China Makes, The World Takes

FACTORY WORKERS on their way to work in Shenzhen

One last flow coming into Shenzhen, which makes the other flows possible, is represented by the people at the Four Points: buyers from high-wage countries who have decided that they want to take advantage of, rather than compete with, low-cost Chinese manufacturers. This is where our Mr. China, and others like him, fit in.

This is also where a veil falls. In decades of reporting on military matters, I have rarely encountered people as concerned about keeping secrets as the buyers and suppliers who meet in Shenzhen and similar cities. What information are they committed to protect? Names, places, and product numbers that would reveal which Western companies obtain which exact products from which Chinese suppliers. There are high- and low-road reasons for their concern.

The low-road reason is the “Nike problem.” This is the buyers’ wish to minimize their brands’ association with outsourcing in general and Asian sweatshops in particular, named for Nike’s PR problems because of its factories in Indonesia. By Chinese standards, the most successful exporting factories are tough rather than abusive, but those are not the standards Western customers might apply.

The high-road reason involves the crucial operational importance of the “supply chain.” It is not easy to find the right factory, work out the right manufacturing system, ensure the right supply of parts and raw material, impose the right quality standards, and develop the right relationship of trust and reliability. Companies that have solved these problems don’t want to tell their competitors how they did so. “Supply chain is intellectual property,” is the way Liam Casey put it. Asking a Western company to specify its Chinese suppliers is like asking a reporter to hand over a list of his best sources.

Because keeping the supply chain confidential is so important to buyers, they try to impose confidentiality on their suppliers. When an outside company’s reputation for design and quality is strong—Sony, Braun, Apple—many Chinese contractors like to drop hints that they are part of its supply chain. But the ones who really are part of it must be more discreet if they want to retain the buying company’s trust (and business).

So I will withhold details, but ask you to take this leap: If you think of major U.S. or European brand names in the following businesses, odds are their products come from factories like those I’m about to describe. The businesses are: computers, including desktops, laptops, and servers; telecom equipment, from routers to mobile phones; audio equipment, including anything MP3-related, home stereo systems, most portable devices, and headsets; video equipment of all sorts, from cameras and camcorders to replay devices; personal-care items and high-end specialty-catalog goods; medical devices; sporting goods and exercise equipment; any kind of electronic goods or accessories; and, for that matter, just about anything else you can think of. Some of the examples I’ll give come from sites in Shenzhen, but others are from facilities near Shanghai, Hangzhou, Guangzhou, Xiamen, and elsewhere.

Why does a foreign company come to our Mr. China? I asked Casey what he would tell me if I were in, say, some branch of the steel industry in Pittsburgh and was looking to cut costs. “Not interested,” he said. “The product’s too heavy, and you’ve probably already automated the process, so one person is pushing a button. It would cost you almost as much to have someone push the button in China.”

But what is of intense interest to him, he said, is a company that has built up a brand name and relationships with retailers, and knows what it wants to promote and sell next—and needs to save time and money in manufacturing a product that requires a fair amount of assembly. “That is where we can help, because you will come here and see factories that are better than the ones you’ve been working with in America or Germany.”

Here are a few examples, all based on real-world cases: You have announced a major new product, which has gotten great buzz in the press. But close to release time, you discover a design problem that must be fixed—and no U.S. factory can adjust its production process in time.

The Chinese factories can respond more quickly, and not simply because of 12-hour workdays. “Anyplace else, you’d have to import different raw materials and components,” Casey told me. “Here, you’ve got nine different suppliers within a mile, and they can bring a sample over that afternoon. People think China is cheap, but really, it’s fast.” Moreover, the Chinese factories use more human labor, and fewer expensive robots or assembly machines, than their counterparts in rich countries. “People are the most adaptable machines,” an American industrial designer who works in China told me. “Machines need to be reprogrammed. You can have people doing something entirely different next week.”