Capability building in China

All too often in the UK we hear senior business leaders and politicians bemoaning the lack of skilled labour.  But China 30 or so years ago had very few skilled staff.  So how did they progress to be the world's leading manufacturer and exporter?

Abbreviated from: http://www.mckinsey.com/insights/asia-pacific/capability_building_in_china?cid=china-eml-alt-mip-mck-oth-1307

Article|McKinsey Quarterly

Capability building in China

Skill building must be rewards-based, rooted in real work, and tailored to local conditions.

July 2013 | byKarel Eloot, Gernot Strube, and Arthur Wang

Capability building—leadership, managerial, and team-based skills rather than technical ones—has become an urgent imperative for many companies in China. As the country loses its extreme low-cost-labor advantage, businesses must look for ways to increase productivity and internal collaboration, to better understand consumers, and to develop a more sophisticated appetite for risk.
Companies in China face many of the same challenges—a lack of up-front planning and inadequate resources—that bedevil capability-building exercises everywhere. But certain “China factors” stand out. For starters, the demand for managers with strong leadership skills and international experience is growing significantly faster than the supply of qualified candidates. That imbalance makes it more difficult to pull off successful skill-building efforts, even for multinationals that typically invest more in training than Chinese companies do. (Indeed, one implication of China’s white-hot war for talent is that outside trainers brought in by multinational companies to set up and run new programs often move on before relevant tools and internal processes are in place.) Another perennial challenge for multinationals: the Chinese context and culture, which may require local tailoring of global approaches.
Then, of course, there are China’s state-owned enterprises. Many of them only recently converted from government departments into commercial entities and are still working to adapt to a competitive environment and adopt a true business mind-set. These companies generally lack a systematic approach to nurturing employees moving up the organizational ladder. They misconstrue capability building as a classroom activity, missing the impact of linking it to actual business. And they are too inflexible either to fire underperformers or to reward and promote employees, including managers, who change their behavior and adopt the necessary mind-sets.
While the challenges facing multinationals and state-owned enterprises differ, our experience with leaders at both kinds of organizations (as well as with private-sector Chinese companies) has highlighted the importance of some common, broadly applicable principles. In this article, we describe three that should help companies overcome many of the obstacles that have frustrated capability-building efforts in the past.

1. Relate capability building to real activities

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2. Instill incentives and create opportunities for promotion

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3. Don’t forget China’s unique culture

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The solutions may sound obvious: developing Chinese teaching materials to help solve problems, building day-to-day business problems around products that participants would find in the Chinese market, and localizing global training materials through culturally appropriate metaphors and examples. But we know from experience how easy it is to overlook these issues. In our own work, we routinely use a case involving a coffee machine to teach managers about the seven types of waste and how a “lean” perspective can address them. When we recently used this case at a Chinese state-owned enterprise, however, the managers couldn’t make sense of the story, because they had never used a coffee machine. We have now adapted the context to tea making.

About the authors

Karel Eloot is a director in McKinsey’s Shanghai office; Gernot Strube is a director in the Hong Kong office, where Arthur Wang is a principal.

Hello 3D printing, goodbye China

If the following article's predictions do come true, then the world economy as we know it today will be destroyed as the unintended consequence. No trucks, freight trains, container ships, no major manufacturing facilities, no major hub warehouses. No truck and freight train drivers, no container ship crews, no depot warehousemen. No truck, freight train, container ship manufacturers; less construction workers and companies. I wonder ...

From: http://www.thesundaytimes.co.uk/sto/business/Tech_and_Media/article1287518.ece?CMP=OTH-gnws-standard-2013_07_14

A SPECTRE is haunting the great container ship ports of China, with their highways jammed by lorries and the vast factory estates stretching from the coast of the South China Sea to the mountainous inland provinces.

It is the spectre of a revolution led by a quiet, software-driven 3D printer, a machine that can laser up layers of liquid or granular resin — or even cell tissue — into a finished product.

Some 3D printers are huge devices that make complete components such as aircraft parts. Others are small units that could stand next to a desk and create a small plastic prototype.

Maplin, the British electronics retailer, said last week it would start selling one for just £700. The Velleman K8200 will allow those who are so inclined to make simple objects — mobile phone covers, perhaps, or toys.

“The only restriction is your imagination. You can make whatever you want,” said Pieter Nartus, export manager at Velleman.

To visionaries in the West, the digital 3D printer promises to disrupt conventional manufacturing and supply chains so radically that advocates compare its impact to the advent of the production line, or the internet.

In China, whose big factories are thinking of using giant 3D printers for manufacturing, the technology does not seem to pose an immediate threat.

“It is on their horizon but it is not a factor right now,” says a British buying agent who sources plastics in China.

However, as Chinese leaders ought to know from their compulsory classes in Karl Marx, control of the means of production is everything. And if 3D printing takes off, production will come back to a place near you.

The implications, economists say, are limitless. No huge factories. No fleets of trucks. No ships. No supply chain. No tariffs. Few middlemen. Orders tailored exactly to demand, so no need for stock and warehouses. Just a printer, raw materials, software and a design.

The advantages do not end there. Because the item is “sintered” — created from a powdered material — to precise settings using a laser, there is no waste such as metal shavings. To customise a product, the user simply changes the software. An operator presses a button and the printer spits out the item.

“The first implication is that more goods will be manufactured at or closer to their point of purchase or consumption,” said Richard D’Aveni, a professor at Dartmouth College in America.

