Term Paper: Economics in China (Manufacture)

Pages: 10 (3958 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business  ·  Buy This Paper

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[. . .] This leads to managerial posts in China being filled with family members, friends and co-workers rather than only qualified people.

Further, the relationships are based on trust, obligation and dependency. There is always an element of give and take in their life. They have also now realized the need of managerial improvements through the introduction of new technologies in terms of both hardware and software. This turning point in the traditions of China came through the third plenary session of the Eleventh Central Committee of the communist party held in December 1978. This is known to many people as the Managerial Revolution in China. This began with the introduction in 4,000 enterprises in Sichuan, anew system of management techniques in 1979. Some of these types of units were also set up in Hunan and Anhui provinces. The system was rapidly expanded to over 36,000 industrial enterprises. The numbers seem to be very high, but they are only 16% of the total number of state owned enterprises in China, but they are also 70% of the ones that make profits.

Through all this, a system was introduced the major tasks for reform. These consisted of strengthening the economic responsibility system, improving management in the state enterprises, better planning, control and business control. This was followed up through the promotion of capable people and reducing overstaffing through systems of reorganization. Then the worker discipline was improved through very strict penalty and reward systems which again improved financial control. The rewards consisted of many types including group incentives, individual rewards, and moral persuasion. In today's China the moral element has been combined with material rewards. In spite of this the salary structure in China is still quite low. Still this has given opportunities to many of the people in the second and third level to afford better apartments and decent clothes. During the period from 1990, the political element has become less significant all over China, and the element of money has become the deciding factor. Employment is becoming difficult as the companies now have to restructure to exists, or even close down. It is said that China has a high number of over a million millionaires, yet there are also 200 million unemployed Chinese. The numbers of unemployed in China is probably the highest in the world, and there are 3% unemployed in the urban areas. This is however having the good effect of forcing many young Chinese to start setting up private limited companies than finding out a job.

It is clear that there is a great attraction in North America for reducing manufacturing in the country and going off to china for starting production. There is however some manufacturers who still believe in continuation of their manufacturing in North America. One such company is called Plantronics. This particular company is based in Santa Cruz in California. It is a leader in the headset and call center equipment business. The company also has a big production unit in Tijuana in Mexico. The factories even in Mexico have been a lot affected by the migration of manufacturing to China because of the cheaper labor that is obtainable in China. The workers in Mexico are paid much less than the Americans, but their wages are still higher than the wages that are prevalent in China. The reason why this company wants to continue in Mexico is because many of the workers in Mexico have been working for many years in the company and they are aware of the principles that the particular company follows. (Newsmakers)

This helps the company also to reduce costs in different ways that may not be possible to do in China through the manufacture by a contract manufacturer. The policy of contract manufacture is suitable for a manufacturer who makes only a single product in large volumes, and many suitable manufacturers are available. This company wants the goods to be produced at a very high quality level and with very low defects and this is the reason why they want to manufacture in Mexico and United States. They are also manufacturing a wide range of products in one factory, and their method of production cannot be compared to any other unit. The company accepts that labor costs are lower in China, but in itself, labor costs make up only about 1.5% of the costs for this company, and this is not so significant for this company. (Newsmakers)

The biggest element of costs for this company is in terms of materials which are in anyway being purchased from China, because the materials are found to be cheaper there. In terms of a comparison to the cost of the finished product, it is still very low. Instead the company is trying to reduce costs through product design improvements. They had recently used such a team in Mexico, and one of the changes that they suggested was the use of a plastic screw instead of one made from metal. This is also an improvement in the design of the end product, as the product becomes lighter. This saves some money for the company. There are also arguments that in the end one could use more quantity of labor in China.

The labor element is currently 1.5% of their costs and they could at most cut it down to say 0.5% by shifting to China. This may give them a 1% cost advantage. As against this 1%, they would have to consider the cost of air-freighting all the material back from China to the United States. All their sales have to be dispatched from their plant at San Diego, and they are now able to bring everything back from Mexico to that area in one hour on a truck. This proximity also enables them not to hold large stocks, and they can get the material when they need it. The products can thus move straight on to the sales shelves. This reduces inventory costs, and even the stores do not want to keep long gaps from their order and delivery by the manufacturer. Thus it seems to them that manufacture in China is not feasible for them. (Newsmakers)

In the United States it seems that there is a lot of concern about the impact of manufacturing in China that is causing on the manufacturing in the country. One of the main groups of people that it has got worried is the politicians, and they want to show some sort of action. The area of action these people are concentrating on is the very large surplus that China has in its trade with United States. This is leading a lot of influential people to say that China is keeping its own currency called Yuan at a very low level. On the other hand some financial experts like Fred Hu, the managing director at Goldman Sachs in Hong Kong hold an opposite view. They feel that this is a wrong focus on China and could do a lot of damage. Their argument is that the surplus that is seen in China is because of the shift of export oriented industries from Japan, Korea and Taiwan to China. (Online Asia)

This has led to a situation where China also had imported about $300 billion in their total imports. This put the total trade surplus of China in a different light and being probably near the $60 billion position. The total surplus with the United States is still $103 billion, but that is counterbalanced by a deficit with the trade in Asia by about $60 billion. Their deficit with Taiwan alone was about $30 billion. Regarding the other critical issue of manufacturing, the correct position is that they are manufacturing items that are not being manufactured very much in the United States - in short in sectors like light industry. One of their major manufactures is personal computers, but there are not very many personal computers being made in the United States these days. The truth is probably that the manufacturing in the United States is now highly limited and probably confined only to some specialized items like automobiles or steel, and the workers in those areas. The competition for them comes from Japan, Korea and maybe from Europe, but not China. (Online Asia)

According to this analyst, their total exports contain a lot imports from Japan, Korea and Taiwan, and this probably amounts to almost 75% of the value. The only thing they have is a lot of jobs. According to him, there are probably more than 100 million people involved in the manufacturing workforce in China, and out of them, probably 35% are related to the manufacturing involved for exports. The estimates for unemployment in China is also very high, and around 8% to 10% in the cities. This forces them to create an export growth of 15% to 20% so that the unemployment rate just does not climb up even further… [END OF PREVIEW]

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