Rigas Arvanitis y Zhao Wei
Here after we present briefly the experience of five different entreprises. These have been collected through extensive fieldwork.
Information on entreprises is difficult to obtain –as all scholars in our area know– but in the case of China things are even more complicated. “Public information” collected by government offices is rarely published. When published it is suspected of being wrong, mainly because the same information is used by the local government officials for their promotion or the promotion of their administrative region. Reporting is a procedure that is mainly done through the channels of the Communist Party making all information not so much a tool for policy but rather an instrument of internal Party politics. In one specific case we had access to the true figures of the taxes paid by the local enterprises to the local government. The size of the figures appeared to be quite larger than what the very few published information made us believe; but not only were the figures different; the ranking of enterprises was not the one we suspected on the basis of the same information. The opacity of the public information is one of the very fundamental issues in policy making. But small firms rarely ask for more information. Publicly shared information is needed mainly by larger firms and especially so by foreignowned firms. In municipalities were foreign enterprises are not installed the data are usually only known by the very same people who collect them.13 Firms, small and large, manage information in the same way, even foreign firms. So we opted not to mention figures of any sort: these were too rare and too unverifiable. Moreover, we are interested in entering inside the blackbox of the mechanism by which firms enter in the world production. So the description of the functioning is more interesting than the reliance on some scarce and doubtful figures.
First we will visit a Taiwanese company, very typical of the flow of FDI from Taiwan and Hong Kong, in the shoe-making industry. Then we will see three companies in the district of Shuikou, where some 90 companies have grown in order to make this place the “capital of faucets in China”. We will go to another city, hundred kilometers south of Guangzhou, to visit a large sino-french JV in the packaging industry. Finally, we will have a look at a large collective owned company that produces washing machines.
These six cases give us a quite representative collection of companies, as we will argue in our conclusion.
TL came to Chine ten years ago. It went to Nanhai, in an industrial city near Guangzhou, where the shoe industry has been favored by the local government. The shoe producer was a quite strongly developed in Taiwan and the factories it has installed in China were part of the massive movement of Taiwanese capital that flew to Mainland China, exploiting the low labour cost in the early nineties. Moreover its contacts with foreign clients were already largely established when it came to China.
TL produces sport shoes for an Italian brand but also for two North-Amercian brands. The factory we visited was one among 15 factories developed by the same firm. All factories produce sport shoes for foreign clients. Each factory has about 2500 to 3000 workers. The factories are fit for the international market; they can produce for any large brand of sport shoes in the world, at any quantity in very short periods of time. Shoes are directly shipped to the port of Nanhai in a seamless stream from raw material to the containers that are sent abroad, all located inside the same factory.
The sporting shoe market is very different from the market for other types of shoes. Sport shoes are dominated by the large international brands whereas other shoes are mainly sold to the internal market. TL, like all similar producers do not sell to the local market. In some cases, the foreign clients asks them not to do so, not so much because of fear of copy as because it has no marketing policy oriented towards the internal Chinese market.
The foreign clients impose norms of production but since the producer is an OEM provider with very stable contracts over time, it has no difficulty in satisfying these criteria. In fact, the local firm has an office of the client that is installed inside the factory. This office does the Quality control and checks the production procedures. It also helps the producer in design activities. The local firm has a testing and experimental unit, the so-called “R&D” unit. This unit designs new shoes and proposes new models to the client. Most models are variations of the previously produced models. The client can accept or reject these designs but in many cases accepts them. In fact, the multinational brand more and more relies on this design experience of the producer for all kinds of low-end changes in design. They tend also to do this because design costs are lowered not only because designers are low wages as compared to an American or European one, but also because the factory in China has a good grasp of testing. Feasibility of new designs is part of the package for better learning.
The local firms publicizes its regular and strong contacts to the international brand. In every office the “ethical rules” of the multinational are shown, in particular as to how labour and human resources are managed by the multinational group. For a for8 eigner visiting the factory, the local factory appears as if it was a subsidiary of the multinational. But this is a false impression. The management of labour, the management of local resources and the way the business is run in general is not at all controlled by the foreign partner.
The foreign client just checks quality and timing. And this is a very crucial aspect that is not only technical but also a sensitive commercial spot. This is so because, as everybody knows in this industry, a large quantity of faulty production –that is shoes that are not meeting the quality standards—are not destroyed but are “delivered” to the local market, mainly because destroying already produced units is costly. Moreover, some quality-approved pairs of shoes are shipped outside the company because they fall outside the quota of the contract with the client. Ideally, a totally controlled production shouldn’t have any of these parallel channels. But until such a utopical objective is realized, the management of the parallel channels of disposal is also part of the learning of the company.
The long lasting relation with the clients is made easy because the local factory has an excellent mastering of the quality criteria of its client. It exploits cheap local labour and provides exactly what the foreign client wants. It has thus acquired a substantial know-how on quality criteria and technology management. Foreign clients have no exclusivity and seem not to fear competition by other international brands. All international brands work in the same conditions and have the same arrangements. For a local producer it is very difficult to enter the market what is needed is the strong contact with the foreign client.
