Do You Really Think You Can Just Leave China and Go Home?

Wednesday, July 2, 2008 6:52
Posted in category The Big Picture

Now that everyone has come off their China high, and it seems like an endless stream of editorials about China’s days being over, I think it is time to ask a critical question.

Even if you wanted to go home… could you?

There is a lot of talk about how labor is hard to find in China, about how expensive transportation could become, about product quality, about regional governments not being open to certain industries… but what I find interesting is that no one is talking about the fact that going home may not be an option. That the bed may be made in China, and there is little you can do – or perhaps, there is little you could do that would be cheaper.

Following this line of thought, there are several questions I have that I think companies have not really considered fully:

1) Does the previous supplier base exist?
During a conversation 3 years ago with one client who was moving to China, he and I discussed the general strategy. Production would be shifted from the US to China over time as he felt more comfortable with his Chinese supplier base. It was something that was occurring in the industry already, and some of his suppliers were really desperate because they were sitting on inventory and no one was buying. There was a risk that if he and a few others moved over in full that many would go out of business and that it would be impossible to return.

2) If your previous supplier base does exist, would they show you the love?
Another angle on the same conversation was simply that were he to go back, he knew that the pricing structure he enjoyed would be a thing of the past. That, regardless of whether or not they needed his business, he knew that he could no longer ask for deep discounts based on volume commitments. The suppliers simply would not buy the “we are in it together” pitch. He had gone to China to save money, and that is all that mattered.

3) Are your former employees still on the market?
Something that few think about is that returning to the US (perhaps Mexico) would require ramping up labor, and it is likely that previous employees would not be inclined to rejoin the team… the team that left them behind

This could be particularly true for those who used low skilled labor… or worse yet, union labor.

4) If your previous employees did return, at what level would the perform?
I remember reading articles like “I trained my replacement in China before they fired me” a couple years back, and I just have to wonder what would happen should you rehire that person. Would you end up with lead paint on your line? Would they tighten all the screws? Or would a simple rounding error that would have been caught 3 years ago slip by?

At this point, I think the jury is still out. I recently found an interesting article entitled Can the US bring Jobs back from China? that looks at a couple of industries that say entire supply bases move, but in my mind while those clearly unable to return there are those that could return…. but should not expect a ticker tape parade in doing so.

What would you do if your former client came to you saying China hadn’t workout like they thought they would, they were sorry for not trusting you, and that they wanted to get back to where you were… would you believe them? would you factor in a couple extra points for good measure?

What about from the employee side? Would you believe your old boss? Would you work as hard for them, spend the extra effort, or would you simply punch the clock?

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3 Responses to “Do You Really Think You Can Just Leave China and Go Home?”

  1. Martin says:

    July 2nd, 2008 at 9:20 pm

    Richard, this a great article and you raise some good points.

    Call me cynical, but why not?

    If you decided to close up shop in the US — got your old employees to train their replacements in China before firing them — and you worked your new Chinese staff hard to make maximum profits for the duration of the good times why not just wait for a local senator to dream up a “re-invest in the US” scheme that gives you red carpet treatment for coming back state side ?

    Of course — that might not happen — and then there is nothing for it but to rent a local apartment in China and eat rice bowls from here on.

  2. Jalal says:

    July 5th, 2008 at 11:14 am

    Rich,

    I agree with many of the points raised, and to answer some your questions, from my experience with a company, in the food industry, who went to China then came back:

    1) Does the previous supplier base exist?
    Not as big, but yes it still exist.

    2) If your previous supplier base does exist, would they show you the love?
    Yes, except your old suppliers, you will be able to do business with them but under stringent credit and capacity conditions, it takes time to regain lost trust, but it can be done.

    3) Are your former employees still on the market?
    In the current labor market, a big YES.

    4) If your previous employees did return, at what level would the perform?
    Returning employees should feel bitter because of the experience, but generally they are glad to get their former coworkers/ work environment back,and if management is competent enough, performance and quality will surpass the Chinese ones.

  3. Rich says:

    July 8th, 2008 at 2:45 am

    Jalal

    Thanks for sharing your views on this. For me, I am only working with gut feeling and a few conversations, and it is something that I think companies should really consider. especially your point 2…

    R