"The China Price" - The best business article I have seen in years.

Discussion in 'Economics' started by SouthAmerica, May 31, 2005.

  1. .

    SouthAmerica: On April 30, 2005 I posted the following in the PBS message board.

    I understand that there are a number of college students participating on this particular message board. (I am assuming that by the replies that I see on this board from a number of people.)

    I recommend that every college student take a few minutes and go to the library and get hold of the “Business Week” special issue dated December 6, 2004 and read the “China Price” article.

    The article is not only for college students. This article is for anyone that wants to understand what is going on in the business world.

    This is one of the best articles I have seen in years in the main American business magazines, including Fortune, Business Week, Forbes and so on…

    PS: I don’t have any association with Business Week magazine.


    April 30, 2005

    SouthAmerica: I just came across a recent article by economist Laura D’Andrea Tyson about offshoring.

    She said: “Incentives for offshoring by European companies are huge: Services costs can drop by 50% to 60%. And the scope for offshoring is vast. By IBM estimates, less than 8% of the $ 19 trillion spent each year on sales, general, and administrative expenses has been outsourced so far. Many companies say they can offshore half or more of this work.”


    SouthAmerica: I just got a copy this past week of Business Week magazine dated December 6, 2004. The cover story is: The three scariest words in US industry:

    “The China Price”

    “Cut your price at least 30 percent or lose your customer. Nearly every manufacturer is vulnerable. The result: A massive shift in economic power is under way.”

    A friend of mine gave to me a copy of this old issue of Business Week, but as I was reading various articles on this special issue, the only thing that came to mind is that these articles were right on target.

    If you have the chance to read this particular issue of Business Week I believe that it is worth for you to go to a library just to read the above cover story. The writers that put that piece together deserve to be congratulated since they did an outstanding job.

  2. .

    SouthAmerica: On May 21, 2005 I did a follow up posting on the PBS message board as follows:


    May 21, 2005

    SouthAmerica: The current issue of Business Week magazine run a follow up piece about that article – “The China Price” – Once again I recommend anyone to go to a library and read that article. The Business Week writers did an outstanding job not only on their research, but also in putting that article together in such way that has a major impact on its readers.

    That article is the real deal, and it is an extraordinary piece of business literature.

    I have been reading Business Week magazine for a long time, but “The China Price” is the best article I have seen on Business Week in many years. That article deserves to win the prize for the best article published in the United States by an American newspaper or magazine for the year 2004.

    Here is what Business Week had to say in their current issue:

    Business Week – May 30, 2005

    Exploring: "The China Price"
    By Bob Dowling, Managing Editor, International

    Scratch a China critic, and the first response you're likely to get is: "China cheats." China steals software and reengineers everything from autos to golf clubs. China sells to the world aided by a woefully undervalued currency. China uses sweatshop workers. The list goes on, and all of the points are, in part, valid. But cheating alone doesn't explain China's global competitiveness, and we've all known that for some time.

    Last year we decided to dispatch Senior Writer Pete Engardio, an Asia specialist, and Beijing Bureau Chief Dexter Roberts to look behind the veil of criticism. What they found after three months of sleuthing was that companies on the receiving end of the China onslaught had a standard phrase for their dilemma. They called it the "China price." China has become the price-setter for the world in so many industries that it's becoming difficult to find exceptions. As Engardio and Roberts discovered, whether you're making a bedroom set in Virginia, circuit boards in Ohio, or telecom gear in California with the most automated factory imaginable, you're under pressure every day to match a price 30% to 50% lower that a Chinese factory is offering. The gap is usually so large that you either have to shut down your plant or move a large share of your work to China, costing hundreds of jobs.

    The key to the China price, notes Engardio, is more than skilled workers and automation. That makes China seem like a Japan, but with lower wages. What makes China's dominance unprecedented is its humongous scale, a supply infrastructure that enables you to buy every widget and raw material from hundreds of vendors within easy driving distance of your factory, feverish domestic competition, and an entrepreneurial zeal by factories to satisfy a customer's every desire.

    On the rural outskirts of Hangzhou, near Shanghai, notes Roberts, "I met a cheerful former rice farmer who now runs one of China's most successful private companies, an auto components maker. He's buying up ailing U.S. parts makers around Chicago, keeping some of the high-end work there, but moving a good chunk of it to his factories in China. That way, he gets access to the U.S. companies' technology and markets."

    Since we published "The China Price" (Dec. 6), the article has helped reshape the debate over the causes of America's weakening manufacturing competitiveness. We've also gotten professional recognition. Earlier this month the New York- based Overseas Press Club of America honored Engardio and Roberts for Best Business Reporting from Abroad in Magazines.

