Wednesday, June 7, 2023

Part III: China textile and apparel 2023: The Party’s Over and China needs to invite a Deming to the next party--What needs to change in China to rebuild China’s reputation, respect and business?

 Article Abstract: Textile and Apparel business in China is suffering badly. Some or all of the following factors can be held responsible: 1. Political relations and the continuing Tariffs; 2. China’s reputation for cheap and poor quality product which is, at least partially, justified by evidence; 3. Sluggish domestic demand due to the lockdown and poor economy in China; 4. Due to some or all of the above, significant resourcing to alternative countries such as Vietnam.

In this article, we suggest that the only long-term solution for China is to rebuild its reputation for quality product and fashion innovation, just as Japan did in the 1950’s using the lessons of W. Edwards Deming’s teachings as a platform. Combined with this, China factories need to build their own brands which a. don’t scream Cheap and b. stand up to other international brands in style and quality.

But, China factory owners are resisting change, starting to panic and are lost for any solution except to find someone who may sell their product for commission. But, what would they be selling other than “Cheap China?”

Finally, we predict that, if some factories don’t lead the way to a new direction for China, the Chinese textile industry will crash and burn or, at best, be relegated to the mass market in such outlets as TJ Maxx and Walmart. Part of this is due to the bifurcation and consolidation of the US retail economy: The middle level department store base is disappearing, leaving only either competition for the mass market at rock-bottom prices or premium and luxury brands sold DTC or on platforms like Net-A-Porter and FarFetch. In addition, many new and innovative brands are appearing almost daily. The only Chinese online alternatives to those platforms are SHEIN and TEMU, which are by nature cheap and poor quality, and the innovative Chinese brands are rarely seen by overseas customers.

The Chinese textile industry will have to have a Reckoning, just as the American auto industry did in the 1970s and 1980s (as described by David Halberstam in his Pulitzer Prize-winning 1986 book): The world has changed; the way you did things and the things you got away with in the past are gone. If you don’t face the reality of the world today, you will also be gone.

III. What needs to change in China to rebuild China’s reputation, respect and business?

Let’s do two things first: 1. Look at the situation in China now 2. Look at the cultural foundation and see if there is a strong tradition/basis to fall back on or are we stuck with the now.

Where are we now in China? As I wrote in 2017 on my blog in the article, “China Quality- Good Enough is Not Good Enough”, there is no internally-generated quality standard for most factories (I have visited many hundreds), except for that which is generated by customers. Passing inspection and shipping the product only requires “good enough.”

So what is the problem with that? Mainly, it serves the evaluation of “cheap china.” And secondarily, it discourages investment in something better which is internally generated. Factory owners think, “Why should I spend money to improve if the buyers accept what I am shipping now?” Here’s the answer to that question with another question: IF your buyers ACCEPT shit because they EXPECT shit, is that good enough for you? Buyers don’t pay premium prices for shit, and when some factory or country comes along with cheaper shit, you lose. Some companies, like Temu and Shein, have correctly diagnosed that the American consumer WILL accept shit as long as they pay shit prices. This perpetuates the story. So cheap china ACCEPTS the title of chief purveyor of shit, because It is the only way they know of to compete with other countries with lower labor costs AND it is what they have been doing all along during the time you could ship any form of shit and be successful.

That philosophy may get some orders, as long as there isn’t another factory or country with CHEAPER shit.

Price is a race to the bottom.

Was China always the world’s leading provider of shit? Does it have a tradition of craftmanship and quality to fall back on as Japan does?

Japan was able to instititutionalize Deming’s teaching because it aligned with an ancient tradition which is called Monozokuri. “ Literally translated, it means to make (zukuri) things (mono). Yet, there is so much meaning lost in translation. A better translation would be “manufacturing; craftsmanship; or making things by hand.” 

There are so many stories in our lives to see and understand Monozokuri. It is stamped on every Japanese product we buy. For example, a 750L bottle of 12 year old Yamazaki Malt Whiskey sells for $210.99; a decent Scottish Single Malt like Balvenie Double Wood can be had for 1/3 of the price of the Yamazaki. So why do people purchase the Yamazaki? Is it three times as good as the Balvenie? From personal experience, I can say that it is because: 1. It is, in fact better, as near to perfection as single malt gets and 2. The aspirational dimension of drinking something that special.

So is China, one of the world’s oldest recognized cultures, devoid of a quality tradition like Monozokuri? OR has it been swallowed up in today’s race to make shit?

When you serve dinner on plates made by Royal Copenhagen, Wedgwood, Villeroy & Boch etc. it is sold to you as “fine china.” IN fact, this dinnerware has nothing to do with China except the origin of that product was China—during the Tang, Qing, dynasty etc. where they made bone china (partially from cow bone) like blood red, Jihong or blue and white porcelain antiques from those eras. But, as my wife Yuting Zhang bemoaned in her 2018 article published on the I, sourcerer ( blog, “The Name is Fine China; so Why is there no Chinese Brand?” none of the premium China on the market today is actually FROM China.

