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Jack Welch: China losing competitiveness. Must Create '10,000 Apples'

29 points by chugger 15y ago

noahl 15y ago
I found some data on this here: http://www.bls.gov/fls/china.htm http://www.bls.gov/fls/china.htm It has a table of cost per hour of Chinese manufacturing workers from 2002 to 2008. They went from $0.57 (2.1% of US wages) to $1.36 (4.2% of US wages) over that time. If this is in fact what he's talking about, then wages in China are still incredibly low. Does anyone know what wages in Vietnam or Africa are like?
- Hyena 15y ago
  The problem is that a wage-to-wage comparison with their export markets isn't important. China's advantage is stacking low wages + large staff against high wages + machines.
- chugger 15y ago
  I found this. Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b4179011091633.htm http://www.businessweek.com/magazine/content/10_21/b41790110... Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. $100 a month. that's amazing.
  - tsotha 15y ago
    How much does it cost to live in Vietnam, though?
    - shoham 15y ago
      Rhetorical question, I suppose, but I 'lived' in Vietnam (backpacking) for about a month and spent less than ten dollars a day (significantly more than I would have if I lived there for say a year and cooked my own meals, and had rent instead of staying in guest houses). Probably around $3 a day for a middle class person would suffice, or $4,000 a year for a middle class family of four. Hard to compete with that!
      - tsotha 15y ago
        Actually, it was an honest question. Even if the only expense was food, absent government help one person would have a hard time staving off malnutrition on that much money here in the US. That's living under a bridge and wearing trash bags to work. I don't really understand why that's the case, either.
        shoham 15y ago
        "Even if the only expense was food, absent government help one person would have a hard time staving off malnutrition on that much money here in the US. That's living under a bridge and wearing trash bags to work." Exactly. "I don't really understand why that's the case, either." I'm not sure I understand the question. If you mean, "Why do these other countries cost less to live in?" it is the case that some things cost the same in both 1st world and developing countries. Some of it goes back to Brenton Woods, and some of it goes back further. It's a really good question, but it seems that the more 'developed' a country the higher the wages, AND the higher the cost of living, which in a lot of areas leads to equillbirum, but certainly not in every area. One example would be the family car, which might cost 20K new in the US, and about the same in Vietnam, so only very rich people in Vietnam can afford a new car. One of the reasons the U.S. got out ahead on this industry is because a lot of the inventors in the field were, and have been American, and because of trade deals, and tariffs that used to protect the industry. It's still the case that people want their cars to come more highly trained workers than say their shoes (not life or death if they're junk). And those workers end up costing more to train and keep, thus the high price on this kind of good.
        tsotha 15y ago
        Well, I was thinking specifically about food. Food production in the US is highly automated and subsidized in a dozen different ways. So why is food in the US more expensive than food in Vietnam? Regulatory overhead? Distribution costs?
        shoham 15y ago
- pnathan 15y ago
  In a race to the bottom, we all lose.
  - ajross 15y ago
    No, that's just wrong. The people at the bottom certainly don't lose. Japan was at the bottom (of industrial economies) in the post war world and leveraged those low wages to re-industrialize and get to the top. China did the same thing in the 80's and 90's, and is now seeing upwards wage pressure as they approach a first-world level of economic activity. Next up will be the Indias and Vietnams of the world. Hopefully eventually subsaharan africa will get there. This is a good thing, overall. Yes, working conditions at "the bottom" are often huge problems (though again: remember the comparison is to abject poverty). And yes, rapid change causes people to lose jobs elsewhere faster than they can be replaced, and that sucks for those people. But to argue that chasing cheap wages is inherently bad is isomorphic to arguing that poor people should always be poor, and that's much less palatable to me.
    - tadfisher 15y ago
