Trickling Down - Chinese Off-shoring
A couple weeks ago, I had the opportunity to meet with a top manager from one of China’s largest textile companies and tour one of the 100 or so factories that they contract with or own throughout China. The company - a state-owned enterprise (SOE) founded under government directive in the 1950’s - is a shining success story in China’s public sector, exporting more than USD 3 billion in clothes every year to almost every major clothing label in the world. This transition, from a company immune to market forces to a fierce global competitor in its own right, represents how China has, as Barry Naughton puts it, “grown out of the plan.”
But in order to remain competitive, this SOE is currently offshoring large percentages of its workforce to Indonesia (10 percent), Cambodia (8 percent), Thailand (1 percent) and has plans to contract factories in Bangladesh in the near term. This point is extremely significant, as the company is state owned and is thus expected to be fiercely nationalistic in its business practices.
The manager I spoke with had no reservations about the off-shoring. As he saw it, by shipping apparel jobs overseas, he was helping, not harming the Chinese worker. As he put it, “Off-shoring is good for China. Think about it, textiles used to be the number one export industry for China, but today electronics have surpassed textiles. That’s good for Chinese workers because they can make more money manufacturing electronics.”
This trend, often referred to as the “Flock of Geese” effect - where countries pass their low-value-add industries off to less developed markets as they develop - is indeed taking place in China. In 2007, China’s principal exports were office equipment (USD 87.1b) followed by telecoms equipment (USD 68.5b) and then apparel and clothing (USD 61.9b) [Economist World In Figures 2007].
In light of the loyalty American workers expect from their companies, and the uproar over U.S. outsourcing to China, this anecdote speaks loudly; Chinese workers face intense outsourcing pressures and job insecurity the likes of which American workers will never understand, but the overall trend is towards higher value sectors and a stronger economy. This manager’s belief that he’s being a patriot by off-shoring might not find receptive ears in the States but rings true here in China.
