China Focus  

Productivity Productivity Productivity

By Dr CS Lim

In recent years, many well-known furniture makers have gone bankrupted. This has led to much discussion on the reasons leading to their collapse:

* Dragged down by the real estate downturn;
* A particular category in the market facing downturn, such as panel furniture;
* Negative impact from factory-operated retail stores;
* Low profit margins;
* Poor management;
* High labour costs

There are many so-called experts who attributed the cause to the following:
* disappearance of demographic dividend;
* as economic development reaches a certain level, growth naturally slowed. Those enterprises that do not keep up with the trends are eliminated.

Let me share my take regarding the experts’ opinions.

This is not uncommon when discussing the prospects of industrial production of different countries/regions that people tend to focus on population size, the so-called deomographic dividend, regardless of the industry.

According to the World Bank, China’s total population has reached 1.357 billion in 2013. India’s population had reached 1.257 billion while the total population of ten countries in Southeast Asia is more than 600 million people.

China’s average population growth rate is 0.5 percent, India is three times that of China’s growth rate. Southeast Asia as a whole, baring individual countries, has also a growth rate higher than that of China.

On the other hand, China’s population is entering a rapidly aging period, whereas the populations of India and Southeast Asia remain young, with an average age below 30 years old.

Therefore, some experts jump to the conclusion that at one moment India, and other times Southeast Asia, will grow faster than China economically in future.

However, some scholars in China believe that China can take advantage of smart devices and equipment, and even industrial robots to replace workers.

There are many in Europe, Japan and especially the United States who believe that smart devices, industrial robots and artificial intelligence can help them regain their traditional manufacturing industries.

However, after so many years, in spite of these very loud slogans, few traditional manufacturing have returned to the developed countries. The reason is that the use of smart devices, industrial robots etc, are only the means. The purpose of all these are to improve productivity, which is the key.

We often hear the talks about intelligent production etc, but seldom do we hear about improvement on productivity. This is unlike Chinese habits. The Chinese people has always been more practical, paying more attention to the goals and are results-oriented. They are less concerned with the means and process. In this matter, the Chinese are very different from the others.

As such I suspect such talks remain at the scholars and intellectual level. As ideas taken directly from the West, they have not been assimilated nor have the means been fully understood to identify the end. If an entrepreneur were to look at the issue at hand, the target should become “increasing productivity”. It is only with improved productivity that companies can survive. Making money is only possible if a business is not eliminated.

Improving productivity is crucial to enterprises. Likewise to countries. Let us make a comparison between countries like Japan and China: Japan (1956 – 1970). During this period, the per capita income is US$ 7,000 with its economic growth rate at an average of 9.7%.

On the other hand, looking at China, the per capita income has just reach US$ 7,000 with economic growth rate at only 7%. Why is this so? According to the Bank of Japan’s analysis: Between 1960-1973, the labour supply growth in Japan was over 3% per year;

Since 2012, China’s working-age population began to decline, with a decline of more than 3 million people a year.

An analysis of the demographic dividend. In fact, during this period, the annual productivity growth in Japan is 10%. This high productivity is the main reason for the high rates of economic growth.

China’s current growth in productivity is unlikely to hold above 3 percent. There are even negative growth in recent years. Economic growth is sustained by capital injection. Last year’s growth was sustained at 7% and the future may be lower. The problem lies in productivity.

As such some people believe that once an economy develops to a certain degree, GDP growth will naturally slow down. This sentence is not wrong. However, China’s economy has yet to arrive at that high “degree”. There is still a distance from that so-called “a certain degree”.

There is a theory known as “convergence hypothesis” which hypothesize that once the per capita income in developing countries reaches 60% the per capita income of the United States in 2005, economic growth will slow. This applies to the four Asian tigers of Hong Kong, Singapore, South Korea and Taiwan. It seems so even for Japan.

Today, however, China’s economy has started to slow down before its per capita income has even reached 20% of the United States per capita income in 2005.

The issue now seems to be more clear - with increases in productivity, the Chinese economy will be able to grow at a higher rate.

One way to calculate: China wants to maintain 9% growth rate before 2025, the annual productivity growth needs to stay between 4.3-4.8%. However in the past 30 years, it has only been 4%. At the moment, it is declining annually. As such the 9-percent growth cannot be achieved.

That is at the national level. For the furniture industry, increased productivity should be relatively fast, because advanced countries have walked the paths. Live examples are available to us. We only need to learn, to imitate countries such as Japan, whose per capita annual output is valued at about 1 million yuan, which is 4-5 times of China. As long as this gap is narrowed, it will signifies double the increase in productivity. Then we can use fewer people to produce more furniture. This equates to greater competitiveness in the international market. With increased productivity, profits will improve, how then will companies collapse?

However, productivity is an attitude. In addition to updating equipment, changing production processes etc, how to bring out the best in employees, changing the attitudes of the employees toward work are the key (topics for Human Resources management).

Furniture industry belongs to the traditional manufacturing industry. It may not be an industry that the government values. However the industry has fed tens of millions of Chinese people, with export of up to US$50 billion. The advantages of the traditional manufacturing industry cannot be given up in transformation and upgrading of China’s furniture industry.

In the past, the British and Americans have gone into the banking and financial services through their upgrading efforts. The Germans have turned to the machinery and equipment industry. We should, through smart manufacturing and green manufacturing, transform the huge traditional manufacturing industry.

This is because at the current phase, with low per capita income, it is a long way and will take another 40-50 years to achieve the 60% per capita income of the United States in 2005.

President, Council of Asian Furniture Associations Professor, Beijing forestry University , currently the Chairman of the Council of Asian Furniture Association (CAFA). He read at Nanyang University in Singapore and completed his PHD at Beijing University of Forestry. He holds a Post Doctorate from Michigan State University and is a visiting scholar there. Dr Lim has been active in the Singapore furniture industry, chairing both the Singapore Furniture Association and Furniture Association of Asia and Pacific previously.