      Japan and China also had an advantage over the Industrial Revolution countries in that all of their capital didn't have to be created anew. It took 150 years for the US to get to where Japan got in under 60.
- ippisl 15y ago
  The % of US wages doesn't make sense. many manufacturing workers in the US earn minimum wage , which is between $5.15-$8.5 per hour. So the figure should be 15%-20% of US wages.
  - ww520 15y ago
    Total cost? Health benefit, Social Security, Medicare, Unemployment insurance, etc?
    - corysama 15y ago
      The chart at the bottom of the page pegs US manufacturing employees as costing $32.26/hour in 2008.
wmeredith 15y ago
I find the premise of this article (the 10,000 Apples thing) laughable-maybe that's the point. Every business in the world is struggling to create 1 Apple right now (except maybe Exxon-which is bigger today?). The chances of 10,000 Apples coming out of China's me-too business culture is too much of a long-shot to be overstated.
- danmaz74 15y ago
  Me-too business culture? Wasn't it what was said about Japanese business culture when it started to really grow after the war?
  - chugger 15y ago
    And look at Japan now. They're currently in 2 decade-long recessions and they're in even worse shape than us. http://en.wikipedia.org/wiki/Lost_Decade_(Japan) http://en.wikipedia.org/wiki/Lost_Decade_(Japan) http://www.washingtonpost.com/wp-dyn/content/article/2008/10/10/AR2008101002928.html http://www.washingtonpost.com/wp-dyn/content/article/2008/10...
    - jgamman 15y ago
      considering what's going on at the moment i think one could make the case that they were just two decades ahead of you... ;-)
      - chugger 15y ago
        What's happening now is nothing like what's happening in Japan.
    - danmaz74 15y ago
      That's not at all because of a lack of global brands or innovative products though: Toyota, Sony, Honda, Hitachi, Panasonic, just to name the first ones that came to my mind...
    - chugger 15y ago
saraid216 15y ago
So the news was that Jack Welch reads the news, just like the rest of us?
hcack 15y ago
From a bloomberg (business more than tech) point of view, Apple may be just another "global brand." Apple created the first successful personal computer, and personal computing has since come to define the the we live in. That's slightly harder to replicate. There's more to Apple than their present bottom line.
jisaacstone 15y ago
There has always been countries with lower wages than China, so this can not be the issue. China has better infrastructure and lower levels of graft than other low-cost countries, this is what has kept it competitive. Not sure what the point of China needing to create '10,000 apples' is. If manufacturing jobs are needed better to work for the existing Apple, maybe? Or maybe the point is that China needs to create global brands to stay competitive? This may or may not be true but without metrics it is just one person's opinion. And China has already started creating global brands. "In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier http://en.wikipedia.org/wiki/Haier "In Q2 2011, Lenovo was the third largest vendor of personal computers in the world." http://en.wikipedia.org/wiki/Lenovo http://en.wikipedia.org/wiki/Lenovo ... etc
- chugger 15y ago
  That is exactly the issue, and it's already happening. Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b4179011 http://www.businessweek.com/magazine/content/10_21/b4179011 Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. Once it becomes too cost-prohibitive to manufacture products in China due to inflation, HP, Samsung, Sony, Dell, Apple,etc. has no choice but to move their operations to Vietnam, India, etc. China's main competitive advantage is being eroded by inflation. They need to move up the supply chain from being a manufacturer to seller/marketer, where they can charge more money based on their brand (Apple/BMW/LV/etc.).
  - jisaacstone 15y ago
    Just I'm not sure that higher wages == no manufacture. Germany still makes things sometimes? The real challenge for China would be increasing the quality of their products and/or manufacturing innovation.
- r00fus 15y ago
  > "In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier http://en.wikipedia.org/wiki/Haier When talking about brand strength, it's not market share that counts, it's profit share. Sometimes (often) it's coincident (read: Microsoft, Intel, Cisco, etc)... sometimes it's not (BMW, etc).
johnohara 15y ago
Apple has about 50,000 employees worldwide. Creating 10,000 Apples in China would in theory create 500,000,000 jobs -- or about 30% of the total population. Jack Welch's comment might not be too far off the mark.

