Dr. Marcus Chao and Wilhelm Goschy talk to Gunnar Knüpffer, editor of Produktion, ahead of the BestPractice Day in Darmstadt on 4/5 June about the development of China as an industrial location and the importance of lean strategies. In March, Xi Jinping has taken office as President of the People’s Republic of China. Under his leadership, China will spend massively on promoting innovations in order to generate growth – thus the official announcement. In your view, what does this line taken by China’s new government mean for the country as a manufacturing location? Dr. Marcus Chao, Lean Enterprise China Inc.: I am very pleased to hear of China’s intention to promote innovation in order to support economic growth in the country. I see innovation as the result of a chain of experiences. In brief: of the Plan-Do-Check-Act approach and continuous improvements. In addition, success in manufacturing depends on the interaction of men, machine, material and method. For that reason, I suppose that Chinese companies will focus on the training of people who in turn can enable their employees to improve machines, materials and methods. I hope that lean thinking will help Chinese companies to continue making great progress in production and innovation. Wilhelm Goschy, STAUFEN AG: Against this background, we expect China to increase its investment in value creation depth and high tech. This will go hand in hand with an increasing focus on engineering in China. The growing number of Chinese patent applications already points towards this – and the trend is likely to become stronger. In addition, we expect further international links, e.g. in form of direct investment in market and technology leaders. Our assumption is that China will be able to strengthen further its position on the global market. German companies represented in China have noted that cost advantages suffer from increasing wage costs and energy prices. Do you see this as a signal to rethink the involvement? Goschy: The basic reasons for going to China remain valid in spite of this development. The dynamics of the market are so pronounced that companies with an international focus will continue to see priorities on the Chinese market. However, cost developments in respect of wages, materials and energy costs continue to demand ever greater flexibility from these companies. In some cases, this can even lead to the relocation of production plants – either within the country or within the South Asian threshold countries. However, China will remain the crucial sales market and the switch point for the Asian hemisphere. Chao: I agree with this assessment. Companies investing in China pursue the primary aim of penetrating the market and of opening up new growth areas through profitable international business. Even though operational costs in China have risen in recent years, they are still lower than in most developed countries. For that reason, I assume that German companies will think more about employing lean strategies for improved customer satisfaction and reduced operational costs. I, too, do not see the cost increases as a reason for international companies fundamentally to change their involvement in China. Companies often employ lean strategies in order to compensate for greater cost pressures. Is it possible for German companies to implement their lean management strategies from domestic sites unchanged with partners in China? Chao: The basic concept of lean strategies is the same in every country and every industry. However, due to local laws and regional peculiarities, there will be differences in the implementation. My recommendation to German companies is to share lean concepts and the associated experiences with their Chinese partners. If I was in their shoes, I would not treat the recent cost increases – e.g. for labour, exchange rates or energy – as a crisis but as an opportunity. We have to use lean methods in China as a strategy for the future. It is very important to involve all staff on site into this process in order to profit from their knowledge and experience for the process of continuous improvement. Goschy: In practice, we already notice that companies who have lastingly implemented lean management in Germany, are also able to implement this system internationally and particularly also in China. We see lean strategy as an approach which only gains its dynamics from managers and their ability to control and direct the change processes. This means: if you have the right managers on site, you will have no problems with Chinese employees. What should be the main focus of German companies with lean management structures within the Chinese manufacturing sector? Goschy: Important in our view are continuity in management and the lasting establishment of lean standards. Fluctuation in China still continues to be significantly higher than in Germany. Managers play an essential role in ensuring lasting improvements. Standards are necessary to ensure consistent quality despite frequent changes in staff. Chao: For this reason, all manufacturing companies should focus on training their employees’ problem solving skills. For companies in China, this is of particular importance, because Chinese employees are used to be told by management what to do. For as long as senior executives are not prepared to accept and actively promote change, it remains unlikely for employees to try out new paths or pursue innovations on their own initiative. It is a management task to raise awareness of the problem in employees and to encourage them to try out their own ideas for improvements. What is the position of Chinese competitors in respect of lean management – have they got their own distinctive approach to the development of lean ideas? Goschy: At present, many Chinese companies are still in the start-up phase – it is mainly only foreign companies where a true culture of lean strategies is found. Large state-owned companies often work along entirely traditional lines. However, the opportunities have been recognised and strategies put into place. In companies where international standards are applied in the implementation of lean strategies, the process works just the same as in Germany. The mentality for change is mainly found in young companies with young and well-trained staff. Executives who see themselves as change managers as well as consultant-supported change projects can develop strong dynamics in such companies. Chao: In my experience, too, there is currently no distinctly Chinese approach to the development of lean ideas. On the contrary, the Chinese market economy encourages companies to adopt the management systems that works best for each company’s individual set-up. Even though in other countries lean management has proven its worth as an effective system both in manufacturing and in the service sector, I do not expect that in this context the Chinese government will prescribe adherence to a nationally standardised system. However, some provincial government will support lean projects in individual cases. If it was up to the Chinese government, the country would soon become the global centre of development and thus innovation leader in lean management. In a few years from now, will the world learn from lean management Chinese style? Chao: The government wants to see China as the global centre for product design and manufacture. However, Chinese companies require a bit more time to achieve this target. My firm expectation is that Chinese companies will be able to develop their own distinctive lean practice to fit in with local culture and business. At the same time, companies in other countries will do the same. For this reason, it remains an advantage for all those involved in lean processes all over the world to learn from each other. Goschy: In China, development in this sector is already impressive. In future, its engineering graduates will outshine some technologically advanced nations, not merely by numbers. In our view, there is no doubt that these people will also disseminate lean management to all corporate functions. There are many BestPractice examples in the country – and China learns and multiplies fast. VITA Wilhelm Goschy, Staufen AG
Wilhelm Goschy is a board member of Staufen AG, an international lean management consultancy headquartered in Koengen near Stuttgart / Germany. Goschy, a business graduate by training, has for the last two years been the board member with responsibility for lean management. Before that, he had been in charge of the lean management business unit at Staufen AG for six years. VITA Dr. Marcus Chao, Lean Enterprise China Inc.
Dr. Marcus Chao is Chief Executive Officer of Lean Enterprise China Inc. From its offices in Shanghai and Beijing, the non-profit organisation works on the dissemination of lean strategies to Chinese manufacturers. Dr. Marcus Chao has more than 30 years of management experience in global companies and is currently on the Board of Directors of the Asian Pacific American Chamber of Commerce.
