Chinese Manufacturing: Quality Drives Growth


Since launching the new LNS Research website over two and a half months ago, one of the regions producing the most analyst inquiries has been Asia/Pacific and, more specifically, China. As of the publishing of this blog post, LNS Research has had 385 industrial companies complete profiles and provide benchmark performance data across a number of important KPIs, including Overall Equipment Effectiveness, On Time and Complete Shipments, and Successful New Product Introductions.

LNS Research Benchmark Profiles by Region

In terms of regions, Asia/Pacific (with Australia and New Zealand counted separately) is the third most prevalent at 16%. Interestingly, the share of analyst inquiries from that region is much higher than this representation, easily accounting for more than double the share.

Since most of our published research to date has been on the topic of Quality Management in Manufacturing, this is the area where most of our inquiries have come from. However, these inquiries have generally aligned with two major themes, both of which are very telling with regards to the current state of Chinese Manufacturing and what we can expect over the coming years and decades.

Chinese Manufacturing Theme One: Quality and Innovation will Drive Growth

Chinese manufacturing companies are not satisfied with being the world's factory. No one argues with the fact that China's growth in manufacturing over the past 20 years has been impressive on the aggregate. However, when I talk with actual Chinese companies on the ground, there seems to be a general feeling that things are just getting warmed up. The fact of the matter is, many other countries in China's backyard have been just as impressive but perhaps less heralded. The Chinese companies we speak with seem very interested in moving into new industries, selling into new geographies, and taking on new roles in the value chain.

Areas we have seen the most interest include:

Industries:

  • Automotive
  • Industrial Equipment
  • Electronics
  • Telecommunications Equipment
  • Food and Beverage
  • Life Sciences

Geographies:

  • Africa
  • Middle East
  • South America
  • Other Asia Pacific Countries
  • North America
  • Europe

Areas of the Value Chain:

  • Design and Innovation
  • Sales
  • Service
  • Marketing

I believe many Chinese manufacturers also realize that this is no trivial task. These companies realize this transformation will take a new approach to people, process, and technology and will also take a renewed focus on quality, innovation, and operational excellence. In fact, we have now met more than a few Chinese manufacturing companies that over the past several years have created new positions in the organization around quality, in some cases a Chief Quality Officer, and are also looking to adopt EQMS to support these initiatives.

China Manufacturing Theme Two: Coming to America

Show me any Fortune 500 company today (except maybe Google...) and I will show you a company that has a presence in China. These large companies have spent decades building out capabilities to gain a competitive advantage and deal directly with Chinese manufacturing firms. There are, however, 1000s of small and medium sized companies in North America (and Europe) that do not have the scale nor confidence to go directly to China.

Traditionally, many Chinese manufacturing firms have also been reluctant to make the needed investments to start targeting North American and European firms doing business on the home turf. This is changing. As Chinese firms invest in quality systems and processes across operations, as well as build skills in other areas of the value chain, these manufacturers will subsequently develop the capabilities to open offices and market directly to North American companies.

The coming years are positioned to be a continued test on the U.S. regarding free trade and globalization. Chinese companies will likely continue to build and acquire capabilities within the U.S., just as U.S. companies have done in China for decades. This, of course, brings up many questions around security, level playing fields, government subsidies, government ownership, and more - but unfortunately we will have to leave those topics for other experts and forums.

One thing is for certain, though, competition will be fierce over the coming years, and quality will continue to be a key driver of growth for the region.

Learn How You Can Integrate Quality Across the Value Chain

You might also be interested in:

Building EQMS into your IT Architecture

Quality Management System: Building a Better Culture

Realizing Operational Excellence through EQMS

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All entries in this Industrial Transformation blog represent the opinions of the authors based on their industry experience and their view of the information collected using the methods described in our Research Integrity. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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