INSIDE CHINA – AN ENTREPRENEUR’S PERSPECTIVE

A bit of background

I am Mumbai born and bred, took my engineering degree in America, run the business Nandan GSE started by my father several decades ago and have travelled pretty much all over the world.

We are among the top manufacturers of Ground Support Equipment in India and a range of products such as refrigerated trucks, mobile bridge inspection units, special vehicles for transporting nuclear weapons, car parking systems, theme park rides etc. I mention all this not to impress you, but to make you understand that a person with this kind of background is rarely impressed enough to be bowled over, by anyone or any country. This generation of Indians generally moves around with the felling and an attitude which says, we have seen everything there is to see. So, what’s new?

Magical Process

What began as an almost routine visit to another country to attend an Exhibition and to visit some of the industrial units turned out to be one of the most memorable and paradigm shifting experiences that I have ever had.

I am visiting China after almost 10 years and I can see that the country is totally and radically different. I have also been to several countries after long gaps of time, like the UK and USA, but while some things have changed, things look more or less as they were before.

China is a different story altogether, the people, the speed at which things are getting done is unbelievable. This kind of transformation has to be seen to be believed. It’s as if you were all the time trying to imagine the future as suddenly someone has just created the future and put it before you.

Overturning old beliefs

When I was growing up, Japanese products were the epitome of design and quality. But I remember my father telling me that pre-war Japan had a reputation for producing cheap copies of European products which never lasted.

In India, there are lots of people who continue to believe that Chinese products are cheap and of low quality. That they lack engineering skills and, of course, something we foolishly pride ourselves on, command over English. The Chinese had poor or non-existent skills in English.

Well, be prepared to be surprised. Today the reality is startlingly different. Every factory I visited had one or two people who speak English quite well which, really speaking, is all that is needed for external communications. The engineering abilities of the Chinese have improved dramatically, as I could see in intimate interactions with their design departments. I would go so far to say that a Chinese team of 4 or 5 is almost equal to a team of 10 such people in India.

One reason for the poor opinion about the quality is that may of our traders buy cheaper and lowest quality of Chinese goods. For a lot of products, China has a range of 5 prices which range from super low, low, medium, premium and super premium. The super premium products will be costlier an softer better in quality, than comparable European products.

What’s taking them up?

The Chinese have a great ability to focus and good organizational skills which they have harnessed in design, productivity and quality. Quality standards have improved dramatically. The Chinese have invested into quality systems, into documentation, into process, into planning and also things like robotic welding and CNC machines. Above all, unlike in India, they are very process oriented not worker-centric.

This has dramatically improved their speed of fabrication, as well as, the quality of output.

They generally have one investor partner who puts in the money and they give equity to critical people in the management from 10 to 30%. This makes them work very hard and with ownership.

Though it is often assumed that China is very dependent on exports, it is a fact that local consumption is as high as 60 to 70% of their output.

Some things which I thought had contributed to the massive growth of China were:

COLLABORATION

They believe in collaboration and not necessarily competition. All the factories that I visited were by definition my competitors, making the same products that I make, but once the aim and agenda of the meeting was clear; that we wanted to explore the possibility of sourcing sub-assemblies or components from them and the possibility of my using their supply chain, with a share of the profit going to them, I was allowed to total freedom to click photographs inside their factory, take videos, ask questions, see how things work about even the very products that I make.

HUMAN TOUCH

The warmth with which the Chinese, even with the language barrier, deal with you is phenomenal. We visited a factory whose turnover is easily Rs 8000+ crores. Yet the owner of the factory spent a good 3 hours with us, took us around the factory explaining through interpreters, in great detail, about how he was doing things.

When in the morning he came to know that we were vegetarian, he got his cook to prepare a special vegetarian meal for everyone, including the Chinese, took us to lunch in the VIP room and served a very good vegetarian meal. This was touching. At the end of our visit there was an exchange of gifts. They gave us traditional Chinese gifts, which was very thoughtful and we reciprocated by giving them traditional Indian gifts.

SCALE, SPEED & QUALITY OF INFRASTRUCTURE

What really hits you is the scale of the infrastructure in China. Industries are being kicked out of the major towns and cities due to pollution. These guys are going and settling outside. Someone, who had a 20000 sq.ft. factory in Shanghai, goes out and sets up a 25 acre factory barely 2 hours drive from Shanghai.

But the two hours driving distance is pretty acceptable because the roads are excellent. I have not seen a single bad road in more than 2000 kms I travelled in China in the past 5 days. The other thing that hits you is their transport systems.

The Chinese have invested $600 Billion in high speed trains. In 2008 there were zero kms of tracks. Today they have more tracks than the whole world combined. The scale and the speed with which they have done it is simply phenomenal.

A journey which would have taken 23 hours by road, takes hardly 6 hours by train. These train journeys are really comparable to or better than flights; in terms of comfort, time saved in getting to the airports and back to city centre etc.

In the case of one trip, the flight would have taken 2 hours and the train four and a half hours. But for the flight we would have had to check in one and a half hours earlier, the airport being quite far away from the city. The 1st class train fare is half that of the economy class by flight. Travelling by train was such a delight, zipping across the landscape at 350 kms per hour.

The marvel is that, even at that speed on hardly feels the movement. You can keep a glass of water standing and it will not fall even when the train is accelerating or de-accelerating. I come back amazed, I come back really amazed!

