China does not operate on the same economic principles as other countries
Despite being hailed as ‘the world’s workshop’, China’s reputation of being a reliable and responsible manufacturer is far from world-class. In his new book ‘Poorly Made in China’, intermediary and author Paul Midler exposes the pitfalls of manufacturing in China, debunking several myths in the process.
The first -- that China exists for the United States alone to make things for Wal-Mart -- is a fallacy, says Midler. The reality is that Wal-Mart’s business in China, in terms of outsourcing, is less than one per cent of total Chinese exports.
“It was a statistic that was widely published in 2008, that procurement for Wal-Mart out of China was steady at $9 billion. And steady does not necessarily imply something good there. It may have remained steady over the course of three years, but meanwhile Chinese exports were climbing 20 per cent during this period,” he told INSEAD Knowledge. “That the largest of the largest is less than one per cent is telling. The United States doesn’t take more than a fifth of China exports.”
“A manufacturer accepts an order for 500,000 pieces from a first-market importer that produces a unique design. Rather than merely fill the order, the supplier keeps the machine running and its people working until it produces a total of 700,000 pieces. The original customer gets his order for half million pieces, and then the factory sells the surplus of 200,000 pieces at a considerable markup.”
[This article is republished courtesy of INSEAD Knowledge, the portal to the latest business insights and views of The Business School of the World. Copyright INSEAD 2024]