China, Inc. Was Another Overhyped And Destructive Management Fad

Sorry: I (ace) accidentally posted Buck Throckmorton's post under the previous posts, instead of at the top of the page. I'll leave this up for a while because few have seen it.

During a recent conference of regional business leaders at which I was in attendance, an executive of one company was asked about tariffs and the global supply chain squeeze, and what impact they were having. He started his response by stating that “China, Inc. was another overhyped and destructive management fad.” He went on to state that Trump’s Chinese tariffs turned out to be a welcome catalyst for many businesses to finally start disengaging from China, and that businesses shocked by current supply-chain problems from China are as delusional as the GE executives who believe their company keeps struggling because it just isn’t pushing Six Sigma hard enough.

His comment about China, Inc. caused me to recall two conversations I had about ten years ago with two separate business executives.

1) I had a customer (“Acme”) which manufactured a product used by many other businesses. Acme manufactured its product at three locations – at its original US plant, at a “maquiladora” plant on the Mexican side of the Rio Grande, and at a plant in China. The CEO told me that he was worn out from problems with his Chinese manufacturing operation, and that he was pulling out of China and moving that manufacturing to either India or Vietnam. The Chinese plant was constantly missing quality goals, changing managers without notice, ignoring content specifications, and at one point the manufacturing was actually moved to another plant without his knowledge. For various reason related to sourcing, marketing, concentration, and labor costs, he remained committed to his model of maintaining one domestic plant, one maquiladora plant, and one Asian plant…but he was fed up with China and getting out.

2) Shortly thereafter on a college football weekend, I ran into an old college acquaintance (“Ben”) who was now an executive with a regional retailer (“Bravo.”) Ben and I had a conversation about his problems with goods sourced from China. Ben had just returned from China where he was dealing with the same problems that Alpha’s CEO had told me about, and Ben was about to head right back to China because quality, inventory problems, and customer dissatisfaction were becoming a huge issue for Bravo. He had to find a way to fix the problems in China. I asked him why he didn’t just find other sourcing if these Chinese problems were so pervasive. He replied that China is ground zero of global manufacturing, that the infrastructure and supply chains are all there, and that all his competitors were all sourcing from China, so he had to do so too. In other words, “We must follow the management fad and source from China because everyone else is.”

Alpha understood that Chinese manufacturing was inferior to its US and Mexican manufacturing, so it disengaged from China before it could cause any more problems. Bravo on the other hand was not going to ditch China until its peers did so first, even though it was hardly a secret that Chinese manufacturers were producing products that were inferior, sometimes dangerous, and often deadly. Do you remember any of these headlines?

Toxic Chinese Drywall Creates A Housing Disaster (NPR – 2009)

China dairy products found tainted with melamine (BBC – 2010)

Two Chinese companies and an American importer charged in pet food poisoning (NYT – 2008)

US seizes tainted toothpaste from China (Reuters – 2007)

These headlines are old news - all from more than 10 years ago - and there are hundreds more just like them. The problems that Alpha and Bravo were having with China at that time were not unique, rather they were exactly what thousands of other businesses were struggling with, and have continued to struggle with to this day in dealing with China.

So why did Bravo and so many other companies feel they had to try to make the China debacle work? Because their peers were committed to China, Inc. and they wouldn’t dare be the first company to concede that it was an awful fad.

Business fads are an addiction. Think of the damage that Six Sigma did to companies like GE and Ford, yet their executives never understood that many of their problems were because of Six Sigma distracting employees from their jobs, not despite Six Sigma.

There was seemingly no limit to the pain Chinese manufacturers could inflict on American importers that would get them to re-think their commitment to Chinese manufacturing…until the tariffs forced them to re-think it. And after the tariffs, the supply chain bottlenecks have now left them with empty warehouses. Oh, and don’t forget the Chinese slave labor which left some of their customers pretty disgusted.

The good news is that if you are currently an Executive or a Director at a company, and you were to propose outsourcing to China right now, you might be committing career suicide.

China, Inc. was another awful business fad that is finally falling out of favor. It’s a shame it went on as long as it did.

(buck.throckmorton at protonmail dot com)

posted by Buck Throckmorton at 05:43 PM

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