Made in Japan, Outsourced Globally

When I first started narrowing down my studies in undergrad, I chose a topic that was burning a hole in global trade since the late 70's: the emergence of China. It was too big for me to chew, but I was excited - because here was a developing region (post-Communist) that was actually making significant progress, and perhaps could be a model for other developing regions.

Recently, I read an article on Guanxi Newsletter that made me reflect on my perception of Chinese manufacturing. When I was a student, I often pondered what it was really like. Most people assume that Chinese manufactured products are good for mass and cheap items. That may have been true in the 90's, but today, the items that come from China are more complex, and more importantly, can be sold as high-value goods. This all leads to better profit margins for buyers in the developed regions of the world.

Albeit brief and rare, I got to see some of the manufacturing reality while I was working in China. And today, I am working at a multinational company that closely weighs the options between US domestic and overseas manufacturing on a daily basis. I thought it might be time that I put some of my thoughts together.

What are the Benefits of Chinese Manufacturing?
In China, most of the manufacturing is done manually, and the factories operate 24/7. (It depends on the industry, but the American counterpart factory only operated 5 days a week).

One of the interesting conversations I overheard was that the Chinese aluminum die casting company could not meet the daily quota in comparison to the American factory, which had more efficient machines. However, with 30 days per month, they could meet the monthly production quota AND be 30% cheaper. Therein lies the strength of Chinese manufacturing: the ability to match current international manufacturing capabilities with signficant cost savings.


Workers file away to chip off excess aluminum. The minute you walk inside, you feel your lungs fill up with the metallic dust.

On the corporate entity side of things, the Chinese government has bent over backwards ten-fold for MNCs - and it has been working well. Tax-exemptions, free trade zones, and the anticipation of a huge consumer economy attract MNCs to China. It just goes to show that the government understands the future benefit of attracting these MNCs (and frankly, it's beating the regional competition by brandishing its low labor costs).

Export incentives for Chinese companies, such as the VAT Rebate program, also help boost the Chinese companies' willingness to expand business globally. (VAT, or Value Added Tax, is like a sales tax on every sold good. Chinese companies will get a rebate for this tax when they export goods - although, in my experience, I know that VAT rebates are often late (even a year late), so you don't really see the returns for a long time).

Well, all these benefits are built on the foundation of low cost labor. I'll try to organize my thoughts more on labor, especially regarding the issue of increasing wages and migration.