Publication: One-to-One, Winter 2006
The Biggest, fastest, tallest…
If 2008 finds you in Beijing attending the Olympic Games, be sure to take a few days in China’s showcase city Shanghai. Don’t worry about spending precious travel time in getting from Beijing to Shanghai. Why not take the world’s fastest train? This magnetic levitation train will deliver you to Shanghai at 300 miles per hour. No word yet on a link to Hong Kong.
If interstate travel is more your speed, you can also take advantage of the then newly constructed road system (something along the size of the entire interstate system in the U.S.). Haven’t been to Shanghai since the mid-80’s? You will notice the skyline growth from 1 skyscraper back then, to approximately 5,000 buildings over 15 stories tall, hundreds of which are skyscrapers.
Does this seem staggering? By 2009, construction will be complete on China’s Three Georges Dam project, which will include the world’s largest concrete structure. Wait a few more years and Shanghai will have finished building the world’s largest shipyard, longest tunnel, tallest building, largest pyramid, and don’t forget the world’s tallest Ferris wheel. Whether you consider this information amusing, or a sign of end times, here’s a trend to note: according to Goldman Sachs in a March 20, 2004, article in The Economist, “by 2040 China will overtake America as the world’s biggest economy.”
If all of the growth in China leaves you homesick, just stop in to one of China’s 46 Wal-Mart stores…or make that 92 stores in 2008. True, you won’t see the old banners “Buy American” and “Bring it Home to the USA” but then again when was the last time you saw those in your local store? In fact, make a stop into Wal-Mart a must on your visit because the story of China’s emergence as an economic superpower is not complete without Wal-Mart, nor Wal-Mart’s without China.
Fast Company Magazine says Wal-Mart is bigger than ExxonMobile, GE, and GM. Wal-Mart has annual sales greater than rivals Target, Sears, Kmart, JC Penny, Safeway and Kroger combined. It is the world’s largest employer (1.4 million) and world’s largest private company. Did you know Wal-Mart also deploys a network of satellites? You guessed it…the world’s largest.
For China and Wal-Mart, like everyone else, success brings scrutiny and the greatest cry heard from competitors or those in the U.S. whose jobs were lost in the process is, “Unfair!” No doubt both China and Wal-Mart will face correction as market forces and trade agreements will demand, but while the China and Wal-Mart watch groups race to update their web sites, the pie multiplies. At some point, critics have to ask themselves, “What can be learned from the success of these two entities?” “How is the global market landscape changing?” and “What steps should I be taking?” As the playing field is leveling around the world, many in the U.S. will need to rethink their business and career strategy.
ATTENTION SWEAT SHOP SHOPPERS
You hear the lamenting all around, “We just can’t compete with the cheap labor forces of China and India (some folks still mention Mexico).” While “cheap labor” gets the spotlight, other factors for falling prices go unmentioned. As Thomas Friedman writes in his newest book The World is Flat, “The biggest mistake anyone can make when it comes to China is thinking that it is winning on wages and not improving quality and productivity.”
And then there is Wal-Mart, often criticized for its union ban and wages good for a steady diet of Ramen noodles. What else are they doing to stay ahead? Well, remember that network of satellites they have? No, it’s not used to snoop out lengthy smoke breaks. It’s part of an overall, super-efficient supply chain system that tracks every pallet of “Made in China” knick-knacks, so there’s no guessing on inventory levels or location.
Suppliers to Wal-Mart get plugged into all of the data as well. When your checkout item hits the scanner, the supplier knows: make one more. They also know that they can never dream of raising their price to Wal-Mart, only lowering it; and, if they’re late on delivery, they run the risk of being replaced by their competitor, eager to have a turn at the Wal-Mart market.
You think Sam Walton envisioned this one-day long ago while riding in his pickup truck? Probably. Those overalls aren’t fooling anyone anymore. Sam realized that having a lower cost of goods sold meant utilizing economies of scale and investing in a culture and system efficiency. Visit Wal-Mart HQ in Bentonville, Arkansas and you’ll see that the culture of savings starts at the top with its legendary no-frills executive offices.
Outsourcing has become a dirty word. Lou Dobbs, dubbed “the Dan Rather of financial journalism” by Daniel Griswold of the Cato Institute, is CNN’s business anchor and host of its “Exporting America” segment. Mr. Dobbs fervently reminds us of jobs once held in the U.S. that are now performed overseas. If you miss an episode, you can check out his attempted “list of shame” he entitles “list of companies exporting jobs” on his website. Among those listed is a favorite whipping company (now teetering in bankruptcy) Delta Airlines. According to the October 2004 edition of Business Solutions Magazine: “Delta came under scrutiny for outsourcing a 1,000-seat call center to India. However, the move saved the airline more than $23 million in 2003 and allowed for the creation of 1,200 new jobs in Delta’s U.S.-based reservations and sales team – a net gain of 200 American jobs.” This is a prime example where time and again, companies utilize outsourcing to bring on new growth at home where the can be reinvested.
