Beyond size: Chinese manufacturing industry requires innovation and operations excellence to become powerful global leader
Publish date: 18 November 2011
The China manufacturing industry has long been regarded as highly competitive in the global market, mainly driven by its cheap labor. However, according to the report, "Where is China Manufacturing Industry Going – Deloitte China Manufacturing Competitiveness Study 2011," which is to be released at the 5th Annual Conference of Asian Manufacturing, what has become increasingly important is whether China’s labor resources can qualitatively and quantitatively satisfy the needs arising from the structural changes of the industry. This is against the background for China to urgently improve its industrial sector. At present, innovation is taken as the biggest challenge for China manufacturing industry to maintain its competitiveness. Chinese manufacturers must adopt forward-looking strategies, strive for innovation, and improve operations in order to achieve sustainable growth.
Based on a survey with senior executives from 150 manufacturing companies in China, and interviews with executives from some leading enterprises in major sectors, the report contains an in-depth study on the development and competitive landscape of China’s manufacturing industry in relations to other Asian countries. At the same time, it also reviews the future trends and challenges of the industry, as well as the corresponding strategies that companies should adopt.
The research findings indicated that, based on the overall development of the manufacturing industry, 53% of the interviewees believed that the China manufacturing industry was in an absolute advantageous position in Asia. However, when focusing on different individual factors, interviewees' ratings vary substantially from county to country, which fully reflected the different positioning of these countries in the global value chain.
Deloitte stated in the report that besides having sufficient labor resources to cope with the structural transformation, other major forces driving the China manufacturing industry include infrastructure quality, continuous and systematic support from the government on technology research, and vibrant business environment. Ms. Rosa Yang, Manufacturing Industry Leader of Deloitte China said, "Based on an analysis on the number of graduates of different academic background in the next 10 years, we expect sectors with higher demand for quality labor, such as IT, mechanical engineering and chemical, will be able to enjoy sufficient and economical labor supply. However, for those traditionally labor intensive sectors, such as clothing, footwear & headgear, and simple finished products, problems related to labor shortage and increasing labor costs will deteriorate."
While a competitive environment is conducive to the development of Chinese manufacturing companies, they are also facing numerous challenges and pressures. According to the survey findings, currently these companies are most concerned about the followings: increase in tax costs, barriers for exporters to develop domestic markets, intellectual property protection and internal operation challenges.
Mr. Po Hou, Consulting Partner of Deloitte China, indicated that, "Besides growth, which is the top issue of concerns for private companies, other manufacturing companies are generally concerned about the innovation in products and services. Profitability is hurt by product assimilation driven by fierce and homogenous competition. Innovation in products and services and exploration of new market segments are the key to success for manufacturing companies. At the same time, companies should not be ignorant about optimizing its internal management."
Ms. Yang further explained that, "Chinese government's policies in supporting seven emerging strategic industries have set a clear development direction for its manufacturing sector. The development success of the seven sectors would determine whether China can transform from a sizeable manufacturing country to a strong manufacturing player. Deloitte believes that achieving operational excellence is one of the most important factors for Chinese manufacturing enterprises to enhance their competitiveness. Operational excellence can be achieved through various aspects. First, manufacturers need to develop innovative products and services, by deeply exploring market demands. Second, they should focus on their core business and improve efficiency via establishing a performance driven culture. Furthermore, companies can also boost their competitiveness through M&As, which are in sync with their corporate strategies and which helps strengthen its competitiveness. It is also pivotal for companies to improve risk management and control, and establish a risk alert system, which will prepare the management for new challenges, in additional to the conventional legal and risk hurdles."