IN CHINA Part III & IV:
On the factory floor
By Ottawa Business Journal Staff
Wed, Jan 19, 2005 9:00 AM EST
Wednesday, Jan. 19: Today we started early as we drove first to Dongguan, approximately 120 kilometres northwest of Shenzhen.
China is a land of contrasts in many ways. Along the highway you constantly see little plots of land where farmers cultivate tiny vegetable patches for produce they will sell in the city. They live on their plots in small shacks without apparent electricity or water. Yet, every highway I have seen so far has had tollgates operating with smart card-based transceivers on vehicles.
This morning we visited OCM Manufacturing's cable supplier. As a tribute to our business model, and with our purchasing office run by Leo, we were able to qualify this supplier quickly last year for some custom cable assemblies. It took Leo's team a couple of factory visits to finalize the designs and perform final inspection of the samples. Quality and delivery has been so far excellent so I expected an easy meeting.
We were greeted by a guard in uniform at the factory gate with a military salute (still common in China) and a nice welcoming sign at the building entrance with "OCM" and my name - nice touch, guys! The management team is here with Mr. Liu, owner and general manager, Ms Wang, sales manager, and Ms Lin, production manager. The company's head office is in Taiwan where Mr. Liu and Ms Wang live. Ms Lin is also Taiwanese, but she lives at the factory with the management team and the workers, and goes home to her family once a month.
We started with a factory tour. The plant has 280 employees, mostly women, including six cooks (one cook for the management team). The entire factory including living quarters is built on a 50,000-square-foot site and can produce 600,000 cables/month. The premises are well kept, the employees hard at work (no one pays attention to the visitors or me taking pictures) and Ms Lin is obviously a competent manager. Back at the boardroom Leo confirmed that she runs the plant independently, and he has been dealing directly with her from the beginning. Further praise from Mr. Liu, with further nodding from Ms Wang, and an embarrassing smile from Ms Lin tells me enough.
The meeting continued with a lengthy presentation of their quality system, which is redundant as the company is ISO 9000 certified. OCM has an interest in low volume/complex cable assemblies for one of our customers so the discussion concentrated on the documentation process and special requirements that are necessary for this type of work. The meeting was quite laborious – half Chinese, half English ... or rather 90 per cent Chinese and 10 per cent English. It reminded me of a scene from the movie "Lost in Translation".
Leo seemed pleased and relaxed in the conversation, so I trust him. Soon it is lunchtime and we are taken by our hosts to a private room in a nice restaurant where the conversation drifts to Taiwan and its future re-unification with China, and the recent death of Zhao Ziyang. Leo was a student in Beijing University during the Tiananmen Square events, so he had a definitive opinion on the subject. You can talk politics here, but it has to be done privately and with sensitivity.
Next we were back on the road to a visit to one of our PCB suppliers located in Humen, not far from Dongguan. Leo got lost in horrendous traffic, and as he struggled to find his way I tried not to think what would happen if we were in a serious accident. I have never had trucks and cars coming that close to my vehicle!
We finally arrived at the PCB plant where the welcoming committee included Mr. Yung, Mr. Kong and Ms Wan, all from Hong Kong. This is the entire sales team. The head office of this company is in Hong Kong, and in contrast to our cable supplier this morning, the company seems to be run by the head office. Their business cards do not even mention the factory address. Leo confirmed this later in the car on the way back to the hotel – he said that all factory visits and communications are always cleared first with Ms Wan. This model works well when everything goes smoothly, but breaks down as soon as a problem requires some direct interaction with the factory. To be fair, their record has been excellent so far and we are not concerned.
The factory tour was quick and impressive. The plant was clean, with an expansion in progress and there were no concerns from us. The next meeting is entirely in English and we discuss plans for next year. OCM wants to establish yearly agreements with scheduled shipments to simplify ordering and limit our inventory, while keeping the prices as low as possible.
A proposal from Ms. Wan will follow as soon as we provide complete product information. OCM needs to get ready for Pb-free (lead-free) manufacturing, and we discussed their plan and schedule to abide by the European Pb-free directive. The meeting adjourned with action plans on both sides and a photo opportunity in front of the building.
Soon we were back on the road to Shenzhen. Humen is located outside the Shenzhen Special Economic Zone (SEZ) so there is another border control point to go through, where the police check the residency permit for Chinese people and the passports of foreigners. During my last visit 18 months ago, I remember this was a lengthy delay, but this time the police officer did not even pay attention to our car, although he clearly saw me, obviously non-Asian, sitting in the back. Another small indication that China is liberalizing.
Back at the hotel I now I am already exhausted, but there is still dinner to have with Leo and Mr. Jun, Leo's partner at the purchasing office.
