Written by JD Cattel, the President of Digital Control Company.
Tom Friedman wrote a book called The World is Flat. It may be, but it is not level. Or in engineering china_mapparlance, it is not tangent to the radius of the sphere.
Currently, the Chinese (as well as many other nations) enjoy a labor cost advantage, which is why I postulate that the ‘world may be flat’ but it is certainly not level. Here is my main point: In1989, I was the general manager of a new joint venture located in Beijing. Contractually, the company could only pay $100 per month. Now, 22 years later (or one generation), my wife’s nephew is earning $1,000 per month. Again, we engineers would say ‘one order of magnitude.’
If the trend continues, parity will happen in one 1 more generation. At that point there will be no cost advantage to making things like clothes or TVs or providing call centers in China or anywhere else.
It’s great that America is increasing its ties with China. But our investment should be more towards their domestic business and less aimed at things for export. Forward-looking companies are seeing this trend, and, again my opinion, “on shoring” will become more the norm as we move through the next millennium.
China is a fascinating place with intelligent, secular people. They are more like us than we might think, and contrary to what you may read in the fourth estate, China likes the U.S. and wants to emulate it in many ways.
Most of China has access to television and can see what “western civilization” looks like. They are far from dogmatic communists, despite the name of the ruling party. There is more Confucius than Marx in China. As former Chinese leader Deng Xiao Ping once said, it does not matter if the cat is white or black as long as it catches the mouse.
I would only caution to not get caught up in what we used to call ‘China Chic.’ We should recognize that their business guide is Sun Tzu’s The Art of War and not the sappy stuff we read, like The One Minute Manager.
The U.S. makes up five percent of the world’s population, China 22 percent. Soon, we will look across the Pacific and see ourselves, just five times bigger. Best we keep some of our production at home, no matter how mundane or routine it appears.
(Mr. Cattel originally wrote this article for his alumni magazine, The Worcester Polytechnic Institute Journal, and it was published in 2011.)