The China Factor
This article was written on December 2, 2005.
The following is from my many years of experience with Chinese factories in the granite industry. It also comes from being an avid ‘China Watcher’.
This is an article that will cause friction. It will polarize readers and be controversial.
China will eventually snap the baseline pricing structure of the granite countertop industry in the USA.
First, let me explain the “baseline” to which I am referring. This is the lowest prices at which American granite companies will offer their services, in order to meeting the basic needs required to maintain established lifestyles. This does not mean that Americans cannot survive below the baseline. It just means that they are very unhappy to do so, in part because changes must be made to their lifestyles.
So, why will China eventually snap the baseline? They will do so because they have no baseline. The baseline of a Chinese factory is a non existent. As they strive to compete for market share in the granite industry, the typical Chinese company is working with employment costs that are closer to the levels of slavery rather than to a realistic minimum wage. It cannot be stopped. Not only has their cultural momentum eliminated the baseline in China; we Americans actually embrace it. We thrive for lower costs, as long as the laborers live outside the USA. While we calculate US unemployment in single digit percentages, China measures their unemployment rates in the kilometers of willing workers lined up at the granite factory every morning. If one individual does not want to work for a certain wage in China, there are a thousand others waiting to do so.
In the granite industry, the writing is on the wall, or perhaps it is more fitting to say etched in stone. In this decade, industrial domination is controlled by costs, and China is the undisputable leader. The only thing that is slowing China down is their software. I do not mean a computer program. I am referring to the muscle between the ears, designed to run programs all day long and solves complex relational problems. This is not to call the Chinese unintelligent. In fact, they are industrially and creatively brilliant. The fact remains that the Chinese are just beginning to understand that they will never dominate the granite market without making partnerships with American companies. China needs relationships with American clients, which can be accomplished with American business partnerships.
The same cultural trends which enable China to dominate the labor sector have created communication barriers that are thicker and higher than the Great Wall. It is not about the speed or the size of the airplane that makes a person feel safe. Rather, it is how the airplane takes off and lands. In the granite industry, China allegorically has the biggest airplanes and the biggest fleet. American clients, from hotel chains to homeowners, will have no problem choosing their airline once the Chinese acquire capable American pilots via a partnership.
Now, let me speak on gradual evolution. The Chinese are already dominating the product supply of granite vanity top and prefab kitchen countertops, but the real domination is around the corner. Contracting Services are the hallowed ground of installation, built on developed communication skills and customer service, which will not be replaced. Instead, it will undergo a cultural transformation. No culture works harder than China’s. Americans do not want to compete at their level unless it is a matter of survival. As American Company Organizational Charts increase with Chinese middle managers, company production will increase as well. This is because the Chinese middle management will be able to hire culturally related associates in greater percentages.
For small granite shops, the situation is even worse. As a whole, we are watching one of two things go down on a monthly basis: prices or volume. If not, then the granite shop is truly at the apex of the localized area. Don’t look down! One might think they have a good custom market that can not be replaced with prefabricated countertops. While this may be true for a little while, this is only a product issue. Builders are gradually maneuvering their kitchen designs to standardize the granite sizes so that they can take advantage of the lower costs of granite prefabricated in China. However, what a person needs to be concerned with most is the labor issue. Once a Chinese company enters a local market, buys the latest equipment and hires American pilots, the small American granite fabricator is in trouble unless there is plenty of work to go around.
In this article, I want most to provide these realities to think about. I would also like to add some possible strategies to consider. First, small granite shops need to keep their eyes wide open. Once the Chinese company is seen in the local area, research their history and establishment as soon as possible. If their shop is very strong, I highly suggest trying to establish a strategic partnership with them. It is not wise to compete if one does not have to. The Chinese are always thinking about partnerships and many desperately want them. It is the drastic cultural differences which lead to miscommunication. If a person steps into the Chinese world while they are in the localized American area, a bond can be established in which the American is the mentor. The key is timing. Keep all eyes open!
For a large American company doing 20+ kitchens everyday, the bigger they are, the harder they fall. There is no way that large American companies are going to form a strategic partnership with a new Chinese fabricator. They are the new little fish in the sea, while the American companies are sharks. One would need to eat the little fish before they get too big. Hiring a Chinese middle management in at least once division of the American company is advisable. It is important to increase communication with the Chinese culture, starting from within the American companies. One will see production increase and the company will be well rounded and prepared for the gradual evolution of the granite industry.