Writing in the Harvard Business Review, D’Aveni predicted the elimination of the long supply chain linked to a huge factory staffed by cheap workers and sited on the other side of the world.

It may be the most significant, if underplayed, article in that distinguished publication in decades.

Not surprisingly, 3D manufacturing has been dismissed by the boss of the biggest factories of them all, Terry Gou of Foxconn, which employs more than 1m Chinese workers making consumer electronics for Apple, Sony, Samsung, Nintendo and other household names in technology.

Foxconn has used some elements of industrial 3D printing for three decades but Gou says it is commercially impractical for mass production.

“3D printing is a gimmick,” he told reporters in Taiwan, where Foxconn is based. “If it really is that good, then I’ll write my name backwards from now on.”

Foxconn and its clients are still smarting from publicity over a chain of suicides at the company’s vast plants, where young employees live under heavy security and work to a strict management regimen on the production line.

Conditions on Chinese assembly lines, as in Bangladeshi garment workshops, have long concerned advocates of workers’ rights.

But it may not be the workers who ultimately overthrow the system. The use of 3D printing implies a transformation that persuades hard-headed economists such as D’Aveni that companies like Foxconn might just become obsolete.

“China has grabbed outsourced manufacturing contracts from every mature economy by pushing the mass-manufacturing model to its limit,” he wrote. “It not only aggregates enough demand to create unprecedented efficiencies of scale but also minimises a key cost: labour.

Watch a demonstration of the £700 Velleman K8200 printer, on sale at Maplin

“Under a model of widely distributed, highly flexible small-scale manufacturing, these daunting advantages become liabilities. No workforce can be paid little enough to make up for the costs of shipping across oceans.”

According to the British buyer, who provided a cost breakdown on a commercially confidential basis, a Chinese factory typically gets between 6p and 7p from a plastic product sold in Britain for £1. That includes its labour costs and profit.

Raw materials, shipping and ground transport add 24p to bring the landed price at a port in southern England to 31p.

The product will sell to the retailer for about 45p, handing the wholesaler a profit of 14p. The retailer marks the product up to £1 but the Treasury helps itself to 20p VAT, leaving the retailer a profit of 35p.

In the brutal war for margin amid volatile commodities and currencies at the bottom end of the market — where China has carved its niche — the numbers tell their own ominous story. In a world of 3D manufacturing, the classic supply chain makes no commercial sense.

“China won’t be a loser in the new era,” D’Aveni argued in the Harvard Business Review. “It will have a domestic market to serve . . . and its domestic market is huge. But China will have to give up on being the mass-manufacturing powerhouse of the world.”

China, of course, is not sitting still. It is eagerly buying western 3D printing technology and making its own lightweight machines to sell to consumers. The ministry of industry and information technology has already allocated £20m to fund 10 research centres and set up a group of 40 participating companies.

In May, Beijing hosted the World 3D Printing Technology Industry Conference. Luo Jun, head of a Chinese trade body, told the state media that the domestic 3D industry will generate about £1.1bn in revenues within three years.

Luo Zheng, sales manager of Renishaw, a Shanghai company, said Chinese firms were at present forced to buy large industrial printers made in Britain at a cost, he said, of about £650,000 each.

Nor has China yet mastered the complex chemistry of 3D inks and resins, so it is dependent on imports.

However, observers who have spent many years watching how China operates in world markets don’t expect such dependence to last.

Caixin, a business magazine, reports that a mechanical engineering professor at Tsinghua University, Yan Yongnian, first brought American 3D technology to China in the 1980s.

This year a research team at Beijing University, led by Wang Huaming, a professor of materials science and engineering, won an award for 3D innovation in aviation components from the State Council, China’s cabinet. The country’s military aviation industry is already using the technology. It is employed in making the J-16 fighter and the next-generation J-31, according to Huanqiu, a website linked to the Global Times. Scientists have used it to make critical load-bearing titanium components, including strengthened landing gear for planes that will be operating from aircraft carriers.

In June, Dalian University of Technology in northeast China unveiled the world’s largest 3D printer. According to Professor Yao Shan of the university, the industrial-grade machine also uses a cheaper form of print material that can cut operating costs by 40%.

In the medical field, researchers at Shining 3D Tech, a company based in Zhejiang province, showed off an artificial disc implant that can fuse with human cell tissue to avoid rejection. The company predicts that one day the technology could be used to manufacture human skeletons from cell tissue and biomaterial.

So there is no doubt about China’s scientific, engineering and intellectual commitment to 3D manufacturing.

However, it is a fundamentally different concept in China. To the Chinese, it is an industrial tool to be used in making more things to sell.

To western economies that are hooked on cheap imports with a huge carbon footprint, it could be a means of transformation — perhaps even an agent of de- industrialisation.

That conceptual divergence has led to a tone of complacency in some quarters in China. “Some western media said 3D technology will benefit the West, help American industry recover and attack China’s position as the factory of the world,” said Jia Jinjing, a management researcher, before adding: “I do not support this view.”

In an interview with a Chinese magazine, Environment and Livelihood, Jia said: “3D can make only a single-material product and it cannot print electronic components. Therefore 3D technology will not have a big impact on Chinese manufacturing.”

In the West, one very important person disagrees. In February, President Barack Obama declared that 3D technology could “guarantee that the next revolution in manufacturing is made in America”.

The fate of thousands of companies and millions of employees in the two biggest economies will depend on who is right.