GOOD GOVERNANCE AND LONG TERM THINKING

I find all this tremendously exciting. If a Government really wants to do something it can do it. Incidentally, the target for completion of the high-speed railway was 2020, but considering that there was a recession in 2008, the Chinese Government apparently decided to put in a stimulus package for the Railways and the projects were completed in 2014, six years ahead of schedule!

And the results are there to see. The trains were packed with commuters.

The Industrial Areas are a 2 hours drive radius from cities and connected by well developed 6- lane roads, with developed infrastructure for industries on 70 years lease. With interest rates at between 4 to 7% and such superb facilities it is almost plug-and-play for industries in China.

SPECIALIZATION

Supply chains in China are very well developed. They have specialists for everything. They have companies that make only vehicle cabins, which would make cabins for most of the competing companies. This is the kind of spirit of collaboration that exists among them. The number one and three companies are getting their cabins made through the same supplier and possibly from the same factory unit.

This means their Quality Control people would be getting together in the same factory, with the smaller factories automatically having access to better quality standards, which they would find difficult to stipulate or enforce in the event of stand-along procurement.

Learning

I believe good Indian manufacturers and Chinese manufacturers can definitely think of collaboration instead of competition.

Take the example of a factory I visited making car parking systems. They make the most complex systems which are not even made in the European or Western world and that has been developed by them from scratch in a big, beautiful factory.

For some of the most sophisticated ones, they have made prototypes, done testing and are now ready to give it to the world. It would make a great deal of economic sense, not to try and re-invent the wheel but to use the available technology, along with some of their components and do the rest of the fabrication and value addition in India.

This would slash the import from five container loads to one container load, make it cost effective and profitable for the Indian Manufacturer and deliver a great, proven product to the Indian consumer.

THE GREAT CHINESE THREAT

I personally believe that trade is one of the best ways of maintaining world peace. Already Donald Trump is realizing that every punitive tariff he slaps on Chinese goods often means that American companies are affected because their own sub-assemblies are part of the Chinese products. It’s a very intertwined and complex world today.

Of course, it is a fact that there are issues with tariff and non-tariff barriers in our trade with China. There are also fears and actual incidents of dumping, because of the many hidden subsidies given to Chinese manufacturers. It is also a fact that we have a trade deficit of more than $50 billion with China.

But my contention is that the baby should not be thrown out with the bathwater. Actually, if the Chinese really want to, they have today, the size and the scale to out-compete us in most areas. In addition, they have very deep pockets, with lending rates as low as 4 to 7% for setting up industries and working capital. They can virtually kill off our industries. But I feel that is not their intent. Their intent is to collaborate…their intent is to work with us together and be suppliers to the world.

They are ready to play the role of OEM suppliers on a global scale, which is what I believe a lot of these automobile manufacturing companies are doing today. You get 30 to 40% of the items from China and complete the rest of the product in India. You get a competitive edge because that is what he consumer demands.

If we can sort out the trade imbalance issues amicably with the Chinese Government and smartly manage to substitute imports or diversify supplier countries in the case of strategic supplies, such as crucial electronic components etc. the India-China industrial collaboration could become a great collaborative partnership which could greatly fuel international trade and global prosperity.

Tips for first-time visitors to China

  • Investment of about Rs. 1 to Rs. 1.5 lakhs per person for a trip of 7 days is reasonable to cover all costs and more.
  • For vegetarians particularly, food is a major issue. But if you are not fussy you can manage. Carry fruits, chocolates, pastries etc for an emergency meal. Always order for stir-fried vegetables. Yoghurt is available in plenty. Be careful in ordering food in Chinese restaurants. They may think that gravy from which the fish pieces have been removed is vegetarian!
  • Indian restaurants are pretty expensive.
  • They respect India as a large market and also our sincerity but they are wary about every guy who writes in and will not easily trust someone commercially. In general, they prefer American and European markets to which they have access.
  • They expect Indians to bargain and hence they quote a higher price initially.
  • Google does not work in China. They have Baidu. WhatsApp and Facebook do not work. I was able to use VPN and connect to Google.

We visited Beijing, the Chinese capital for which I have only superlatives. It has a railway station which is twice the size of CST, with a Bullet Train leaving every 5 minutes. Jinan, capital of Shandong province which is one of the key industrial hubs. Onwards to Hefei, capital of Anhui Province, the 35th busiest airport but larger than Bangalore & Hyderabad combined and finally Shanghai, the glitzy commercial capital.

What the Chinese have managed to do in the last 40 years is one of the most incredible success of mankind since the dawn of time. They have managed to lift 1.4 billion Chinese from the most abject poverty to taking them within touching distance of becoming the largest economy in the world. The price they have paid is also incredible; from the millions of deaths during Mao’s Cultural Revolution; to the loss of many freedoms which we take for granted; the one-child norm, media restrictions etc.

But at the end of everything it is not the big things that one remembers. It is the small things. I went to a 24-hour massage parlour which was run by some guys and even though they didn’t know English and I don’t know Chinese we had a wonderful conversation all though using Translate as a tool. There was genuine warmth and the eagerness to reach out to a different culture.

Trade is the greatest promoter of friendship and understanding between people. India and China, the oldest continuing civilizations of the world should give a decent burial to the recent decades of mistrust. A rising India has much to learn from our Dragon neighbor to the East.

Author: Raghunandan Jagdish – MD of Nandan GSE Pvt. Ltd.

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