07 April 2016

Planemakers in China

It's a challenge to explain the workings of a foreign country to those who have never visited due to a tendency to extrapolate from one's experiences to fill in the gaps that lack specific details. I think it's common for those in industrialized countries to assume that the developments in manufacturing that have taken place recently in mainland China have been progressing in a similar fashion as they have occurred historically in other countries.
I've touched on this situation in previous postings so I want to go further into details here.

I recently unpacked a bench plane and found this on its sole.

More than defective
I can offer an explanation as to what this says about the many underlying features of Chinese business practices. I've mentioned before that many bench planes and woodworking handtools are being manufactured by this company in Zhejing province. This one manufacturer produces under contract Wood River for the US market, Luban for Australia, Quansheng for the UK, Juuma in Germany. Other national markets might also have their own brands associated with woodworking tools made by this same company. Occasionally these brands do appear on the Chinese market. Sometimes in noteworthy permutations.
a German-American alliance #4 1/2
Yet more often the planes that are available are sold without any brand association, neither on the plane itself nor on the packaging. They arrive in a hermetically sealed bag with packing grease, laid into a pasteboard box. They look like this.
Generic Jack plane
The only identifying mark is the lonely No 5 in the casting. There are a few possible ways that these bench planes enter the Chinese market. The first one that comes to mind is that these are overruns. At the beginning of every production run, a manufacturing must predetermine a defect rate and then add that to the number of the order. For example, a buyer contracts for 5,000 No5 bench planes fabricated with his exclusive brand. The manufacturer, in turn, determines a predictable number of mishaps and so begins the production process with 5,200. Along the production process, castings are found with pitting, machine tool operators introduce wrong finished dimensions, blemishes arise due to mishandling, etc. This initial overproduction insures that at the end of the run, a buyer will receive the 5,000 that are acceptable to his quality standards.
If the manufacturer is lucky, out of the extra 200 a fair number might also meet the buyer's quality standards, but he is under no obligation to purchase any more than the contract stipulates. A manufacturer then must decide what to do with these 200. Some might not be salvageable and are melted down as scrap. A few might be as pristine as those exported, which might be set aside in anticipation of subsequent orders.  Others might be marginally defective, merely suffering cosmetic flaws. In some industries, these are openly sold as seconds and are openly labelled as such. (It was once my dream to obtain a complete set of my own Bridge City blem layout tools.) Manufacturers have to balance the benefits of the additional sales (in the short term) with the downside of any potential brand devaluation (over the long term).
Another possibility is that these cast iron planes start at foundries to fill the time between more profitable exportable goods.  Sandcasting patterns can be readily modified to block out the identifying marks that are created in the cast items. As long as machineshops are willing to buy the rough castings, the foundries have every incentive to keep production from dropping below a base level.
They also might be assembled from stolen parts. Leslie Chang in her book, Factory Girls, writes about gangs working in shoe factories who pilfer shoe parts that are then sold to sweatshops where there are assembled into completed shoes that for all intents and purposes are identical to those made under contract inside a factory. Which is to say that not all the goods on the Chinese market leave the factories by passing through the front doors.
No woodworker wants to open the box of a new bench plane and discover pitting on the sole from a defective casting. This is not a cosmetic flaw on a minor part but on a machine finished surface, which will adversely affect its usability and add to the maintenance challenges for this tool.  The decision to sell this tool was based on the short term benefits of easy money. There is no brand at all to protect in this situation. And given the immaturity of the domestic Chinese market, it's doubtful whether many end users might even recognize the flaw as a problem. The price is low so why would a novice woodworker complain?
Building a brand is a long term venture. It's undeniable that Qiansheng Tools Co., Ltd. understands the inherent value in branding. They have been entrusted with documentation of the quality standards that international brands want for their own product lines. They fully understand that branded goods can command higher prices and that there is a growing domestic demand for these tools. What then becomes so baffling is why such a manufacturer with all the information necessary to move in this direction doesn't bother to develop its own brand targeted specifically to the mainland Chinese consumer. The impulse for fast money even in capital and technology intensive industries like steel and machine tools trumps the long term advantages. Even I, born into the lower class, aspire to create a product that can be identified with me and yet this is not at all common in China. I cannot readily explain this gap but it is pervasive here in China.
There is another aspect of this marketplace dynamic that is of more relevance to those corporations with established brands that relocate their manufacturing to China. They have made their own short term / long term cost benefit analysis yet I wonder whether they fully understand the Faustian bargain that they have entered into. There is a growing middle class in China that is eager to engage in woodworking as a hobby. In most instances, this is their first hobby and they are struggling to learn about all aspects of the craft and the tools associated with it. First impressions, therefore, can have a long lasting effect. This is an example of a Stanley brand bench plane that a woodworking hobbyist purchased online.
That cannot be ground out