    "The judges felt that the reporting and interpretation in this piece was outstanding," said the citation. "The conclusion: American manufacturers -- even when fine-tuning productivity in highly mechanized plants -- may not be able to compete with Chinese companies. An outstanding look at perhaps the world's most important business story this year."

    There aren't any simple answers. Yes, China does cheat. But as bad as that is, and in many cases it is grievous, it doesn't come close to explaining the competitive economic force China has unleashed on the world. For some, it has even given staunch free-traders new doubts. In a story accompanying the cover, Washington-based Senior Writer Aaron Bernstein showed how a group of free-trade intellectuals are starting to question whether the comparative advantage theory -- an idea that has had near-universal backing from economists for 200 years -- still applies, and whether the fundamental comparative advantages from free trade will produce the same gains in this new China-centric world. It's a debate that Pete, Dexter, Aaron, and many other BusinessWeek writers will be covering intensely in the months ahead.

  3. .

    May 30, 2005

    SouthAmerica: This is only one example that I gave to someone on the Charlie Rose message board about 3 years ago.

    Here is another actual example of how Brazil can’t compete with China in manufacturing.

    Brazil was a major producer of shoes in the 1960’s, 1970’s, and 1980’s. Brazil used to export a ton of shoes to the United States during that time. It was easy to find shoes made in Brazil on American department stores.

    Most of that shoe production came from a town in the interior of the state of Sao Paulo from a city called Franca. They had over 30 shoe factories around Franca, employing over 150,000 people (I don’t remember the exact number of workers they had in the shoe industry around Franca, but it was a lot of people maybe close to 200,000 people) by the late 1980’s.

    In the early 1990’s China decided to enter the shoe business to export to the United States. In a matter of 3 years most of the factories around Franca were put out of business by Chinese competition and over 120,000 workers lost their jobs overnight.

    The Chinese did not only killed the shoe industry in that area, the closing of all these shoe factories had a major economic impact in the entire area.

    The Chinese lowered the price so much that all the Brazilian factories had to close because they could not match the Chinese prices. The Chinese not only produced shoe; they produced shoes of excellent quality.

    Believe what I am saying here, the Chinese are not producing junk today. They are producing stuff of high technology and excellent quality.

  4. In my view, ur article is poor because it does not explain anything about how. It is propaganda, it is judging without explaning. A good analysis is explaining without judging.

  5. yes, european companies have huge incentives to outsource.
    Simply because you can switch ur outsourcing provider easily, but it is difficult to fire employees. So companies outsource to get flexibility.

    In some way, labour laws are good for the economy.
    They provide strong incentives to outsource and to specialised the economy and the service provider productivity is usually higher.

    Now, the next challenge for european government is to reduce the transactional cost of outsourcing.

  6. but the price setting insight is interesting and worth investigating
  7. I have good contacts with a Chinese former college buddy. He says he can produce *anything* for low cost I ask him too. If I were into producing tangible stuff, i'd have a nice competitive advantage i suppose, which is good for me, and my country :)
  8. nowhere in this debate is the issue of quality brought up. you don't get what you don't pay for.
  9. As long as the production of, say, shoes is outside the U.S., I prefer that they're made at the lowest cost country. I have 2 growing girls under 10 years old. I LOVE going to WalMart and buying a pair of shoes for 7 bucks.
  10. "In a story accompanying the cover, Washington-based Senior Writer Aaron Bernstein showed how a group of free-trade intellectuals are starting to question whether the comparative advantage theory -- an idea that has had near-universal backing from economists for 200 years -- still applies, and whether the fundamental comparative advantages from free trade will produce the same gains in this new China-centric world. It's a debate that Pete, Dexter, Aaron, and many other BusinessWeek writers will be covering intensely in the months ahead."

    It's good to see that they are starting to be a little more open minded about their dogma

    Would have been even better if they would have thought about this before betting the livelyhoods of much of their own countrymen

    I will never get how the same people who told us that China was out to destroy our way of life with communism from 1949-1990, all of a sudden thought we could trust them with our whole economy

    It's not really a system, but a people you either can or cant trust

    People said the same thing about japan in the early 1960s about quality - and for that matter, you dont always need the highest quality

    This is an economic threat, to a high percentage of domestic economic endevors

    Each business, and worker, is constantly told to 'move over' and adjust

    But how much does that cost to constantly readjust? What about the manufacturing worker who was reassured in 1998 - 'Just go to College for Computer Science'

    Only to be told in 2003 'Let them do the software in India, we'l do something else' by Wes Clark in the debates?

    How much did Wal-Mart save THAT guy??????
    #10     May 31, 2005