China: a balanced viewpoint

Automotive Design & Production, April, 2004 by Kim Korth

* A center for innovation. While this also relates to their propensity to steal Western intellectual property, China is currently the center of innovation for many products and processes. Ignoring this opportunity and threat puts many Western suppliers and OEMs at risk.

* Some products can be produced significantly cheaper in China. While the strategist Michael Porter will tell you labor rates are the least sustainable competitive advantage, there are certain products and components that can be made much less expensively in China. In some instances the cost difference is 40-60%. If your product is basically a low value-added commodity and/or highly labor intensive, it probably can be made more cheaply in China.

Last but certainly not least, if you decide to go to China, make it a strategic vs. a reactive decision. Unless you have determined that you want to participate in the Asian market long term, do not establish a presence there strictly to ship product back to North America. That can be more easily done through a global sourcing strategy than by making a long-term commitment to a market you know nothing about. And be prepared. As the hype about the "China Miracle" begins to wane, it will soon be replaced by an equal level of hype about India.

By Kim Korth, President, IRN, Inc. kimk@irn-auto.com