Let us recall as well, NAFTA, which Dobb’s, a staunch critic, referred to as a “so-called free trade” agreement. Since it’s pas- sage, the Heritage Foundation, in a June 16, 2005 outline called Debunking Some Myths About DR-CAFTA tells us that the U.S. economy created 18 million new jobs, GDP grew by 38 percent and exports increased from $134.3 billion to $250.6 billion.” If there has been any “giant sucking sound” of lost jobs, it was heard by Mexico. Ted Fishman, author of China Inc. says, “according to the Mexican government, the country lost 218,000 manufacturing jobs when 500 of the thirty seven hundred export only maquiladoras closed between 2001 and the end of 2003.” Hola, China.
With all of the jobs moving to China from the U.S., Mexico and elsewhere, no wonder Chinese farmers are trading in farm tools for hand tools and moving to the southeastern manufacturing centers. But hang on, Thomas Friedman tells us that China actually lost 15 million manufacturing jobs between 1995 and 2002 com- pared with 2 million lost in the U.S. . Confused? The answer to China’s job loss lies in their improved efficiency, requiring fewer workers on the line. A study by the U.S. Conference Board (sited by Friedman) that says productivity increased 17% annually between 1995 and 2002 in the private, non-state owned sectors of Chinese industry. This is due to China’s absorption of both new technologies and modern business practices, starting from a very low base,” Friedman added.
So who is the benefactor of all of this? Fortune Magazine’s October 4, 2004, issue says that since the mid-1990s, U.S. consumers have saved close to $600 billion on imports from China, and U.S. manufactures have saved billions as well because of cheaper parts for their products. Moreover, these savings helped the Federal Reserve to hold down interest rates longer, giving more Americans a chance to buy homes or refinance the ones they have and giving businesses more capital to invest in new innovations.
Finally, another view on “Exporting America” is found in Time Magazine’s June 27, 2005, article entitled “Wal-Mart Nation.” According to Time, “Wal-Mart says it’s trying to export its American-style standards and ethics to China’s manufacturing sector too. In China, where sweatshops are alive and well, the company insists those measures make a difference. Suppliers, including those who sell to Wal-Mart indirectly through other companies, must limit the work week to 40 hours, plus no more than three hours of overtime a day, meet safety requirements, and provide decent accommodations for workers. Even those critical of Wal-Mart concede that the standards can make conditions at a Wal-Mart supplier’s factory more bearable than they are at a lot of other low-wage factories in China.
Further to this point, the article later says, “Wal-Mart is spreading a management style that many of its young Chinese employees find liberating. In most Chinese companies, managers typically share little information with employees, and promotions usually depend on who you know. At the Sam’s Club outside Beijing, it’s different. Alan Li, 31, the store’s deputy manager, encourages workers to contribute ideas about efficiency, and managers tell employees what’s going on. It doesn’t matter who you know here says Li, a high school graduate from a peasant family in rural China.”
The Chinese fellow today making your next set of golf clubs is not immune from his job going to Vietnam or a machine tomorrow. If he is prepared, he can move into electronics or maybe even the service industry. This is the world we live in; a “Flat World” as Mr. Friedman calls it. Where your new competitor living in Suzhou, China has, in sense, become your new neighbor. Where your accountant just FedExed your tax information to Bombay for preparation and where you called for technical assistance half way around the world. You have a pie to make and if you don’t like it, you can make another. Don’t buy into the mindset of a one-pie system where a piece is gotten by taking from someone else. Look for advantages by becoming unique, specialized, and adaptable. Oh and by the way, the Chinese guy working on your golf clubs makes $200 per month but manages to save half of it.
Want to know where China is winning? Its leaders are focused on training their young people in math, science, and with that comes English. Friedman says Chinese young people are also given the infrastructure to “plug and play” faster. Furthermore, he says “What Chinese leaders really want is the next generation of airplane wings to be designed in China, the next step is ‘dreaming it up in China.’” As of now, China rightfully faces growing pressure to better enforce the WTO policies for intellectual property “dreamed up” elsewhere by honoring patents and non-compete agreements.
As China gains global influence, please keep its leadership and under- ground Church in your prayers. China’s theology will not only shape its economic outlook, but also its dealings with Taiwan, North Korea, Japan and its own people. God is using the marketplace as a door to China and other countries as well. Look for it.
JONATHAN SIMPSON is a frequent contributing writer to CSM’s Marketplace Exchange.