Jack Welch: China losing competitiveness. Must Create '10,000 Apples'(bloomberg.com)
bloomberg.com
Jack Welch: China losing competitiveness. Must Create '10,000 Apples'
http://www.bloomberg.com/news/2011-09-07/china-won-t-lose-competitiveness-for-3-5-years-welch-says.html
32 comments
I find the premise of this article (the 10,000 Apples thing) laughable-maybe that's the point. Every business in the world is struggling to create 1 Apple right now (except maybe Exxon-which is bigger today?). The chances of 10,000 Apples coming out of China's me-too business culture is too much of a long-shot to be overstated.
Me-too business culture? Wasn't it what was said about Japanese business culture when it started to really grow after the war?
And look at Japan now. They're currently in 2 decade-long recessions and they're in even worse shape than us.
http://en.wikipedia.org/wiki/Lost_Decade_(Japan)
http://www.washingtonpost.com/wp-dyn/content/article/2008/10...
http://en.wikipedia.org/wiki/Lost_Decade_(Japan)
http://www.washingtonpost.com/wp-dyn/content/article/2008/10...
That's not at all because of a lack of global brands or innovative products though: Toyota, Sony, Honda, Hitachi, Panasonic, just to name the first ones that came to my mind...
@danmaz74
there were very little innovation that came out of Japan in the last 20 years. They were overtaken by their Korean counterparts (LG/Samsung > Sony/Panasonic/Toshiba/etc.) and American (HP/Dell/Apple/etc.). Ok you have Toyota/Nissan/Honda,etc. but their success was not due to innovation but was mostly due to GM/Ford/Chrysler's inability to make good cars.
there were very little innovation that came out of Japan in the last 20 years. They were overtaken by their Korean counterparts (LG/Samsung > Sony/Panasonic/Toshiba/etc.) and American (HP/Dell/Apple/etc.). Ok you have Toyota/Nissan/Honda,etc. but their success was not due to innovation but was mostly due to GM/Ford/Chrysler's inability to make good cars.
That is a horribly limited view of innovation.
Innovation is not limited to only consumer end-products but happens through the whole design-manufacture-logistics-market chain. This is where e.g. Toyota has famously excelled.
There is more to this world than mobile phones and computers. A lot of innovation happens in b2b end products also, with less fuzz.
Innovation is not limited to only consumer end-products but happens through the whole design-manufacture-logistics-market chain. This is where e.g. Toyota has famously excelled.
There is more to this world than mobile phones and computers. A lot of innovation happens in b2b end products also, with less fuzz.
@chugger: Just to clarify, I'm not talking about the last 20 years. I'm talking about the transition from me-too/copycat productions based on low prices of the 50s and 60s to the innovative, high-tech, high-quality branded production of the late 70s and 80s (Sony Walkman, VHS and Betamax, Space Invaders and Mario Bros...).
My point is that China could do that same transition, even if now Chinese brands are mostly me-too.
My point is that China could do that same transition, even if now Chinese brands are mostly me-too.
from the modern ferret-attention-span point of view such dismissal may be a valid one.
Looking at the other time scales - there were periods when the world around China was striving to and happy to be "me-too of China" and there is nothing that precludes that from happening again, even more - China seems to have learnt the lesson about the limits on trusting to Western civilizations, and their current "me-too" is manifestation of shrewd practicality as it is the fastest way to get the humongous country from being mostly agricultural 10-20 years ago to the leaders of the world. You just may not like the "Apples" that will come out of China :)
Looking at the other time scales - there were periods when the world around China was striving to and happy to be "me-too of China" and there is nothing that precludes that from happening again, even more - China seems to have learnt the lesson about the limits on trusting to Western civilizations, and their current "me-too" is manifestation of shrewd practicality as it is the fastest way to get the humongous country from being mostly agricultural 10-20 years ago to the leaders of the world. You just may not like the "Apples" that will come out of China :)
There has always been countries with lower wages than China, so this can not be the issue.
China has better infrastructure and lower levels of graft than other low-cost countries, this is what has kept it competitive.
Not sure what the point of China needing to create '10,000 apples' is. If manufacturing jobs are needed better to work for the existing Apple, maybe?