Cheers,
Michel
IN CHINA Part IV: Manual labour vs. automation
By Ottawa Business Journal Staff
Thu, Jan 20, 2005 12:00 PM EST
Thursday, Jan. 20: Today there was a change of plan. The contract manufacturer we were supposed to visit is under a rotating power blackout order from the South-China Power Grid. With the growth that China has been experiencing, there is not enough power in southern China – in fact, I am told, not enough in the whole of China. Companies must reduce their consumption to an agreed level for eight-hour periods every week, with the threat of heavy fines or even disconnection for non-compliance.
Although this company is a potential partner for us, Leo, who manages OCM Manufacturing's Shenzhen purchasing office, tells me that he has installed a full-time quality engineer from his team on the manufacturer's site to deal with quality issues. Not entirely sorry about the plan change, Leo instead arranges a visit with another contract manufacturer that I had met during my first visit 18 months ago. We had subsequently tried to work together on some quotes but without too much success. Leo tells me there have been some significant changes since then and that we should talk to them again.
The Accutone Electronics factory in greater Shenzhen is stuck in a small street in an old multi-storey building. Access to the premises is through a freight elevator with an old lady on a chair whose only job is to push the floor buttons all day long. She had a minuscule table beside her chair for her teapot and mug. China has a lot of mouths to feed and a job is a job. As soon as we entered the plant, it was a different world.
The reception was appealing, and Mr. Tian, "deputy general manager" and Mr. Wang, engineering and production manager welcomed us. During the factory tour, I found the factory floor clean and well organized. On one of the surface mount technology (SMT) lines, a Panasonic multifunction machine was idle, and was replaced by three manual assemblers and two inspectors for touch-up. Upon expressing my interest I was told the machine is working but too slow, so they put five people to replace it! I walk away shaking my head.
Back in the boardroom, we wanted to devise a quick way to approximate the manufacturer's cost structure to help potential customers at OCM Manufacturing with an offshore strategy when appropriate. Cost accounting is always an interesting topic in every company, but it unleashed such a lively debate in Chinese as I thought only Italians were capable of producing. In the end, their equipment cost is 50 per cent of ours, but not surprisingly, their loaded labour cost is 10 per cent of our salary cost. The meeting continued over lunch at a local restaurant with more exotic food as ever. Leo told me I have by now tried food from every region of China and I believe him.
On the road to our next factory visit, I saw evidence that China's GDP is growing at nearly 10 per cent per year. There is construction everywhere, from apartment and factory buildings to road and highways, with more trucks than cars in the traffic. It is fascinating and overwhelming at the same time, and with so many workers on every site you feel like you are in a giant ant colony.
We visited Shenzhen Jingquanhua Electronics, a manufacturer of coils, transformers, AC adapters and chargers. OCM Manufacturing has an existing customer with a need for a custom charger and this was the opportunity to discuss a quote that they had provided us recently. The premises were more imposing and we were received by a team of four including their own interpreter, in addition to Ms Sun, our interpreter.
The factory has 1,500 people lodged mostly in the factory complex. Their annual sales are US$150 million, 30 per cent of them in China and 70 per cent exported mostly to major Japanese companies. With a product family ranging from a few cents to a few dollars, their volumes are significant. With every possible certification and RoHS (Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment) compliant since December 2004, this was obviously a world-class company. The factory tour did not disappoint us, again emphasizing manual assembly with limited automation.
In the boardroom, discussion focused on the specifications provided for the charger, with detailed questions from the engineers, Mr. Wang, and Mr. Chen. As before, I tended to take a back seat, and let Leo handle the discussion. The only time I took the lead was to suggest that a special engineering charge should be quoted separately, and Leo indicated quickly with a meek smile that that shouldn't be necessary and should instead be included in the final volume quote. Chinese people can drive a hard bargain between themselves, and I realized that I lost an opportunity to keep my mouth shut! Luckily, their interpreter seemed to have missed our short exchange.
The weather has been great during the last three days, with 20 degree Celsius temperatures. Southern China is good business destination in January, but my previous visit in August was not a good choice, as temperatures exceeded 40 degrees every day and a storm flooded the streets one day. That day, the car we were in had flooded above the doors and we finished the trip in a sopping wet company truck!
A word on the accommodations in Southern China. My hotel has a four-star rating, which is perfectly fine for business travel, and equivalent to a premium hotel in North America. For 700 RMB (about CDN$100) I get a nicely furnished room, a large shower in the bathroom, and broadband Internet access, with breakfast buffet included. My only complaint is that the Internet is slow, as we seem to be sharing a single ADSL connection between all patrons. This is a no-hassle connection, though, contrary to what I experienced in Canada or the U.S., where you have to deal with accounts, passwords, ISPs and calls to reception all too often.
Tomorrow is the last day of my trip. I'll be going to Zhuhai, north of Macau on the other side of the Pearl River delta to visit a plastic injection molding plant and maybe do some shopping in the afternoon before taking the ferry across the delta back to Hong Kong the following morning.
Cheers,
Michel
Michel Jullian, President of Ottawa's OCM Manufacturing, is on a one-week business trip to mainland China. This is the third installment of a daily diary of his trip he will submit throughout the week prepared exclusively for the Ottawa Business Journal.
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