The answer behind this is sad, but points us in the right direction for solving this problem. There is, in fact, a tradition in China called "造物" (zào wù) which translates to “creation.” It was this tradition which was responsible for much of what we take for granted in today’s world. ChatGPT describes this tradition as compared to Monozokuri:

“It's worth noting that while the term "Monozukuri" is often associated with Japanese manufacturing philosophy and culture, China's own tradition of craftsmanship and manufacturing aligns with similar principles of precision, attention to detail, and the pursuit of excellence. The Chinese term "造物" captures the essence of this tradition, emphasizing the act of creation and skilled craftsmanship that has been valued throughout China's history.”

When did that history take place? As early as the Han Dynasty (206 BCE- 220 CE, innovations like the compass, gunpowder and papermaking took place; The Song Dynasty (960-1279) created advancements like movable type printing were created; the Ming Dynasty (1368-1644) saw a great fleet and the Great Wall built; the Qing Dynasty (1644-1912) saw the first use of vaccines, improvement in agricultural tools and advance mathematical knowledge. 

So what happened? These developments were overshadowed by an antiquated and fractured political system which isolated itself from the world and lost its control to the Western powers whose only achievement was the deployment of seagoing ships and advance weaponry. Japan, on the other hand, united the country during the Meiji Restoration in 1868.

Then, Deng Xiao Ping, with all good intentions and rather than fall back on China’s unique tradition, encouraged people to be practical and do what worked for other countries. “The cat that catches mice is a good cat.” Too much, too fast. Many Chinese, who had been mired in poverty and anonymity, saw an opportunity to move out of their class, at least financially, quicker than ever. And it was easy, with the US and Europe as willing customers. So it was damn the torpedoes, full speed ahead and quality was crushed under the need for speed and greed.

So here we are, with Temu and Shein gaining huge international popularity through their seemingly endless pocketbooks and becoming the flagship of Cheap China. And thousands of factories (Probably including those that sell on Temu and Shein) suffering precipitous drops in business or profit or both.

What has to happen? From this end, our position is something needs to change (what will happen if nothing does will be discussed in the next section). Since labor costs are increasing in China and the working population is aging and shrinking, there is no chance to revive the naïve history of the last twenty years. But China can be two important things to the international marketplace: 1. The JIT (Just In Time) resource with still huge capacity for materials and production and 2. The location for growth of artisanal production in the spirit of zao wu.

It is the last one that we believe is what needs to be the focus of all, but especially textile and apparel manufacturers in China: Create their own brands that stand up to international competition, yet fully utilize the resources that are still strong in China: skilled labor, quality materials, coupled with fast and efficient production, short transportation leadtimes.

The how and why of this strategy depends on the industry but, as strange as it may seem in the red ocean of digital players, there are still huge holes and opportunities because most of the products online are echoes of each other, ho-hum and not worthy of customers’ attention. So the factories will ask, what can I do? The answer:

1. First, STOP. Put your ego away for a while. 

2. Understand and accept the fact that the situation has changed; the days of easy money and good-enough quality are gone; 

3. Adopt a quality standard that is great, not just “good enough,” based on your pride as an artisan, not a wholesaler of cheap goods; something you can be personally proud of.

4. Don’t expect to pay someone commission to sell what you made; make what your customer wants to buy;

5. Accept the fact that you need to spend some of the money you made so easily on future growth;

6. Don’t be in a hurry; it will definitely happen, but not tomorrow or the next day;

7. Call on the spirit of zao wu and the team efforts of talented people (not just in China, especially in the target market countries like US) to create a Unicorn;

8. Understand that you should be making a product whose price is determined by its value, not the other way around;

9. Let the product speak first so the fact whether it was made in China or not becomes invisible, as is the case with Samsung and LG made in Korea or Kia or Toyota etc.

10. Operate under the main goal of Blue Ocean Strategy: Make the Competition Irrelevant

11. Remember that your brain is your moat; even if competitors want to copy you (Good! Sun Tzu—Shape Your Opponent), they can’t copy your creativity.

12. Obey the (Chinese) strategy of Salami Slicing or The Frog in Warm Water- By the time the competition realizes that you are a threat, it is too late.

13. Read the next section for the consequences if you don’t heed the above.

This is not just a paradigm change, but a game changer, for Chinese entrepreneurs and manufacturers. There is a unique history,  tradition and an infrastructure to support this change. If you were a manufacturer in say, Bangladesh, you wouldn’t have any of this to lean on, so your road to success with this strategy would be that much harder. 

Most important, as the Japanese did, there has to be an emerging national spirit of pride in Chinese Manufacture as the site of the world’s oldest tradition of creativity and innovation. This has to be an initiative of the people, not Beijing. This is people, not government.

Further, these changes require investment and patience. They will not happen overnight and they will not happen if the only thing in the manufacturers’ mind is to sell what they make and pay some poor soul commission to try to peddle it. They need paid apostles: those who are also passionate about the goals but who are fairly paid for their work; no risk, no reward.

What will happen if nobody pays attention and nothing changes? There will be a Reckoning.

(Chinese translation of this article available on this blog)


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