When the past exists in the future: how Chinese manufacturers have improved upon the ways of the west.

A RECENT TRIP to China made me feel like I had traveled back in time. All I could think about was the cliche "The more things change the more they stay the same" that seems to be popping up everywhere. The purpose of my trip was to see all the new capacity going on-line by new players in the industry who have successfully driven most established, primarily large North American players, out of business.

To a large degree I expected what I saw. In the short year since my last visit the crane population continued to grow leaving an unbelievable number of huge buildings equally distributed between 40 to 80 floor skyscrapers and mammoth footprint manufacturing facilities in their wake. While visiting and touring some of the larger facilities I kept hearing the same theme: "We have competed Phase I and are in the middle of Phase II expansion." The same capacity numbers seemed to be thrown out with each phase, averaging 20,000 square meters of output each month. The appetite and where-with-all for growth was clear and rampant in the companies I visited.

Equally, capability did not disappoint. As has been the case in every facility that I have seen over the past couple of years, large and small, all had state of the art equipment and the product being produced was definitely high-end. One facility manager commented that they are spending US$10 million every month on capital equipment and expect to continue doing so to meet the ever-increasing technology and average layer count demands of their customers. The level of technology being produced and the visible investment in capability were not only very impressive, but unprecedented in the history of our industry.

In formal presentations and during conversations with managers, two things kept standing out to me. First, all of the companies were relatively young. The oldest dated back to the late 1980s but most of the others popped up since the mid-1990s. In short, most companies with serious in-place capacity and capability were around ten years old. Second, every company had a long-range plan--Phase I through Phase X--and they were implementing those plans with a vengeance!

My thoughts often drifted back to the "good old days"--a time before many of these companies existed and when the epicenter of our industry was based in the west (primarily in North America). Back then we also invested in capacity and capability, but differently. Most companies added to existing facilities, creating what often ended up as inefficient manufacturing locations. Investment was often catered to chasing customers' current needs rather than investing in future technologies. Few "greenfield" facilities were built, and when they were they were usually small specialty facilities. Planning was done not for strategic reasons focused on market needs, but more often because someone on Wall Street suggested--or demanded--it.

So as I pondered the well thought-out investments, it sure looked like the Chinese have gotten it right. But then I started focusing more on the conversations going on around me. Not just formal presentations, but discussions on the shop floor and over meals with the management of these companies. That's when things got real interesting.

Yes, these companies had created impressive facilities. The quality and skills of the management teams are world class and everyone is dedicated to producing high quality, high technology product. And, the openness about their problems was interesting. It was refreshing to hear how they too agonized over the focus on improving yields and the need to focus on the right customers, and the need for a well educated, stable work force. It was surprising, however, to hear each company discuss "competition."

They were very blunt in saying that they each had their own specialty that they were highly competitive in. In each case this was defined more by the technology and volume than a specific market. Yes, certain markets had the propensity to fit better with their specialty, but none of the companies wanted to produce product so they could be all things to all customers. Everyone discussed how they had great customer relationships but admitted that they could not build those relationships with all customers everywhere in the world.

Executives said they wanted to build two-way relationships with western companies. Not just the relationship of "we'll build it and you sell it," but solid relationships where they could sell product that other companies would manufacture. These managers fully realize that as advanced as their facilities are, it is beneficial, if not essential, to work in a collaborative way with companies offering complimentary capability so they could support their customers.

These candid conversations reminded me of the way things used to be, when large companies were approachable and, despite some level of bravado, people talked and shared. Maybe the world has not changed all that much. Maybe the only changes are the names and the locations of the competition. There are still big guys pumping big bucks into adding capacity and capability. But it all boils down to customer relationships, knowing your sweet spot, and collaborating with others who might be able to supply a complementary customer or capability to your selling arsenal. And that's where we have the opportunity to improve upon the past. Maybe we all need to focus more on how to work together rather than wonder if we should.

PETER BIGELOW is president and CEO of IMI (www.imipcb. com). He can be reached at [e-mail].