29 points by chugger 15y ago

noahl 15y ago

I found some data on this here: http://www.bls.gov/fls/china.htm http://www.bls.gov/fls/china.htm It has a table of cost per hour of Chinese manufacturing workers from 2002 to 2008. They went from $0.57 (2.1% of US wages) to $1.36 (4.2% of US wages) over that time. If this is in fact what he's talking about, then wages in China are still incredibly low. Does anyone know what wages in Vietnam or Africa are like?

Hyena 15y ago
The problem is that a wage-to-wage comparison with their export markets isn't important. China's advantage is stacking low wages + large staff against high wages + machines.
chugger 15y ago
I found this. Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b4179011091633.htm http://www.businessweek.com/magazine/content/10_21/b41790110... Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. $100 a month. that's amazing.
- tsotha 15y ago
  How much does it cost to live in Vietnam, though?
  - shoham 15y ago
    Rhetorical question, I suppose, but I 'lived' in Vietnam (backpacking) for about a month and spent less than ten dollars a day (significantly more than I would have if I lived there for say a year and cooked my own meals, and had rent instead of staying in guest houses). Probably around $3 a day for a middle class person would suffice, or $4,000 a year for a middle class family of four. Hard to compete with that!
    - tsotha 15y ago
      Actually, it was an honest question. Even if the only expense was food, absent government help one person would have a hard time staving off malnutrition on that much money here in the US. That's living under a bridge and wearing trash bags to work. I don't really understand why that's the case, either.
      - shoham 15y ago
        "Even if the only expense was food, absent government help one person would have a hard time staving off malnutrition on that much money here in the US. That's living under a bridge and wearing trash bags to work." Exactly. "I don't really understand why that's the case, either." I'm not sure I understand the question. If you mean, "Why do these other countries cost less to live in?" it is the case that some things cost the same in both 1st world and developing countries. Some of it goes back to Brenton Woods, and some of it goes back further. It's a really good question, but it seems that the more 'developed' a country the higher the wages, AND the higher the cost of living, which in a lot of areas leads to equillbirum, but certainly not in every area. One example would be the family car, which might cost 20K new in the US, and about the same in Vietnam, so only very rich people in Vietnam can afford a new car. One of the reasons the U.S. got out ahead on this industry is because a lot of the inventors in the field were, and have been American, and because of trade deals, and tariffs that used to protect the industry. It's still the case that people want their cars to come more highly trained workers than say their shoes (not life or death if they're junk). And those workers end up costing more to train and keep, thus the high price on this kind of good.
        tsotha 15y ago
        Well, I was thinking specifically about food. Food production in the US is highly automated and subsidized in a dozen different ways. So why is food in the US more expensive than food in Vietnam? Regulatory overhead? Distribution costs?
        shoham 15y ago
pnathan 15y ago
In a race to the bottom, we all lose.
- ajross 15y ago
  No, that's just wrong. The people at the bottom certainly don't lose. Japan was at the bottom (of industrial economies) in the post war world and leveraged those low wages to re-industrialize and get to the top. China did the same thing in the 80's and 90's, and is now seeing upwards wage pressure as they approach a first-world level of economic activity. Next up will be the Indias and Vietnams of the world. Hopefully eventually subsaharan africa will get there. This is a good thing, overall. Yes, working conditions at "the bottom" are often huge problems (though again: remember the comparison is to abject poverty). And yes, rapid change causes people to lose jobs elsewhere faster than they can be replaced, and that sucks for those people. But to argue that chasing cheap wages is inherently bad is isomorphic to arguing that poor people should always be poor, and that's much less palatable to me.
  - tadfisher 15y ago
    Japan and China also had an advantage over the Industrial Revolution countries in that all of their capital didn't have to be created anew. It took 150 years for the US to get to where Japan got in under 60.
ippisl 15y ago
The % of US wages doesn't make sense. many manufacturing workers in the US earn minimum wage , which is between $5.15-$8.5 per hour. So the figure should be 15%-20% of US wages.
- ww520 15y ago
  Total cost? Health benefit, Social Security, Medicare, Unemployment insurance, etc?
  - corysama 15y ago
    The chart at the bottom of the page pegs US manufacturing employees as costing $32.26/hour in 2008.

