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To: RealMuLan who wrote (59782)	1/31/2005 6:59:00 PM
From: RealMuLan	Read Replies (1) \| Respond to of 74559

Comment: The China Question – What is the answer for Canada? By Ottawa Business Journal Staff Mon, Jan 31, 2005 8:00 AM EST It was coincidence that my business trip to southern China last week occurred during the Prime Minister's own trade mission to China, a coincidence that speaks to the growing importance of that country in the Canadian business environment. It is my belief that no successful high-tech enterprise can afford to ignore this massive nation when formulating a business strategy. My visits to Shenzhen and other cities in southern China were part of an Asian sourcing program that OCM Manufacturing established in 2003 with a purchasing office in China. At that time, we set out to understand whether the cost benefits that very large manufacturers enjoy through their offshore outsourcing can also benefit the small- to mid-size companies that OCM serves. We found that China still lacks strong component distribution and low- to mid-volume, high-mix manufacturing infrastructure to serve a company like OCM. On the other hand, there is no arguing with labour at $5 a day. Reducing manufacturing costs is critical for many of our customers to compete globally. The cost of manufacturing involves two main elements – the cost of labour and the cost of materials – and any contract manufacturer does many things to control those costs. For example, OCM runs a yearly competitive bidding and contract process with suppliers. We also participate in product design to ensure a product can be manufactured within time and cost constraints. Factory floor of the Electrix Enterprise cabling factory in Duongguan (Photo courtesy Michel Jullian. Still, labour comprises as much as 40-per-cent of the cost of an electronics product, so our customers need every advantage in that area. This reality, coupled with the low cost of labour in developing countries like China, makes offshore outsourcing an unstoppable global force. OCM has been successful at sourcing in China custom electronics components that have a significant labour content – PCBs, cabling and metal cabinets, for example – at significantly lower costs than in North America. We also remain convinced that final assembly and the overall project management of such outsourcing, is best done near the customer here in North America for low- to mid-volume products. In January of this year, China's population reached 1.3 billion. That's a lot of mouths to feed. During my visit, the signs of economic and cultural change and contrast in China greeted me at every turn. At hotel reception, no fewer than three employees were devoted to each guest – evidence that the low cost of labour pervades every business sector. On the highways, high-tech tollgates with smart card technology operate alongside little plots of land where farming families live in small shacks, without apparent electricity or water. We rode a freight elevator with an old lady on a chair whose only job was to push the floor buttons all day long. Although China's cost of labour is 1/10th to 1/20th of that in North America (salaries of manufacturing workers are about $100 per month), the workers at suppliers we visited live relatively good lives – certainly better than farming can offer them. In addition to their salaries, they are housed and fed year-round. Many young workers – often women – have left their small family farming plots and entered the city to work as a means of accomplishing their personal and families' goals. The pay cheques of these young workers may support a family, pay for an education or serve as a dowry. These are jobs with the power to change China's economy. The opportunity that these shifts in the global business community present to Canadian companies should be obvious. Yet, when offshore outsourcing is discussed in North America – whether software to India or manufacturing to China – the concern is usually raised that outsourcing takes jobs away from Canadians. But is a focus on labour relevant for a thriving G7 country like Canada? In a vast country of sparse population, labour is not one of our strengths. In Canada – and particularly in Ottawa – we have exceptional engineering and creative talent, in addition to being in close geographic and linguistic proximity to the world's most powerful markets including Europe and the United States. To remain globally competitive, we must focus our resources on developing our powerful differentiators: prowess in innovation and business savvy. One-point-three billion people represent a lot of purchasing power, even in a global marketplace. As China's standard of living improves, its people will want to buy more goods. If Canada succeeds in the global marketplace, based on its creativity and marketing chops, the majority of those goods can be our goods. By Michel Jullian Special to the Ottawa Business Journal ottawabusinessjournal.com