November 18, 2013    Volume 20, No. 15

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American Manufacturing Has A Secret Competitive Advantage: Its Workforce


By Fred Stahl
fred@fredstahl.com

The news is full of data about China's uptick in economic performance. Figures for the most recent quarter show GDP, exports and manufacturing output up more than expected. While the news may have brought cheer to the third plenum in Beijing, longer-range trends paint a gloomier picture. China is headed for economic upheaval.

China's factories have made so many products so cheaply for so long that they are by far the world's biggest producer. Currently, China's manufacturing value-added exceeds U.S. producers by more than 20 percent. But it looks like the party is coming to an end. There are dark clouds on the horizon threatening China's global dominance. The International Monetary Fund already forecasts that China's working-age population will peak in a couple of years and then sharply decline, ushering in widespread labor shortages and higher costs for workers.

Wage escalation has already begun in the coastal industrial provinces. Manufacturing Trends and News reports Chinese labor costs going up 15 to 20 percent per year, compared to only 2 percent for U.S. industries. Since Chicago-based Prince Industries opened its plant in Shanghai a decade ago, wages have gone up by an average of 12 percent annually, says company CEO Mark Miller. Another American firm with contract factories on China's southern coast complains that labor costs have been rising by 14 percent annually.

But the pricing problem for China goes beyond hourly wages. China's productivity growth is running out of steam, according to an Ernst and Young survey of managers at 1,700 Chinese companies. Further, China's currency has appreciated 25 percent against the dollar over the last decade. A knock-on effect has been to make shipping Chinese goods to overseas customers more expensive.

Ernst and Young expects the Chinese government in coming years to increase pressure on companies to raise productivity. Manufacturers will have to go beyond simple cost cutting. Investment in technology and innovation will be needed. But Chinese producers will also have to compete on new and unfamiliar ground. As Ernst and Young puts it, factories "will need to make much deeper and longer lasting improvements in their management and operational practices." As never before, Chinese companies will have to strive in organization and management of industrial production in the broadest sense -- exactly where American manufacturing enterprises have powerful and unmatchable competitive advantages. This is the bad news for Chinese producers and the good news for American manufacturers.

What is this economic phoenix that is rising out of American factories? And why does it give U.S. producers a singular competitive advantage?

Several trends contribute to what many call the renaissance of manufacturing in the United States. Some experts cite accelerating advances in technology and innovation in American product designs and manufacturing processes. But there is another less visible but potentially more powerful, competitive factor in play: the human side of production.

American manufacturing managers have begun to understand that programs to improve productivity must deal with both the technical and human sides of production. One manager at General Electric called employees "the secret sauce" without which companies fail at lean manufacturing.

The newest and most innovative production systems step beyond lean manufacturing and take that "secret sauce" to a new level. It is called Worker Leadership. Based on tested methods for organizing and managing production, Worker Leadership asks workers to lead production. Executives transfer responsibility and authority for production operations from managers and foremen to trained teams of workers. Worker Leadership harnesses the most valuable asset of any organization -- the minds of its workers. Not only are they the first to detect problems, they are empowered to use their skills, experience, judgment and first-hand knowledge to fix production problems. The net effect of Worker Leadership is dramatic increases in factory productivity beyond those any other production system can deliver.

At the same time, workers love their new jobs because they enjoy being productive -- the bigger the opportunity to be productive, the greater their job satisfaction. The physical side of Worker Leadership is designed around the principles of just-in-time and quality control made famous by Toyota. Clean, lean shops give workers the visibility and control they need to efficiently manage factory operations, which in turn increases job satisfaction.

Can Chinese firms adopt Worker Leadership to achieve the deeper and longer lasting improvements in their management and operational practices needed to compete in the future? The answer is: Not many -- if any. Recent field studies by Chinese scholars found that most companies that try to deploy lean manufacturing fail. Industrial cultures in China present almost insurmountable barriers to implementing lean manufacturing, let alone Worker Leadership.

U.S. manufacturers, in contrast, have an unmatched cultural advantage. The unique American national culture of rugged individualism prepares workers to step into leadership roles. Workplace cultures in stratified societies do not.

Worker Leadership powered by the American national culture of individualism gives American enterprises a singular and enduringly powerful competitive advantage in the battle for industrial competitiveness.

-- Fred Stahl is the author of Worker Leadership: America's Secret Weapon in the Battle for Industrial Competitiveness (MIT Press, Fall 2013). He can be reached at fred@fredstahl.com. For special pricing on bulk purchases of Worker Leadership, please contact MIT Press at erikav@mit.edu.


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