Chinese Manufacturing: Same Wounds, New Salt

You can’t be in manufacturing in the U.S. today without having a China strategy. That goes for companies of all sizes: from the largest multinationals to the smallest contract suppliers. There's no shortage of variations on the “China strategy” theme. Some establish alliances with Chinese manufacturers. Others maintain relationships with Chinese-based manufacturers or agents. The bigger players set up their own operations there. The common thread? Every domestic manufacturer we’ve come across in the last decade has been adversely impacted by price-based competition from China. The smart ones long ago began inventing ways to remake their businesses to stay competitive.

Anyone with an interest in the Chinese manufacturing juggernaut must read the cover story in the November 27th issue of Business Week: “Secrets, Lies and Sweatshops: How Chinese suppliers hide the truth from U.S. companies."

While the article is hardly surprising—it confirms what U.S. manufacturers and other observers have been saying for years about exactly how China is able to keep its labor costs so low—it does offer new anecdotal and numerical data on Chinese labor practices. One example:

Based on Chinese government figures, the average manufacturing wage in China is $.64 an hour, according to the U.S. Bureau of Labor Statistics and demographer Judith Banister of Javelin Investments, a consulting firm in Beijing. That rate assumes a 40-hour work week. In fact, 60- to 100-hour weeks are common in China, meaning that the real manufacturing wage is far less. Based on his own calculations from plant inspections, the veteran compliance manager estimates that employees at garment, electronics, and other export factories typically work more than 80 hours a week and make only $.42 an hour.

From a marketing standpoint, it’s intriguing to consider how findings like this could give new weight to “buy American” campaigns in the domestic B-to-B sector.

But as American consumers, we do love our dirt-cheap household goods and the big box retailers that sell them. With supply chains organized around feeding the insatiable appetites of consumers here and overseas, few U.S. purchasers have the financial power to pay more for American-made products and components. In this climate, it's more critical than ever for U.S. manufacturers to have a compelling story about why they merit a premium price.

Hmmmm....sounds to me like a strong case for building a strong B-to-B brand.