China’s advantage more than cheap wages
I’ve spent the last two months talking with Chinese and New Zealand stainless steel fabricators. The New Zealand manufacturers are clearly very good, as are the Chinese. But it’s clear the Chinese manufacturers have a significant advantage over New Zealand’s when it comes to price.
We naturally assume that lower wages in China is the reason for this. It appears that a Chinese manufacturing worker receives around $16,000 per year. A qualified welder in New Zealand would be earning about $75,000 per year. That’s a significant difference. The Chinese worker earns about $48 a day, the New Zealand worker $224 per day.
But if each worker can make five tanks in a day, then the labour cost for each Chinese tank is $10, while it’s $45 for the New Zealand tank. That’s only a difference of $35 a tank and no one is going to quibble over that small sum.
I’m sure there is more to the Chinese competitiveness than simply lower wages.
For instance, when chatting to New Zealand manufacturers, we always discuss the high amount of labour required for a person to weld the tank and then polish the welds to a food grade standard.
In comparison, the sample tank I had made in China was made almost entirely by robots. The welds and the polishing were not done by a person but by robot arms instead.
I wonder if one Chinese labour unit is also more productive because they can make three times the tanks a New Zealand labour unit can because they use more modern equipment?
Anyway, we want to manufacture our tanks in New Zealand and we have a plan.
But while I was pondering all this, I was reminded of how the textile manufacturing industry moved from country to country throughout the
19th and 20th centuries as companies in different countries fought to outdo each other.
Howard Yu wrote about it in his book Leap. The tagline is: ‘‘How to thrive in a world where everything can be copied.’’
England pioneered industrial textile manufacturing in the early
1800s. This was the hi-tech industry of the time. By 1850 the English were ramping up production. Between
1851 and 1857 England quadrupled its output and at this time it supplied 50 per cent of the global textile trade.
England knew how important this industry was. In order to stop people copying the technology, laws were introduced that forbade textile machinery or plans from being exported. Textile workers were forbidden from travelling overseas.
If caught, they would be locked up for a year and fined.
Factories were built with the windows in the roof, so no-one could look inside and copy the machinery design or layouts. Factories would embellish their machinery by adding mechanisms that made them look more complicated than they actually were.
But then, in 1810, Francis Cabot Lowell, the son of an American shipping baron, undertook one of the first known cases of corporate espionage.
Being a well-connected, highsociety kind of guy, he travelled to England and made friends with the English high-society people who happened to own textile factories. Over a two-year period he was shown around many of the English factories. He casually wandered around looking disinterested.
But he was paying very careful attention to the gearing, the mechanisms and the internal workings of these modern textile machines. He took all these sketches and notes back to New York.
In a short time the Massachusetts mills had built their own modern textile factories. But the Americans were building new factories from scratch and they didn’t have any of the older legacy issues the English factories had.
The English had a network of spinners who spun yarns at home. It was hard for them to change that system.
The American factories included the spinning and weaving into one building which was much more efficient. These new US mills took the American market away from the British.
But then 40 years later the southern states developed new bigger factories with the latest technology and they surpassed the Massachusetts mills.
These more efficient mills in Carolina then began exporting cheap textiles and began taking away the Asian markets from the British. This devastated the English textile industry and by 1900 British mills were closing at a rate of one every two weeks.
But then the Japanese got into textiles and they built modern factories which took the business away from the US manufacturers.
Now it’s the Chinese and the Bangladesh mills that dominate the textile trade.
We’ve all heard of the low wages and poor conditions in some of these factories and I’m not trying to diminish this or gloss over it.
My point for today is, it appears to me, manufacturing success is dependent on investing in the latest technology and the Chinese certainly have done that when it comes to stainless steel.