Strategic Planning Kamran on 16 Apr 2008 07:15 pm
Chinas Mixed Impact on Los Angeles
Southern Californian manufacturers have long bemoaned the negative impact low-priced Chinese goods have had in the region. Low prices from overseas competitors, many argue, have placed them in an untenable position with their clients. The only defense against these low prices, runs the common wisdom, is to compete on a “quality, not quantity” basis. That wisdom, however true it may have been for the early 2000’s, is now out of date.
Anecdotal and statistical evidence now confirms that Chinese manufacturing plants are producing high-quality industrial, consumer and medical goods at near Six-Sigma levels (China Daily). Naturally, there are still a number of low-quality plants pumping out the lead-based toys and poisonous toothpaste that dominated the headlines in late 2007, but the message is clear: the “quality, not quantity” marketing position is about to become significantly more competitive.
Chinese efforts at improving quality will likely result in continued job losses and shutdowns in the Californian manufacturing sector, but the impact may not be as severe as some predict. Regional manufacturers are gradually learning the art of sourcing in China. Low-cost Chinese components, if sourced correctly, can redefine a manufacturing value chain. Input aspects of the manufacturing process are often relatively low in value-added effort and can, as such, often be eliminated from the manufacturing process altogether. Cutting a piece of steel or lumber, for instance, does very little to add value to an overall product because it is easily reproducible and labor-intensive. Sourcing pre-cut steel and other low value-added components allows manufacturers to focus on their key performance areas with the highest added value and most profit.
Moreover, if the low value-added components are of a high enough quality and a low enough price, they may even add margin to the product itself. Naturally, some business model flexibility is required to begin value-added sourcing, but companies serious about both growing and staying in Southern California are certain to adapt quickly.