More than cracked

I read that she was told by the sender that this was damaged in shipping. Anybody familiar with iron bench planes knows that this is BS. This plane was clearly a defective overrun that was rejected for export but the Chinese manufacturer wanted to make some quick money by pawning it off onto an unwitting Chinese consumer. On a cynical level, I can hardly blame any Chinese company for doing so. If a sale goes through, it's a sweet bonus on top of the expected profits from the base production run. If the sale goes sour, it only damages the Stanley brand reputation in the domestic Chinese market.  Somewhere there is an executive in New Britain, CT who is patting himself on the back for his selfdescribed brilliant idea to get quickly back into the woodworking handtool business now that it has been undergoing a renaissance. After having abandoned it piecemeal after WWII,  IMO, Stanley Toolworks completely gave up on designing and producing high quality handtools when the company chose to introduce the Surform with its disposable blades and marketed it as an improvement to modern benchplanes.  I recall watching a promotional video at a hardware store / lumber yard, which played on a loop and starring Don Knotts that extolled the superiority of Surform and devalued their own benchplanes as too difficult to adjust and to use competently.

I don't know whether Qiansheng also manufactures the new Stanley bench planes nor even how many manufacturers are involved. It's quite possible that there are a number foundries at any time using Stanley patterns and supplying Qiansheng and other companies contracted by Stanley, which also sell unfinished castings to any number of untraceable machineshops that then produce finished semblances of benchplanes.  Without any markings and certainly no apparent interest in associating these products with a traceable brand name, speculation is as good as any facts.

I started thinking about this type of economic disconnect while listening to a Looking Sideways podcast.  A British entrepreneur, Chris Thorpe, involved in creating steam locomotive models offers a compelling critique of offshoring manufacturing. Comparing early industrialization to present day software designing, he relates that Victorian manufacturers were easily able to continuously update and modify their locomotives based on feedback from customers.
“If you look at lots of these steam engines, you can see almost the evidence of physical pull requests. They’d make a change in the field, and then they’d go back to the factory and the people who were doing the large overhauls would look at them and go, ‘ah, that’s really clever, we should do that’, and then they’d incorporate that in the design going forward. (citation)
It's a very densely packed discussion with many points to inspire further discussion. The most relevant comment though is how the separation of manufacturing from consumers hinders development as feedback never reaches the manufacturers who can only thrive in the long term by keeping ahead of their competition. This succinctly describes the situation in China. Manufacturers separated by layers of contracts and supply chains which also have no motivation to relate to the local market, who due to historical circumstances, are unable to offer any feedback to Chinese industry.
We see co-creation and open innovation as being enabled by the digital world, but actually I think it’s more enabled by having a connection between consumers and manufacturers — the actual people who make the things.
Stanley Toolworks forsook its core business long ago and then outsourced large elements of its domestic manufacturing. New Britain, Connecticut is synonymous in infamy with Sheffield, England. The appearance of the Stanley name on bench planes is an illusion that they are back in the business of manufacturing handtools. It's yet another example of squeezing the last pennies out of a well known brand name while diminishing its value. They are not back in the business of manufacturing woodworking tools; they are simply pimping out their devalued brand name.
There are many new manufacturers in North America that are satisfying the new market demand for high quality handtools. They are able to do this, as Thorpe rightly explains, by being close to the end users. They are, additionally and without exception, woodworking enthusiasts themselves and thus, fully cognizant of the needs of end users. There is a very stark contrast with this revitalized marketplace dynamic and the situation in China with manufacturers unwilling to interact purposefully with Chinese consumers and often ignorant of what their products are for or how to use them.

 

3 comments:

Andrea Pieracci said...

Hi,

I really enjoyed reading your analysis of the Chinese manufacturing market dynamics, I agree with your explanation and I would like to add something about branding and to why it is so underrated here in China.

Basically it all comes back to money, that as you know is really what drives Chinese entrepreneurs, workers, artisans (intended as people without stable contracts, not with the foreign meaning). Their target is just that, make money and it is in no way related to pride or love for their own job, for what they do everyday. They see it in terms of result, economic result, not in terms of aspirations, crafting, daily joy or even ethics.
As you know this attitude brings the quality to what it is.

Being “smart” as they are they understand that such target is pervasive, and when they place themselves in the customers point of view they tend not to trust local brands (excluding the big corporate ones). Their reasoning is that local products are cheaply and badly made so to buy them they have to be far cheaper then the imported, otherwise they are not worth the price.

Now, if you try to manufacture a product in China, for example a plane, with the same quality standard as it would have if manufactured abroad, considering: salary, workers efficiency, difficulty to find out good quality raw materials, etc. (I made such an evaluation for my company) it would take a little bit more than half the cost, and so the price to market would be roughly more than half too (that is basically what you need to buy Luban compared to comparable quality international brands manufactured abroad). At more than half price the customer would not trust a local product (still excluding the historic big corporations Haier, Huawei, Hisense, Lenovo and so on).

Manufacturers understand the situation so they tend to target the low price local market with low quality stuff or the export one with (at times) better products. This is the reason why is so difficult to find "reasonable" product at "reasonable" prices here. Of course when you sell cheap stuff branding makes no sense.

