CHINA: DOES FRIEND OR FOE COME TO MIND?

Written By Jeffrey Cartwright, Shoreview Managing Partner | 5 min read

The economic miracles that China has accomplished are nothing short of phenomenal.  The birth and growth of a middle class in the decades since Deng Xiaoping reformed the economy with the Four Modernizations have lifted a large portion of the population out of poverty.  By declaring that “To get rich is glorious,” Deng set China on a path towards state-controlled capitalism.

While China’s economy has grown to the second largest in the world, it has not been without some very alarming impacts on the environment and population within China. 

• First, the One Child Policy has now resulted in an unsustainable birth rate of 1.2 children per 2 adults of child-bearing age.  That has resulted in a decline in population in the last year that will continue to worsen significantly.  There will be 200 million fewer working-age adults by 2050, and the population is projected to shrink from 1.3 billion to 800 million in the next 40 years. 
• Last year, 80% of the factories in China reported difficulties in hiring. 
• 50% of China’s river water and 60% of its groundwater are so contaminated that they are “unfit for human consumption.” 
• In 2014, China reported that 40% of its arable land was degraded, and 20% had become a desert. 
• In 2011, China became the world’s largest importer of agricultural products, having been previously a net exporter.

The US and the European Union, among other countries and international organizations, are gravely concerned about Global Warming and the expected rise in temperatures that will adversely affect hundreds of millions of people. If your company is concerned about this existential threat, you may want to exit China and Nearshore and/or Re-Shore.  Mexico and the US typically have much more environmentally friendly policies and practices than China does. Also, given that global economics have changed, there may also be an opportunity to lower costs.

Another alarming possibility is armed conflict between China and Taiwan.  If that were to happen, there would not just be a disruption.  All Pacific trade would end immediately for the duration of the conflict and sometime afterwards.

Re-Sourcing to the US (Re-Shoring) or to Mexico (Near-Shoring) has difficulties and requires resources. Executive leadership will need to be more intimately involved and possibly take the role of Change Leader to ensure that the change effort is appropriately staffed with those favorable to the potential of change. Existing managers and leaders may resist the change because it will substantially shift their roles, activities, or status within the company.  Since it also requires far more effort, it may be necessary to add additional resources internally and/or externally to accomplish the required tasks.

If external resources are required, the executive leadership should be diligent in selecting a consulting resource with a demonstrated track record of results and hands-on experience with resources on the ground in the target country.  Shoreview Management Advisors is such an advisor for Mexico.