`Secret behind Chinese products is skilled workforce, sops`

The success of cheap Chinese products owes it to the disciplined, educated workforce and subsidies to the small and medium enterprises, contrary to what many in India believe, said a report.

Updated: Apr 11, 2010, 16:19 PM IST

Beijing: The success of cheap Chinese products owes it to the disciplined, educated workforce and subsidies to the small and medium enterprises, contrary to what many in India believe, said a report.

"Most of the Indian politicians and businessmen find it convenient to believe that China’s miracle was possible just because of its Communist monolithic governance that denied the individuals workers their rights and freedom of speech," a study conducted by a research group headed by PS Deodhar, president of the India-China Economic and Cultural Council said.

The secret of China selling its goods at unbelievably cheap rates is the combination of factors like "remarkably well-disciplined and well educated work force, high quality infrastructure, supply chain clusters, visible and hidden government subsidies, undervalued currency and copious flow of foreign direct investment (FDI)”, the study said.

Chinese SMEs account for 99.90 percent of the total enterprises, which also accounted for 75 percent of the total labour force and contributes 68 percent of the country’s exports, according to the report.

China’s export growth is double the GDP expansion. The country has created more SMEs in the past 20 years than the total number of SMEs in EU and US put together, the study supported, among others, by the Rajiv Gandhi Institute of
Contemporary Studies said.

The first reason for the success was the workforce, which was primarily constituted of migrants from rural areas, surrounding the industrial zones.

"All these youngsters from rural areas in China may not know English, but each fully literate and well informed" after 11 years of schooling and vocational education, the study, which surveyed 300 Chinese SMEs, said.

The youngsters were allowed to migrate and they lived in dormitories with food provided by the units they worked for, besides the prescribed wages and overtime allowances, the report said.

China’s wage advantage comes from quality workforce and the "advantage is likely to persist for decades as Chinese government plans to move 300 to 500 peasant farmers into its factories".

In comparison the "Indian worker is often semi-literate without formal skill-training and in most cases he has to undertake an hour’s stressful journey each way leaving him in no mood to put his best foot forward", it said.

"India has to learn a lot while structuring its policies, it has to allow entrepreneurs to compete with China and help our benefits over China like English, software and training skills", it said adding that the three could be key to beat the Chinese competition.

High quality infrastructure which was "even better than in the western developed countries" ensured efficient transportation of men and materials where as "poor logistics support, besides sapping Indian efficiency adds to unproductive expenses and frustrating exasperation".

Supply chain clusters, which focus on single product or set of products, serve as focal points for material supply. "The industrial network clustering" of locating all the important enterprises in industry’s supply chain is the key to providing comparative advantage and greater efficiency in manufacturing, it said.

The cheap price structure was also aided by visible and hidden government subsides to SMEs like heavily subsidised energy, water, financial capital, land costs, tax subsides, it said adding that the cheap export prices were boosted by undervalued Chinese currency yuan.

Piracy and counterfeiting, lax environmental, health and safety standards and steady flow of FDI also help keep lower prices.

"In fact one suspect that many Western multinationals seem to go to China to evade tighter regulatory structures at home and China’s policy of offering free land use to multinationals has been particularly effective in attracting FDI," it said.

"We might do well to learn from clustering example as well as to develop capital develop capital intensive strategies to cope up with China’s labour advantage," the study said.