Or maybe the point is that China needs to create global brands to stay competitive? This may or may not be true but without metrics it is just one person's opinion.
And China has already started creating global brands.
"In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier
"In Q2 2011, Lenovo was the third largest vendor of personal computers in the world." http://en.wikipedia.org/wiki/Lenovo
... etc
China has better infrastructure and lower levels of graft than other low-cost countries, this is what has kept it competitive.
Not sure what the point of China needing to create '10,000 apples' is. If manufacturing jobs are needed better to work for the existing Apple, maybe?
Or maybe the point is that China needs to create global brands to stay competitive? This may or may not be true but without metrics it is just one person's opinion.
And China has already started creating global brands.
"In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier
"In Q2 2011, Lenovo was the third largest vendor of personal computers in the world." http://en.wikipedia.org/wiki/Lenovo
... etc
> "In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier
When talking about brand strength, it's not market share that counts, it's profit share. Sometimes (often) it's coincident (read: Microsoft, Intel, Cisco, etc)... sometimes it's not (BMW, etc).
When talking about brand strength, it's not market share that counts, it's profit share. Sometimes (often) it's coincident (read: Microsoft, Intel, Cisco, etc)... sometimes it's not (BMW, etc).
That is exactly the issue, and it's already happening.
Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b4179011
Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China.
Once it becomes too cost-prohibitive to manufacture products in China due to inflation, HP, Samsung, Sony, Dell, Apple,etc. has no choice but to move their operations to Vietnam, India, etc. China's main competitive advantage is being eroded by inflation. They need to move up the supply chain from being a manufacturer to seller/marketer, where they can charge more money based on their brand (Apple/BMW/LV/etc.).
Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b4179011
Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China.
Once it becomes too cost-prohibitive to manufacture products in China due to inflation, HP, Samsung, Sony, Dell, Apple,etc. has no choice but to move their operations to Vietnam, India, etc. China's main competitive advantage is being eroded by inflation. They need to move up the supply chain from being a manufacturer to seller/marketer, where they can charge more money based on their brand (Apple/BMW/LV/etc.).
Just I'm not sure that higher wages == no manufacture. Germany still makes things sometimes?
The real challenge for China would be increasing the quality of their products and/or manufacturing innovation.
The real challenge for China would be increasing the quality of their products and/or manufacturing innovation.
So the news was that Jack Welch reads the news, just like the rest of us?
From a bloomberg (business more than tech) point of view, Apple may be just another "global brand."
Apple created the first successful personal computer, and personal computing has since come to define the the we live in. That's slightly harder to replicate.
There's more to Apple than their present bottom line.
Apple created the first successful personal computer, and personal computing has since come to define the the we live in. That's slightly harder to replicate.
There's more to Apple than their present bottom line.
I found some data on this here: http://www.bls.gov/fls/china.htm
It has a table of cost per hour of Chinese manufacturing workers from 2002 to 2008. They went from $0.57 (2.1% of US wages) to $1.36 (4.2% of US wages) over that time.
If this is in fact what he's talking about, then wages in China are still incredibly low. Does anyone know what wages in Vietnam or Africa are like?
It has a table of cost per hour of Chinese manufacturing workers from 2002 to 2008. They went from $0.57 (2.1% of US wages) to $1.36 (4.2% of US wages) over that time.
If this is in fact what he's talking about, then wages in China are still incredibly low. Does anyone know what wages in Vietnam or Africa are like?
The % of US wages doesn't make sense. many manufacturing workers in the US earn minimum wage , which is between $5.15-$8.5 per hour.
So the figure should be 15%-20% of US wages.
So the figure should be 15%-20% of US wages.
The problem is that a wage-to-wage comparison with their export markets isn't important. China's advantage is stacking low wages + large staff against high wages + machines.
In a race to the bottom, we all lose.
No, that's just wrong. The people at the bottom certainly don't lose.
Japan was at the bottom (of industrial economies) in the post war world and leveraged those low wages to re-industrialize and get to the top. China did the same thing in the 80's and 90's, and is now seeing upwards wage pressure as they approach a first-world level of economic activity.
Next up will be the Indias and Vietnams of the world. Hopefully eventually subsaharan africa will get there.