TL is a typical company that has grown-up along the value-chain (Gereffi 1999). It masters the criteria, the marketing, the local production conditions. It found like some other 5000 taiwanese companies in the South of China, good conditions that permitted the company to prosper on mainland China.14 For the Chinese authorities the question is how to keep these entrepreneurs in their locations, because they seem to flee easily out of one region to another. Nonetheless, the more comfortable their position and the less easy it is for them to look for other production sites. But the relation with the foreign client is not at all in the hands of the local Chinese authorities. The local policy has not affected their relations to their clients but, as a whole, the development of the Delta Pearl River has provided a fertile environment for this type of enterprises.
WG is a collective entreprise, that is a company that formally belongs partly to a collective body (like the municipality). Most collective enterprises have been at the forefront of the Chinese industrialization. Some famous brands outside China like Haier (electrodemestics) or Legend (computer), or brands well known inside China like Konka or Changhong, are collectively owned enterprises. These form % of the production in China. The particular ownership status does not seem to deter their dynamism. Most articles on collective enterprises focus on these, by now, quite large firms. The case of WG is much more common place and for this reason interesting.
WG was once the only large company in the city of Shuikou. It was dedicated to doing faucets of the kind you find in gardens, made from iron cast and quite rude. For 9 more than forty years this enterprise worked out its way through the vicissitudes of Chinese economic and political life. With the reform policy in the eighties the company was somewhat challenged. Some of the workers that had been working there for more that twenty years created a new private enterprise. The collective enterprise, like the private one soon to be followed by many others, profited from the extraordinary boom after the opening policy. Moreover producing faucets is a good business when there is a following construction boom. Soon many more companies at the beginning all created by former workers of WG were created. Thus, WG is the “mother of all companies” as another manager told us.
In the township of Shuikou, WG maintained nonetheless its importance and its rather larger size than average. Among other things it is the only one that has a metalplating facility, a highly polluting activity that is nonetheless an obligatory passage point of any unit producing faucets. Thus it can execute all parts of the productive process in-house. All other companies have to go elsewhere for metal-plating. Moreover it has benefited from a certain inertia on the side the government –at the very least, even though we have not heard of a special treatment of this company. Collectively-owned, in fact, does not mean “state-owned”, and here the local authorities do not consider it is “their” company. Productive processes, models, and deals are made very much in the same way by WG as they are from other successful companies in Shuikou. On the whole the technology was not so much better in WG than in other companies created later. The role of “mother” can was in part be held for responsible fro this state of affairs: the best among the workers went away creating their own businesses. Smaller companies were created abundantly around WG by the very best people than had learned the basic technology inside WG.
The two main foreign clients are outside China, in Europe and Latin America. The Latin American company chose WG as its provider among other things because of its size. The two clients have another interesting characteristic: they were once producers but now became essentially companies that have a brand-name but do not operate anymore a local production facility in their own country. They are a sort of head giving order to sub-contracted providers, in China or elsewhere. China is a good provider for middle quality products, as they say and these companies themselves are middle-range quality distributors. They offer the standards but have no strict control on the process of production. So the shipments have to be inspected upon arrival in the destination, a system that fails less for this range of quality than higher quality products.
Another striking feature is the immense variety of models. As in the case of HY, the company produces along the standards that are offered by the foreign clients. But as far as the local market is concerned the company provides the models to the merchants. Because of its quite large experience and size, the range of products is extremely diversified. When interviewing the manager, WG seemed like a company under siege. Nobody would be allowed to come and see the fabrication secrets of the factory. The competition is quite fierce and it appears that for some time, WG had the impression of loosing the battle. What more likely is true, is that as other collective enterprises it had to adapt from a non-competitive environment to a newly competitive one. In the aftermath of the reform period, demand was sufficiently large as to absorb all the new offer of 10 faucets. As demand recesses and production level continue to grow, WG had to adapt to a new environment and fiercer competition.
One of the things competition was about, is access to foreign clients. Somehow it seems he proximity of the company to local authorities permitted to catch the interest of the foreign client. Apart from the fact that facilities existed before the reform period and the infrastructure already existed, and apart from this probable help in getting easier access to foreign clients, the company has not benefited from any particularly favourable status on the side of the local authorities. Its ability to survive can best be explained by a larger quantitative output. Foreign clients have been essential in the learning of design of models, not so much in the process, or so it seems. In fact, the company can be considered as the medium level company in the town of Shuikou, neither the best, nor the worst. WG cannot be considered as the provider of technology in the city since even after the reform policy, most process innovations were done by former workers when themselves became laoban (owner-entrepreneur). In fact it learned at the same pace as others and in the same way: by copying the models imported from outside and by following the blueprints sent by the foreign clients.