Hello Slagle, <<factory floors. I just LOVE that stuff.>>
I know what you mean. I have seen a few factories (50 breweries + perhaps 120 over a range of industries in maybe 10 nations), and I cannot think of any process I have not seen, but then I am always surprised once I enter a new building, seeing the previously unknowable unknowns.
<<My observations are probably not worth much>>
Same here, but hey, we paid for SI, and enough folks seem to appreciate the journal worldmarket.blogspot.com :0)
<<You mention these guys (the locals . . .) have going but profitless operations in apparel (shirts) and who are plunging into all sorts of other ventures. That seems odd to me.>>
Not profitless, just very low profit, but given volume and ability to outsource to the interior or near-villages, still worth doing for the cash, but must diversify into the next industry … and so forth. Many Taiwan / Korean mega companies started exactly the same way with precisely the same product categories.
<<. . . the most simple business I know of>>
I would not say so, having seen what them guys actually have to do with the enormous and labour heavy network of operations and the tight schedules. I observe that the garment maker is more likely to be successful at everything outside of his industry then many others. Organization skills = success.
Styling may actually be easier, just survey based on magazine photos on regular basis, or hire several Italian / Spanish homeless people per season, before the season starts.
<<. . . owner/management team deeply involved in running a large commission cut and sew operation, especially a profitless one, where do they get the talents (and resources) to jump into something else far removed, say auto parts>>
The operational management is built up over time, and in time, through savings of cash and incubation of various talents, the company moves on to the next industry where the gross margin is momentarily higher than the cut & sew operation. Think Unreal Tournament Onslaught.
<<failure rate of such an approach is likely to be high>>
Yeup, something like a normal 90% within 5 years. These guys actually do take some care in how they deploy assets, in dollops then in tranches, as each knows that a fatal mistake is unforgiving. You must remember, given the fevered competition, if these guys do not move, they are guaranteed to die in the industry they started with. Think Unreal Tournament Deathmatch.
When these guys run into financial difficulties, they outrageously mobilize the entire village / township’s folks, aggregate funds, and try to (a) search for new opportunities, and/or (b) defend old turf. Think Unreal Tournament Capture the Flag.
<<. . .reverse engineer . . . takes time, and more than just money>>
You want more observations of the outrageous? Here they are.
These guys routinely hire overseas folks from countries such as Russia, Japan, Korea, and even India who have the skills, put them on explicit 2-year contracts, at USD 120,000 per annum tax-free, plus food/lodging. These mercenaries, after getting done in one town, may retire, or just move onto the next village for a few dollars more, or fistful of Yen, or a bagful of Won.
The businesses also like to cluster around each other, in the same provinces, like fast food outlets on the freeway in the USA, and raid each other’s technical workforce, sometimes as blatantly as placing a gigantic billboard in front of the competitor’s front gate, “We Are Hiring People with Your Skills, Call at xxxx yyyy”. Outrageous, direct, not gentlemanly, but very effective.
<<You seem to be describing a manufacturing environment of great fluidity …>>
Bingo !!!
<<… Unless he can just "walk away" from whatever debt he incurred with his apparel business and find new funding where does he find the capital?>>
Savings, purchase order deposits, village/township aggregation based on reputation / track record, banks (very little, unless the guy is a bigshot already).
<<. . . most every type of manufacturing operation more difficult than apparel requires lots of closely guarded "proprietary" tricks of the trade that can be worked out over time but have a very expensive and time consuming learning curve>>
I observe that, of all the factories and businesses I have visited since 1983, these amazing (to me at least) entrepreneurs are absolutely the most flexible, fearless, quick learning, and terrifying competitors I have come across. It is as if their entire being is about quickly learning a new territory’s peculiarities, aggregate what is necessary in terms of money and know-how, sell, sell, sell, and improve as they go, step by hard step. They have forgotten more in 12 months than I have ever learned in my lifetime up to know, all very basic stuff.
<<Apparel is about the only factory operation I can think of that requires no proprietary secrets. What am I missing here?>>
Almost everything, no disrepect intended, because the scene is simply too strange.
We must remember that most of the current China industries, as private and self-sustaining operations, had not existed until very recently, and these guys, as a group, learned all the tricks, and invented a few of their own, and are giving the multinationals a run for their money, in China, near-China, and are now encroaching further a field.
What was holding the folks back was the system, not their smarts, and the Force of the system is now aligned correctly, day by day, because the 300-years accident is over, and reversion to the mean, the point of TeoTwawKi, has started.
This is not what the WSJ, NYT, CNN, CNBC, Stratfor is telling anyone, because they simply haven’t a clue; not even inkling of a clue.
The process is a beautiful one to watch, worrisome one to contemplate, and best done from a distance, avoiding direct involvement at all asset hoard, at least from my point of view.
This is why I do not like investing in manufacturing.
The nature of the game is engage and have a chance, or get run over and plowed down.
Shumer's 27.5% tariff, presumably designed to 'save' Small/Medium businesses in the US, had it been implemented, would have accelerated the inland migration of the dynamic ecosystem in China, eventually requiring a 200% then a 2000% tariff in the US, otherwise known as complete equalization of cost and revenue.
And the above, all of it, is precisely why India will not be able to duplicate the manufacturing reform in exactly the way China has done, given the electoral system driven infrastructure not-investment, the inability to unite a large group of folks given the cuts of religion, language, caste, etc, and given the unwillingness (so far) to accept international influence across the board, down to the village level. Stratfor not withstanding.
For the youngsters everywhere, learn Chinese, like Jim Rogers recommends, he has been to places and seen things, even if while sitting in the leathered comfort of his Merc coupe.
<<questions>> ... You are most welcome :0)
Chugs, J |
