Chain of Thought

China: Handle the Traps, Avoid the Cheese

This is a great time to be a player in the material handling industry. Even manufacturers of the most mature products—lift trucks—are having a good year. For example, Toyota Industries Corporation (TICO), dusting itself off after the supply chain challenges it faced after the recent earthquake and tsunami, reported a 7% rise in total consolidated net sales.

On the U.S. domestic front, Cleveland-based Nacco Industries—which also owns coal mines and kitchen appliance companies—earned $63 million during the first three months of this year. According to Cleveland's Plain Dealer, the company's earnings more than doubled because of booming sales of lift trucks and other material handling products. The PD reported that Nacco's materials handling group sales (Yale and Hyster) were up 56 percent to $587 million, and earnings nearly tripled to $22 million.

This rise in sales appears to be a global phenomenon. In Tico's fiscal 2011 financial summary, the company announced it intends to "accelerate our business expansion into rapidly growing emerging countries by thoroughly and meticulously monitoring market conditions in respective regions and introducing products suited to the characteristics and needs of each market."

China represents one of the biggest opportunities among those emerging markets. There's only one problem: it tends to absorb then adopt the innovations it buys. Although China's President Hu Jintao promised President Obama that he would cancel rules that required foreign companies to do their design work in China if they wanted to sell to China, foreign manufacturers are still running into that trade restriction, as well as others.

That's the problem for innovators wishing to take advantage of China's growing consumer classes. Rather than enjoying the benefits of being the proverbial early bird in this market, some entrepreneurs are suffering the consequences of being the first mouse that went after the cheese in the trap. The lesson in this proverb is that it's the second mouse that gets that cheese.

I learned that “second mouse” proverb from George F. Brown, Jr., co-founder of the Chicago consulting firm of Blue Canyon Partners, Inc. Brown believes that the success of the Chinese as fast learners should be a lesson for western firms hoping to hang onto their global market leadership. In a recent article he wrote with his China Practice Director, David Hartman, Brown offered strategies western firms should adopt if they want to thrive in emerging markets like China. One of them is “Rethink the emphasis of spending on research and product development.”

I wondered what Brown meant by that, so we exchanged e-mails. More specifically, I asked him if the amazing productivity enhancements of material handling equipment and systems means anything in a country where labor has always been cheap and plentiful. Can the manufacturers of this equipment still hope to command a premium for such productivity innovation in China?

“Chinese firms only rarely introduce automation in order to save on labor,” he answered. “But there is another phenomenon afoot that is quite important, and that it the Chinese emphasis on speed. The Chinese will welcome and adapt technology in areas like material handling if it enables them to get the job done faster—as opposed to with less labor. Firms trying to sell to Chinese customers, for example, that are used to arguing the merits of their products on the basis of ‘labor-saving productivity contributions' in western markets need to change their emphasis to ‘reductions in the time to complete a job' in China's markets.”

So while speed to get the cheese killed the first mouse, opening an opportunity for the more leisurely second mouse to get the cheese out of the trap, I guess the Chinese see the need for speed in getting more mouse traps through their supply chain to replace all those sprung traps.

Here's my proverb for the material handling industry: by all means, sell into China your fast and efficient conveyors and lift trucks to support their rapid supply chain flow of mouse traps—just avoid any cheese and demand the beef.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish