When sourcing components from China, the experience can be expensive
With all that’s going on today, how can anyone even consider moving operations to China?
We have monumental supply chain shortages, especially for critical parts. For instance, chip shortages have seriously hurt the automotive industry. How many container ships off the West Coast are waiting to get in and unload? It looks like China is getting ready to invade Taiwan. If that happens, shipping from both countries is likely to stop. Why would any responsible management team want to expose themselves to all that risk?
There are no simple answers. J.P. Morgan used to say, “Most people have two reasons for doing something; one they will tell you and the real one.” Managers aren’t eager to share their reasoning for often desperate decisions.
Let’s look at the automotive industry as an example. Let’s say our cars need a new module, either because of damage in an accident or because of a reliability failure. The module has integrated circuits, otherwise known as chips. We may wait months for that replacement module.
Understandably, because of the shortage, the manufacturers would rather ship a new car than a module. The customer, who trusted the manufacturer enough to buy their car, is already hooked. Getting a new customer is far more profitable than taking care of the existing customer.
Today, there aren’t many products that don’t include some components from China. Unfortunately, these are often the most critical, hard-to-get-from-anywhere-else components. We can’t ship the product without them.
Let’s say your company’s product includes several components you can’t seem to source from anywhere but China. Despite your requests, even demands for more and more of these, they seem to be falling on deaf ears. You schedule a trip to see if there’s any way you can increase their priority on your desperate needs.
You just might find yourself hearing something like, “Our first priority must be Chinese companies. We ship what is left to other countries. If you have your product manufactured here by a Chinese company, you would have a much higher priority.”
So you fly home with this disheartening message. Your company is faced with the inexorable decision to continue the struggle or shut down U.S. operations and move them to China in order to be able to sell anything at all. This is one example of predatory capitalism, and one our country and management philosophy are least prepared to deal with.
What do we do? Akio Morita, founder and longtime CEO of Sony Corporation, used to say, “An American manager’s long-term planning horizon is a whole 10 minutes out.”
In such a situation, we are often so desperate to avoid any semblance of failure, we’re tempted to solve for the short term and worry about the long term later. “Gotta keep that stock price up no matter what …” Unfortunately, moving operations to China is most often a permanent decision, as it’s incredibly difficult and often impossible to come back once you go. And guess what? You won’t have solved your problem. Now, you’ll be trying to get your product to ship instead of just a few components.
If you’re having trouble believing this scenario, remember our computer industry — the one we used to have. Back in the ‘80s, computer manufacturing was all around us. Digital Equipment was the largest employer in New Hampshire and Massachusetts. And many of us worked in that industry. Where are those jobs today? Try to buy a laptop, a tablet, a smartphone or any other device not made in Asia. We exported this great industry first by building manufacturing plants over there and then as described above.
Now, even Apple is beginning to see the light. They’ve announced they’re going to move some of their manufacturing out of China. I think they’re going to find it’s not that easy.
The best thing to do is stay out of there if you possibly can.
Ronald J. Bourque, a consultant and speaker from Salem, has had engagements throughout the United States, Europe and Asia. He can be reached at 603-898-1871 or RonBourque3@gmail.com.
