Pandora¿s Box

May 9, 2003
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Do you remember the story of Pandora? In Greek mythology, Pandora was a woman created by the gods and given to Epimetheus as a gift. Epimetheus was warned never to accept a gift from the gods. Sure enough, after he left to set about his work, Pandora opened the box she had been warned to avoid. The story says how in one fell swoop, she set upon the world ills and afflictions of body and soul.

China is not the stuff of myths, but its past, current and future political, economic and social situations have me concerned about the "box" that has opened in manufacturing there.

I was talking with several gage manufacturers who have started making entry level tools in China. Some of these suppliers had previously made these same tools in eastern Europe, and before that, domestically. The product moved eastward as the price of labor dropped. A local company that had gone out of business announced they sold their machine tools to a manufacturer in China. A number of electronics equipment suppliers have decided to move operations to China.

While I can’t blame manufacturers and suppliers for looking for lower costs, caution must be taken in choosing where one sets up shop. Chinese ways of business are fundamentally different than the Western approach. For example, Boston-based New Balance Athletic Shoe Inc. is embroiled in lawsuits with a Chinese manufacturer selling unauthorized versions of its entry level shoes. New Balance initially made and sold those shoes using the manufacturer, but decided to switch to more advanced versions and discontinue the entry level shoe. A recent Wall Street Journal article pointed out how the rush to manufacture in China has resulted in Chinese suppliers competing with the same U.S. companies who started the businesses there.

The record on Chinese trampling on intellectual property rights is notorious—just ask those in the software and entertainment industries.

As a member of the World Trade Organization, China has enforced some rules, such as a decision forcing a Chinese company to stop making counterfeit Yamaha motorcycles. But those occasions are few and far between.

Does this mean that we should do no manufacturing in China? No. But rather than run wholesale to China, manufacturers and suppliers should seriously consider the risks they run when they enter the Chinese market. That entry level set of calipers made under your brand today, could be your competitor tomorrow. That computer or automotive part you subcontract to a Chinese facility this year has a strong possibility of winding up in your competitor’s hands next year. What is the solution?

Unlike Pandora, manufacturers and suppliers must open the "box" to China slowly, always with a mind to slam it shut should their Chinese partners release their own products from the box. Such an approach may seem overly cautious, but it is likely to keep unnecessary ills at bay and preserve the one thing that even Pandora was able to keep—hope.

What do you think? Do you have experience in China you’d like to share? Please drop me an e-mail with your views at williamst@bnp.com.

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