First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  July 7 , 2011  

Readers Respond - Rethinking China


A few times each year, I sit back, take it easy, and let SCDigest readers take over the column when we receive a lot of great feedback on a given article or First Thoughts piece.

That was certainly the case for my two-part column series on "Rethinking China," which basically asked and tried to answer whether the benefits side of the equation in the trade and others aspects of US and Western relationships with China since the late 1990s really have been good for those countries (see Part 1 and Part 2).

Gilmore Says:

Jon Kirkegaard of DCRA Inc. says that from his work, it has become clear 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."

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Reader Feedback

Between the two columns, we generated something like 50 responses, which is a lot. Will share some of those highlights here this week.

Certainly most readers agreed with me, with some having even more anti-China sentiments (mine are more mixed opinions, frankly, but I believe in total the net results has been a negative one for the US and others). But Steve Murray of Supply Chain Visions offered some thoughts typical of many of the emails we received.

"The U.S. needs to provide a combination of incentives and legislation to repatriate some of the work which has been sent to China and other locals over the past decade," Murray observed. "The biggest concern of the US voters is not the war in the Gulf or whether government went too far in the bailouts, but rather the need to get a job, a roof over their heads, and to put food on the table."

Consultant David Schneider, however, notes the complexities of global supply chains shouldn't be lost in simplifying the issue as just the US versus China.

"Political candidates, commentators, journalists, union officials, heck – the general public across the country - all have a myopic view of international trade," Schneider says. "International trade today is the product of highly complex supply chain networks. These complex supply chain networks make possible the creation of products from components that are sourced from around the globe. Trade is no longer just raw materials or finished products between two countries. Trade is a complex dance of many parts and components sourced from multiple points on the globe that are assembled in a high value labor country and then exported across the globe," he added, noting the Apple iPad as a prime example.

This of course is true, but then the balance of trade numbers - $2 trillion in China's favor with the US over the last decade - in a sense cuts through the complexity from my view to the big picture impact.

Jamie Elder of Nuskin offered a balanced view, noting that "we all recognize that developed countries have ridden the wave of prosperity on the backs of developing nations. As we become one world we will inevitably see a leveling of wages, opportunities, etc. My hope is that we can raise the level for everyone while not drowning ourselves."

Me too. But that is the question, isn't it? And when a senior Chinese government official says "China" and puts his thumb up and the "the United States" and puts his thumb down, you have to wonder.

Harry Moser is founder of the Reshoring Initiative, and he says "The problem is even more severe than you recognized. First, Dave Autor or MIT and others recently wrote "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," calculating in great detail that the US economic costs for unemployment and other benefits caused by globalization are roughly equal to the savings accrued from lower prices from trade. Second, professors Pisano and Shih of Harvard Business School recently wrote in the Harvard Business Review that the impact of offshoring is dramatically reducing our ability to innovate. Third, we have not replaced so many skilled manufacturing specialists that we will increasingly lose the capacity to train the next generation."

However, Pakistan's Yonus Siddiqui says we ought to just get real and stop the complaining.

"I think your arguments can be summarized in one phrase – “Sour Loser”. Supply chain is but a tool in the hands of the investor – the corporate giants who in their greed for more money and global market share have been sacrificing US jobs for the sake of corporate gain and all in the name of efficiency and globalization. Wasn’t it obvious when entire factories in the US were being closed and people laid off?," Siddiqu wrote.

Hmm... fine point.

He added that "After enjoying low prices for almost two decades, I believe it is very unfair and selfish on your part to say that the West paid the money for Chinese growth as you have failed to recognize the humungous efforts put in by the Chinese workers who toiled in miserable conditions to enable consumers in the West to continue to buy goods at extremely cheap prices. Fact of the matter is that the Chinese earned their growth through hard labor and intelligent use of resources just like any other nation."

Ok, and in a subsequent exchange of emails I think we reached common ground that even though China may be earning it, the US and other countries don't necessarily have to abet those efforts with moves that may not be in our/their long-term interests.

Steve Abbot of BBK also says you have to admire if not enjoy what China has been doing.

"I've been in China off-and-on for the last 8 years. Over this time, I've gained a tremendous appreciation for the Chinese culture and behaviors," he wrote. "For sure, China is large with diversity of thought. Yet, in most instances, China is of one mind. They, and each of its citizens, are bent on improvement. Young family seek the means to make money, and accumulate wealth to send their child to the best schools. People work in all hours of day-and-night to simple make a few extra RMB. Businesses looks for ways to use their income on the best projects and to develop their employees and young managers. Governments work to enable businesses to prosper via straight-forward and rapidly implemented policies to incentivize local growth consistent with a national 5 year plan."

Jon Kirkegaard of DCRA Inc. says that from his work, it has become clear 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."

He added that "It was easy to see 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 CFOs based on labor rates to move or expand production in return for a system that allows Chinese firms / government to own the intellectual property."

Bob Petersen of Grass Valley USA wonders if it isn't too late to change course now that the horse is so far out of the barn.

"It will be difficult if not impossible for the US to re-establish a manufacturing presence," he says. "In addition to the economics of “start-up”, the US is buried by the cost inefficiencies of all levels of government and over-reaching social welfare programs.Politicians are politicians and power and position is all that matters to these folks.

TA Krishan of Larsen and Toubro Limited in India notes our piece was popular there, and believes not much is going to change soon.

"This article by has been doing rounds - I got this forwarded from at least 3 sources !" he wrote. "Can the cheap China exports to the developed world be considered only a function of "labor arbitrage?" I think it is a simplification , the issue is far more complex than that , some having been dealt with in your article." Despite some signs of "reshoring," he believes that "in the developing world, for some time to come, China sourcing efforts will continue to be crucial in managing Supply Chains."

Wish we had room for more, and if we left out your letter due to space constraints I apologize. Hope you enjoyed this.

On a sad note, many of you have by now heard of the death this week of Michigan State's Dr. Don Bowersox at age 79. One of the true supply chain greats of all time, if not the greatest. You can find our write up of his amazing career here:Supply Chain Legend Dr. Don Bowersox of Michigan State University Dies from Bout with Cancer


Any reaction to these readers comments on Rethinking China? How do you come down on this issue? Let us know your thoughts at the Feedback button below.


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