By Joseph Neu
Considering the entire process helps deepen China’s economic moat.
The Chinese Lunar New Year celebrated across the globe as I write this (Happy Year of the Pig!) comes as the US and China struggle to resolve a trade war amid rising geopolitical and economic tensions between the two superpowers. And that has many of us thinking about what makes China such a formidable rival.
One thing that stands out to me: China does a great job of thinking about the big picture by considering problems holistically and setting out to address them end-to-end.
Turn of the manufacturing screw. A recent New York Times story, “A Tiny Screw Shows Why iPhones Won’t Be ‘Assembled in U.S.A.’,” underscores the importance of this end-to-end approach. The article describes how efforts to manufacture Apple’s Mac Pro in Texas have been hampered by the inability to source enough tiny screws in rapid fashion:
“In China, Apple relied on factories that can produce vast quantities of custom screws on short notice. In Texas, where they say everything is bigger, it turned out the screw suppliers were not.”
The article goes on to note:
“Apple has found that no country—and certainly not the United States—can match China’s combination of scale, skills, infrastructure and cost.”
Manufacturers find China so attractive, in part, because the demands of even the most sophisticated among them can be met with a responsive supply chain that can scale, thanks to end-to-end planning.
Services, too. China also does this in services. At NeuGroup’s shared services center (SSC) roundtable in Shanghai last fall, done in partnership with Deutsche Bank, we facilitated a discussion of why large multinationals should consider locating or outsourcing their shared services in China, as opposed to, say, India.
China SSCs are better at end-to-end. Asked about the advantages of supporting businesses with SSCs in China versus India, participants said India can be very good at supporting discrete parts of a business process with step-by-step instructions, but China-based SSCs tend to do a better job supporting a business process end-to-end.
Factor process efficiency into the cost. While an SSC in India will cost one-third the amount of one in China, to make an apples-to-apples comparison, you must evaluate how much more service support and value you receive with end-to-end service in China.
By promoting holistic thinking and support for end-to-end processes—in manufacturing as well as services—China is protecting its competitive advantage (aka moating its platform). This comes as China’s labor costs rise with its economic prosperity and as trading partners like the US shift policy and encourage corporations to source their business in the US or, for American companies, to come back home. Sure, discrete tasks might get shifted. But without adopting an end-to-end approach to process, policy and planning, it will prove difficult to move off China’s platform.