Re­turn­ing to the US? It’s a non-starter

China Daily (Canada) - - ANALYSIS -

and move back to the US.

He high­lights the US chem­i­cals com­pany Cabot, which has been in China for 30 years and set up a joint ven­ture with Hengyecheng in Wuhai in In­ner Mon­go­lia in Septem­ber last year to make sil­ica. The new in­vest­ment will cre­ate thou­sands of jobs.

“It has done a con­sid­er­able amount of work on that project, in­clud­ing build­ing a strong re­la­tion­ship with the lo­cal gov­ern­ment. Why would it have to close that plant and re­build an­other one in the US? It would just be il­log­i­cal.”

He says Cabot, which has other hubs in Tian­jin and Shang­hai, is a prime ex­am­ple of a mod­ern US multi­na­tional com­pany, with 80 per­cent of its rev­enues com­ing from over­seas.

“Its growth is driven by Asia, pri­mar­ily by China. The Amer­i­can mar­ket is not re­ally a growth area for the com­pany.”

Ni be­lieves Chi­nese au­to­glass maker Fuyao’s de­ci­sion to set up an op­er­a­tion in Mo­raine, Ohio, in Oc­to­ber was driven by very spe­cific fac­tors.

The Volk­swa­gen scan­dal re­lat­ing to dis­guis­ing emis­sion lev­els is set to boost sales of US cars and there­fore au­to­glass. Fuyao al­ready has a 60 per­cent share of the China mar­ket and needs to find mar­kets out­side the coun­try.

“The eco­nomic ad­van­tages re­late to en­ergy costs, such as nat­u­ral gas, be­ing between a third and half the price they are in China. They are get­ting the land al­most free. The la­bor costs, how­ever, are al­most eight times those of China.”

Ni ar­gues it is not just the cost of la­bor that is likely to stop a flood of China man­u­fac­tur­ers switch­ing op­er­a­tions to the US, but also the lack of skills now avail­able.

Cao De­wang, founder and chair­man of Fuayo, has ad­mit­ted that he has had to em­ploy mainly peo­ple over the age of 50.

“He can hardly find any young work­ing adults suit­able for such blue col­lar jobs. This is be­cause the in­dus­trial land­scape has changed and is now very much ser­vice-ori­en­tated rather than pro­duc­tion-ori­en­tated so there aren’t the young peo­ple with these skills any­more.”

Ni also can­not en­vis­age Trump get­ting the steel mills in Pitts­burgh rolling again, with the Penn­syl­va­nian city now more noted for its ro­bot­ics in­dus­try.

“We no longer talk about Amer­i­can com­pa­nies in the steel sec­tor, to be hon­est. It is ei­ther Ja­panese, Chi­nese or Euro­pean ones in high-end steel pro­duc­tion.”

Ni, who was born in Harbin but moved to Sin­ga­pore as a teenager, stud­ied elec­tri­cal en­gi­neer­ing at the Na­tional Univer­sity of Sin­ga­pore be­fore do­ing his master’s at MIT in the US. He be­gan his ca­reer in in­vest­ment bank­ing with Credit Suisse in Sin­ga­pore be­fore go­ing to study for an MBA at INSEAD in Fon­tainebleau, France.

He joined Roland Berger, one of the few in­ter­na­tional man­age­ment con­sul­tancy firms that has de­vel­oped out of Europe, rather than the US, in 2011 and now works for a wide range of clients in in­dus­trial goods, pack­ag­ing, steel, util­i­ties and en­ergy.

Ni be­lieves that in­stead of man­u­fac­tur­ing mi­grat­ing out of China, it is now more likely to re­main at home, given the cur­rent em­pha­sis on de­vel­op­ing a high-end man­u­fac­tur­ing sec­tor. The State Coun­cil is­sued a guide­line in De­cem­ber aimed at at­tract­ing more for­eign in­vest­ment in man­u­fac­tur­ing.

“In China you have ac­cess to a more tal­ented, highly skilled and com­par­a­tively cheaper la­bor force. China has trans­formed from low-cost pro­duc­tion to a tech­no­log­i­cally-driven and tech­ni­cally in­ten­sive econ­omy. The gov­ern­ment has achieved this by in­vest­ing heav­ily in re­search and de­vel­op­ment,” he says.

Ni be­lieves there is now an op­por­tu­nity for early stage Euro­pean start-up com­pa­nies, in par­tic­u­lar, to come to China to de­velop their prod­ucts.

“This does not just ap­ply in man­u­fac­tur­ing, but more gen­er­ally. There is just a big­ger mar­ket to test any con­cept with. In the past, com­pa­nies might have tested their prod­ucts in Swe­den and the Nordic re­gion, with ac­cess to 20 mil­lion peo­ple, be­fore tak­ing them to Western Europe. In China, they can do this on a much big­ger scale.”

prin­ci­pal for man­age­ment con­sul­tants Roland Berger

Paul Ni,

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