wmeredith 15y ago

I find the premise of this article (the 10,000 Apples thing) laughable-maybe that's the point. Every business in the world is struggling to create 1 Apple right now (except maybe Exxon-which is bigger today?). The chances of 10,000 Apples coming out of China's me-too business culture is too much of a long-shot to be overstated.

danmaz74 15y ago
Me-too business culture? Wasn't it what was said about Japanese business culture when it started to really grow after the war?
- chugger 15y ago
  And look at Japan now. They're currently in 2 decade-long recessions and they're in even worse shape than us. http://en.wikipedia.org/wiki/Lost_Decade_(Japan) http://en.wikipedia.org/wiki/Lost_Decade_(Japan) http://www.washingtonpost.com/wp-dyn/content/article/2008/10/10/AR2008101002928.html http://www.washingtonpost.com/wp-dyn/content/article/2008/10...
  - jgamman 15y ago
    considering what's going on at the moment i think one could make the case that they were just two decades ahead of you... ;-)
    - chugger 15y ago
      What's happening now is nothing like what's happening in Japan.
  - danmaz74 15y ago
    That's not at all because of a lack of global brands or innovative products though: Toyota, Sony, Honda, Hitachi, Panasonic, just to name the first ones that came to my mind...
  - chugger 15y ago

saraid216 15y ago

So the news was that Jack Welch reads the news, just like the rest of us?

hcack 15y ago

From a bloomberg (business more than tech) point of view, Apple may be just another "global brand." Apple created the first successful personal computer, and personal computing has since come to define the the we live in. That's slightly harder to replicate. There's more to Apple than their present bottom line.

jisaacstone 15y ago

There has always been countries with lower wages than China, so this can not be the issue. China has better infrastructure and lower levels of graft than other low-cost countries, this is what has kept it competitive. Not sure what the point of China needing to create '10,000 apples' is. If manufacturing jobs are needed better to work for the existing Apple, maybe? Or maybe the point is that China needs to create global brands to stay competitive? This may or may not be true but without metrics it is just one person's opinion. And China has already started creating global brands. "In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier http://en.wikipedia.org/wiki/Haier "In Q2 2011, Lenovo was the third largest vendor of personal computers in the world." http://en.wikipedia.org/wiki/Lenovo http://en.wikipedia.org/wiki/Lenovo ... etc

chugger 15y ago
That is exactly the issue, and it's already happening. Why Factories Are Leaving China http://www.businessweek.com/magazine/content/10_21/b4179011 http://www.businessweek.com/magazine/content/10_21/b4179011 Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. Once it becomes too cost-prohibitive to manufacture products in China due to inflation, HP, Samsung, Sony, Dell, Apple,etc. has no choice but to move their operations to Vietnam, India, etc. China's main competitive advantage is being eroded by inflation. They need to move up the supply chain from being a manufacturer to seller/marketer, where they can charge more money based on their brand (Apple/BMW/LV/etc.).
- jisaacstone 15y ago
  Just I'm not sure that higher wages == no manufacture. Germany still makes things sometimes? The real challenge for China would be increasing the quality of their products and/or manufacturing innovation.
r00fus 15y ago
> "In 2010 the Haier brand had the world's largest market share in white goods, with 6.1 per cent" http://en.wikipedia.org/wiki/Haier http://en.wikipedia.org/wiki/Haier When talking about brand strength, it's not market share that counts, it's profit share. Sometimes (often) it's coincident (read: Microsoft, Intel, Cisco, etc)... sometimes it's not (BMW, etc).

johnohara 15y ago

Apple has about 50,000 employees worldwide. Creating 10,000 Apples in China would in theory create 500,000,000 jobs -- or about 30% of the total population. Jack Welch's comment might not be too far off the mark.