Manufacturing
Manufacturing SUCCESS
The transformation of China from untapped prospect to economic superpower is due in large part to its booming manufacturing base, which is widely considered the central hub of China’s export-driven growth strategy. While manufacturing constitutes 17 per cent of global
GDP, in China’s case, it accounts for 32 per cent of GDP. Along with Korea, China is the only country increasing manufacturing as a percentage of GDP. This trend reflects an increasingly specialised global economy according to sector, one in which China has laid claim to manufacturing. Traditionally, this strength was borne by competitive wages. Today, these are but one dimension of China’s appeal. “People think China is cheap, but really, it’s fast,”
notes Liam Casey, founder of PCH China Solutions. Its production lines are largely labour-intensive and hands-on manual work is utilised as opposed to capital automation. This affords the flexibility of adjusting procedures in real time, whereas capital adjustments require costly reprogramming and replacement. China is not only efficient and adaptive; its product quality is becoming the global benchmark. Outdated is the perception of the sub-standard ‘Made in China’ factory toys tearing at the seams. Today, Chinese manufacturing permeates a range of high-value industries including machinery and electronic goods. For example, Foxconn manufactures the world-class Apple iPod and iPhone. Even as Chinese wages rise, as is the current trend, the appeal of manufacturing in China will be retained due to these benefits.
BUSINESS INTEGRATION: A SYMBIOTIC RELATIONSHIP Since the 1960s, Australian manufacturing has fallen as a share of GDP from 25 per cent to 12 per cent. Over the same period, its contribution to exports decreased to 17 per cent from 25 per cent. Protectionists have voiced concern that outsourcing manufacturing reduces domestic jobs, incomes, and demand for Australian goods. The real story, however, is much different. Outsourcing manufacturing to China – which has
a comparative advantage in this sphere – allows Australian labour to flow where it is most productive. Employment in primary commodities and service sectors subsequently rises. Moreover, manufacturing requires the raw materials with which Australia is endowed. Hence, China’s thriving manufacturing sector increases Australia’s revenue through the sale of primary resources. The integration of Chinese and Australian businesses to
174 Australia China: BEYOND TOMORROW
Chinese manufacturing plant Photo by Edward Burtynsky
form global supply chains benefits both nations, with compatible strengths complementing each other.
WHICH BUSINESSES STAND TO BENEFIT MOST FROM CHINA’S MANUFACTURING BASE? Given the cheap value of the Yuan Renminbi relative to the Australian dollar, the option of incorporating Chinese manufacturing to form a global supply chain is enticing to many. James Fallows, Rhodes Scholar and editorial supervisor of the documentary series “On the Frontlines: Doing Business in China” notes two key criteria in determining which companies stand the best chance of successful supply chain integration. Firstly, products with high-value per weight are
preferable to cumbersome commodities. Light products make for cheaper transport costs, which are calculated according to weight. This explains the preponderant use of Chinese manufacturing by global electronic companies such as Microsoft, Nintendo and Nokia. Energy prices also require consideration due to their impact on shipping costs. These concerns are less pertinent for those intending to manufacture and sell in the Chinese market without transporting goods back to Australia. Secondly, products requiring the use of hands-on manual work are better suited to benefit from China’s labour force. Despite this, automated industries such as computer manufacturing have successfully restructured
CHINA
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