When Barry Culbertson began traveling to southern China in the mid-1990s, motorcycle taxis were essential to his daily commute.
At that point, the hotel nearest his new factory was remote enough in the Guangdong province that regular cabs didn’t service it.
Each morning, he’d hop on the back of the bike with his Chinese partner (English name, Michael), an ambitious youngster who had left his previous partner’s factory to branch out into his own at Mr. Culbertson’s urging.
That gave Mr. Culbertson, now general manager of Power Products Unlimited Inc., a front seat to the rise of the Pearl River Delta, now one of the greatest manufacturing regions of the world, encompassing Hong Kong, Guangzhou and newer industrial hubs that seemed to sprout overnight like Dongguan and Shenzhen.
In just four years, Michael’s factory leather workshop had more than 800 people making phone cases. The effort was worth it for the infinitesimal savings. The “China price,” as it became known, helped the company grow.
“That’s happened thousands and thousands of times in southern China over the last 10 years,” Mr. Culbertson said at a China Breakfast Briefing on Nov. 2 providing a snapshot of economic trends.
But things are changing in one of China’s powerhouse regions, both for good and bad as the country’s economic engine slows and its growth structure matures.
Mr. Culbertson said the Taiwanese and Hong Kong merchants that paved the way in Guangdong have slowly retreated as mainland Chinese gain more prominence. Massive factories from giants like Nissan have moved into once-remote locations. Even small manufacturing partners have grown more professional and responsive. Infrastructure has greatly improved, both from the standpoint of roads, bridges and airports and the ability to serve the world using better freight services and air connections.
Though the company has since consolidated work from Michael’s factory to a different location near Shenzhen, Mr. Culbertson doesn’t foresee a mass exodus of factories from China as some have predicted. China owns the supply chain for many industries, which makes it hard for one piece to pack up and leave.
“I don’t think China is going to lose their edge in the foreseeable future. They have all of the necessary components that you need,” Mr. Culbertson said.
Still, rising labor costs are forcing some companies to foreign destinations or toward the Chinese interior, while others are looking to offset those costs in the form of productivity gains.
That was the case of CBM, a motor manufacturer in Changzhou, China, after it teamed up with Atlanta-based East West Manufacturing on a joint venture.
According to Karen Loch, a Georgia State University professor who has conducted case studies with various American manufacturers in China, CBM chief Wang Jian told her on a recent visit that his labor costs rose eight fold in seven years, requiring a relentless focus on trimming waste in the production process to maintain competitiveness.
He’s also fought the curse of Chinese New Year, where many migrant workers stay home after their long break, by tying bonuses to team goals and awarding them upon their return to work.
She said another firm, Virtus Manufacturing, faced the challenge of becoming one of the first foreign-owned enterprises in its province, then dealing with the issue of retroactive labor rate rises and the added expense of social insurance, which companies are responsible for paying to the government.
Dr. Loch also shared insights from her visit with Boston-based Continuum Innovation, a consulting firm helping consumer products giants adapt to the Chinese market. For upwardly mobile families, one case study found, diapers had to be marketed on their advantages as a tool for easier sleep and thus, better childhood development. For consumers with less money, smaller packaging was introduced.
The Chinese consumer economy is changing rapidly, but disparities in society mean that all citizens aren’t equally in terms of commercial prospects, said Haizheng Li, a professor at Georgia Tech who looks at labor and human resources in the Chinese economy.
Rural areas have older labor forces as younger workers seek jobs in booming cities, and the educational gap between citizens in these respective regions is huge.
The Chinese economy is seeing some signs of slowing from its breakneck speeds of growth in the last 10 years, he said, which will impact both imports and exports in the coming years, but the sheer size of the economy creates a variety of opportunities.
For more information on the China Breakfast Briefing program, contact the China Research Center at www.chinacenter.net. The event was conducted in partnership with the Confucius Institute at Georgia State University, the Georgia China Alliance, and the World Trade Center Atlanta.