This is a good thing, overall. Yes, working conditions at "the bottom" are often huge problems (though again: remember the comparison is to abject poverty). And yes, rapid change causes people to lose jobs elsewhere faster than they can be replaced, and that sucks for those people.
But to argue that chasing cheap wages is inherently bad is isomorphic to arguing that poor people should always be poor, and that's much less palatable to me.
Japan was at the bottom (of industrial economies) in the post war world and leveraged those low wages to re-industrialize and get to the top. China did the same thing in the 80's and 90's, and is now seeing upwards wage pressure as they approach a first-world level of economic activity.
Next up will be the Indias and Vietnams of the world. Hopefully eventually subsaharan africa will get there.
This is a good thing, overall. Yes, working conditions at "the bottom" are often huge problems (though again: remember the comparison is to abject poverty). And yes, rapid change causes people to lose jobs elsewhere faster than they can be replaced, and that sucks for those people.
But to argue that chasing cheap wages is inherently bad is isomorphic to arguing that poor people should always be poor, and that's much less palatable to me.
Japan and China also had an advantage over the Industrial Revolution countries in that all of their capital didn't have to be created anew. It took 150 years for the US to get to where Japan got in under 60.
I found this.
Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b41790110...
Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China.
$100 a month. that's amazing.
Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b41790110...
Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China.
$100 a month. that's amazing.
How much does it cost to live in Vietnam, though?
Rhetorical question, I suppose, but I 'lived' in Vietnam (backpacking) for about a month and spent less than ten dollars a day (significantly more than I would have if I lived there for say a year and cooked my own meals, and had rent instead of staying in guest houses). Probably around $3 a day for a middle class person would suffice, or $4,000 a year for a middle class family of four. Hard to compete with that!
Actually, it was an honest question. Even if the only expense was food, absent government help one person would have a hard time staving off malnutrition on that much money here in the US. That's living under a bridge and wearing trash bags to work.
I don't really understand why that's the case, either.
I don't really understand why that's the case, either.
"Even if the only expense was food, absent government help one person would have a hard time staving off malnutrition on that much money here in the US. That's living under a bridge and wearing trash bags to work."
Exactly.
"I don't really understand why that's the case, either." I'm not sure I understand the question. If you mean, "Why do these other countries cost less to live in?" it is the case that some things cost the same in both 1st world and developing countries. Some of it goes back to Brenton Woods, and some of it goes back further. It's a really good question, but it seems that the more 'developed' a country the higher the wages, AND the higher the cost of living, which in a lot of areas leads to equillbirum, but certainly not in every area.
One example would be the family car, which might cost 20K new in the US, and about the same in Vietnam, so only very rich people in Vietnam can afford a new car. One of the reasons the U.S. got out ahead on this industry is because a lot of the inventors in the field were, and have been American, and because of trade deals, and tariffs that used to protect the industry.
It's still the case that people want their cars to come more highly trained workers than say their shoes (not life or death if they're junk). And those workers end up costing more to train and keep, thus the high price on this kind of good.
Exactly.
"I don't really understand why that's the case, either." I'm not sure I understand the question. If you mean, "Why do these other countries cost less to live in?" it is the case that some things cost the same in both 1st world and developing countries. Some of it goes back to Brenton Woods, and some of it goes back further. It's a really good question, but it seems that the more 'developed' a country the higher the wages, AND the higher the cost of living, which in a lot of areas leads to equillbirum, but certainly not in every area.
One example would be the family car, which might cost 20K new in the US, and about the same in Vietnam, so only very rich people in Vietnam can afford a new car. One of the reasons the U.S. got out ahead on this industry is because a lot of the inventors in the field were, and have been American, and because of trade deals, and tariffs that used to protect the industry.
It's still the case that people want their cars to come more highly trained workers than say their shoes (not life or death if they're junk). And those workers end up costing more to train and keep, thus the high price on this kind of good.
Apple has about 50,000 employees worldwide. Creating 10,000 Apples in China would in theory create 500,000,000 jobs -- or about 30% of the total population.
Jack Welch's comment might not be too far off the mark.
Jack Welch's comment might not be too far off the mark.