isn’t flat.” Dr. Ghemawat provides compelling evidence that our perceptions about the magnitude of situations are significantly overstated. Using examples of globalization, immigration, and trade, he illustrates 3x to 10x error in our perceptions compared to reality. He attributes this to a dearth of data, groupthink, and exaggerated conceptions by proponents.

If he is correct, then the exodus from China may not be as great as perceived, and those who have experienced difficulty with low-cost region sourcing are probably a minority.

My personal experience, from having lived and worked in China, is that of a very hard working and capable culture. While I accept that there are issues in the country on many fronts, the majority are trying to do the right things. Their factories, just like the factories here, need to be managed with a prudent “trust-but-verify” style. Repatriation of manufacturing from a competent, low-cost region has me questioning the abilities of the organizations on both sides of the ocean. Poor initial sourcing decisions anywhere have bad consequences.

Dr. Ghemawat’s “dearth of data” comment resonates with me. I see too many companies making decisions without benchmark data. I also see too many companies not managing suppliers. They are timid and avoid fact-based, constructive disagreement that should be resolved to everyone’s betterment.

If we are making decisions based on perceptions, we lose the opportunity to improve.

By Ken Bradley – Lytica Inc. Founder/Chairman/CTO

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