If you look for Luban products on the local websites they are scarce, the reason is that they have almost no market, at the same price tag local people will buy IRWIN even if the product is of an incomparably lower level just because is a foreign brand. People with money will go straight for Lie Neilsen and Veritas.

Furthermore branding is a middle/long term strategy. It clashes with local late consumerism culture and late history that tells Chinese people that every day everything could happen, workers think they will become rich and change job soon, bosses think they will open some other more profitable business, everybody and everything is targeted on making money as soon as possible. As you know here even short term future is uncertain.

On the other side foreign brands operating in China are profiting of their "higher" status generally lowering their quality for the product targeted to local market, some of them in a cleaner way, developing specific simplified products, some of them in a dirtier way, just selling lower quality products manufactured using cheaper technologies. Doing this they are slowly wasting out their brand values because when they pay good money the Chinese do expect good products.

Putting all together these are the reasons why I think that for small/medium enterprises making simple products branding has limited economic value in modern China.

Maybe this is going to change soon as everything is here but I do not see a trend towards quality improvement as intended abroad.

Best wishes.

Potomacker said...

Signor Pieracci:
Your very thorough and thoughtful comment merits some response from me in return. I don't want to get bogged down in so much minutiae in part because I agree with much of what you've written and this is not the best forum for discussing such an unwieldy and broad topic.
I do choose to add to a few aspects of what you've touched upon. I don't know what tools can be said to be in both the Irwin and Luban lines. I don't think that there is any overlap so I'm not certain as to what to make of your comparison. I will say, however, that scarcity of Luban and other associated export brands on the Chinese domestic market still is a function of supply and demand. If there is scarcity it is just as likely as the demand has snapped up the supply or that there is insufficient suply available that is linked to a downturn in export production. As I have explained, most of what ends up on the domestic market is from overproduction or rejects. The reason is not that Luban 'has no market'
I am not familiar with the term 'local late consumerism culture' but as much as Chinese are the most brand conscious consumers as I have ever met, Chinese manufacturers seem willfully unaware of this obvious potential for growth. I suppose I could apply a long list of business terminology to explain this contradiction, but the most basic explanation is that Chinese manufacturers lack long term strategies to develop brand value in their products. In examples such as with the melamine scandal, they seem willing to destroy high value brands for short term gains. As to how much of this is zeitgeist and how much is entrenched in Chinese society, that's a debate for another day.
Lastly I think it's worth mentioning how woefully immature the Chinese marketplace remains. This can often be obscured by such headline grabbing companies like Taobao, but I would argue that Taobao is so dominant in the Chinese marketplace because other sales channels have never developed and are being stifled by Taobao's preeminence. One factor that seems to be causal to this present state of affairs and much less resultant is the low education of the average Chinese consumer. Chinese middleclass consumers might be able to recite the name of international consumer brands but they seldom look at more than sticker price when evaluating any generic purchase. It's not by accident that German automakers produce top quality goods; nor Italian. clothesmakers; nor Japanese, consumer electronics. Informed and discerning consumers drive improvements in local manufacturing through competition before such manufacturers expand into international markets. There are a few explanations that I can cite to explain this low level of consumer education but it's also evident that it has remained the case for many generations.

Andrea Pieracci said...

Hi,

thank you very much for your addictions, I have to say I am impressed by the breadth of your points of view and the articulate way you express them.

I am extremely sensitive about these issues because I have dealt with them every day of my life, both personal and professional, for years and I am, as any foreigner trying to live consciously in modern China, fully impacted by them so probably my point of view lack flexibility because being painful I tend to rub it repeatedly and make it unyielding.

A couple of points I have not explained properly:

- Irwin is the only widely available foreign name brand I could find that offers middle priced woodworking Chisels and Planes (locally manufactured). I must confess that all my evaluations are based on Taobao just because I do not know of any other usable channel, If you have any I hope you can share for the benefit of any interested reader;

- I did not mean that Luban has no "potential" market, that would be huge. I just meant that at their price tag it will be difficult for a conspicuous number of potential customers to trust them.

I fully agree with your perception of the importance of brand here but I think it due to a defense mechanism, as you say they have been cheated and exploited too many times by their own compatriots that they do not trust each other anymore, so is exclusively applicable to foreign brands.

You are probably right about the Chinese companies being the causes of this and the customer skepticism being the effect, but personally I still see it reversed, with the local consumers with their shallowness and lack of understanding and interest for quality (you cite consumer education) being the drive to the market that can not but follow. Maybe is just a dead loop where a slow gradual improvement on both sides being the only possible exit.

I do not really see it.

I think that what you refer with "immaturity" is just a "characteristic". I do not see the Chinese system evolving with time in a similar way to what happened abroad. I think their development model and their frame of mind are so different that their "mature" status will bring to a wholly different consumerism model. Maybe the professional sales channels so common abroad will never develop, in the company I work for the trend is the opposite, we are pushed by untrustworthy local suppliers to resort often and often to Taobao as the only known alternative. As of today Taobao is our only supplier, for example, for standard fasteners. Scary.

I hope being around to see where it goes.

Best wishes