United States have always been in the forefront of international trade and manufacturing and it wants to keep it that way. Since China started its mass export of goods, US had been worried that it would capture a major chunk of world's exports however US found solace in the fact that Chinese products were of lower quality. However with changing times, China has started to develop low cost and yet high quality products to challenge US in the international market.
The study conducted by Industry Week magazine on the comparison of Chinese and American manufacturers have identified important developments in the inputs that largely contribute to China's inevitable success. The article "Manufacturers Like Us" by David Drickhamer gives us important insights in this subject.
According to the article, Chinese manufacturers have become increasingly competitive over the past decade. Their strict management practices and performance metrics show the proof of such changes. Also US makes china's industry revolution much more prominent by referring to them as Enemy Number 1.
The two basic reasons for the increasing competitive advantage of Chinese manufacturers have been described as cheap labor and much more efficient machinery. Costs of raw materials and land utilization have also been declared as important inputs to the higher quality outputs that are now being produced. To fully analyze the factors of high quality production by Chinese manufacturers, let's analyze each input factor in detail.
1) Raw Materials
Raw Materials are the building blocks of the manufacturing process. These unprocessed materials are bought from the market and transformed into outputs by applying different processes. Since it is expected that the prices of the raw materials will rise in the future, some manufacturers start hoarding these raw materials. This storage is referred to as the inventory and it is kept to meet unexpected shortages in the future. The Chinese manufacturers store large amounts of inventory hence their inventory turnover rates are lower for all types of products. As most managers said that they had four or fewer total inventory turns in a year, there costs are lower since ordering and purchasing costs are not encountered regularly.
Rise is raw material costs have not been met by half of the manufactures in China. And those who reported increases, 20% did not charge the customers for the increase. Because of lower raises in cost of raw material, Chinese products are of lower prices and they can maintain the quality of the products without increasing the prices.
China has been able to maintain its low cost products primarily because of very low labor rates. According to the article, the Chinese manufacturers pay average wages of $1,450 per year, which is less than three weeks' pay in the U.S. This is how China is able to compete with any country on its cost difference.
The quality of the products made by the Chinese seems to be increasing because of better skilled and better trained employees than were available in the past. The Chinese managers provide over 20 hours of training per employee per year while they spend 5% of their annual labor budget on training. The costs may