The last couple of paragraphs of your article (The Insider, iVT International, November 2015) struck a chord with me and I’d like to make a few comments.
Certainly, clients come to western-style businesses with expectations of better products. I think that is even a core conclusion from your Liugong 856H article (Boys ‘N The Hood, iVT International, November 2015) indicating that the Western designers were necessary to get a Chinese product up to par for the West.
This is also because we have come to expect such a high standard of fitment and quality in what has traditionally been quite ‘agricultural’ machinery. Health and Safety legislation has had a marked impact on equipment designed in the developed world, but we don’t have to go back very far to see the West producing equipment of similar standards to the current Chinese machines.
In Australia, we’ve seen our manufacturing industry decimated as successive governments fail to understand the need for value-added products, and seek to make our economy service-based. Many of our own long-term clients have exited the market, become service providers, gone out of business or shifted production to China.
When they make the China decision, it is invariably the result of cheap labor costs, but they always forget the increased cost of oversight. Some years ago, I saw a crane manufacturer move production to the Philippines because the labor costs were one-fifth the Australian rate. Unfortunately, the productivity was also one fifth and the business ultimately closed.
Locally many companies see Chinese production as a savior, but if the business was not successful to start with, moving to Chinese production is unlikely to help. Most businesses considering China are doing so after riding the boom times without closely managing their businesses, and now things are tighter, they cannot shift to the dedicated focus required. It is likely that if they had always managed their business closely, there would be no need to consider China.
There are, of course, success stories of Australian companies out-competing the world, and selling strongly in China, but it takes management focus to do that. As your article suggests, it is often just easier for management to say “Let’s get it made in China”.
Using China will not make a bad business better, only management will, and that management focus should start at home.
And on a slightly different subject, in recent days here, we have seen the potential impact of free trade agreements that arguably make lower-standard equipment acceptable in what was previously strictly mandated and certified fields.
Of course, the customer may still choose not to buy it, but the potential impact on OEMs producing the ‘Western’ standard could be substantial. At the very least, end user expectations will drive the pricing down.
Lance Procter, Director, Motive Power Pty, New South Wales, Australia