Reflection Paper: Encounter with the Bottleman
One of the most memorable scenes during my visit to China was at a bottled water labeling and packaging plant at Wahaha. Most of the processes were streamlined and looked efficient, except for one spot where quite a few bottles would bounce off of each other and fall down. An employee was working on that spot specifically to stand the fallen bottles back up, so that the machine could pick them up for the next process. The single task this employee handled was to stand the bottles back up. I will call him “The Bottleman”. I could only imagine the boredom this poor employee had to face everyday, but more importantly, it spoke a lot about labor costs and technology in China. This is a packaging plant for Wahaha, a company that competes head to head with Coca Cola. They would try to improve such obvious inefficiencies if they wanted to. The fact that the Bottleman was hired to do that job means that it costs more to fix the assembly line design than hiring him. Now, let me briefly list what this means for Chinese businesses and the potential challenges they, and China, might face, as the trend of labor cost increase continues.
The first point is the obvious: Chinese labor is cheap. Fixing that assembly line to decrease the number of bottles that fall down doesn’t seem that complicated. Yet redesigning the assembly line seems to cost more than hiring that Bottleman who has to pick up about one or more bottles every second during the operation of the plant. The corporate decision to hire him makes economic sense only under the circumstance where labor cost is minimal. In other words, his job exists because this was China.
The second point is that there is a wide gap between the US and China in terms of technological sophistication of the average manufacturing plant. The simple message follows from the above-mentioned point: There are just some investments that are not worth making when labor costs are so low. There is no need to pay top dollar to purchase state-of-the-art equipment that requires fewer operators, when labor is cheap and can cover for subpar quality equipment and/or facilities. Second- or third-grade technology would suffice. Hence we see older, less-sophisticated technology being used more frequently in an average factory in China. Wahaha’s assembly line could be one such example.
Thirdly, if Chinese labor costs continue their upward trajectory, we are likely to see more changes in business practices. As labor costs rise steadily, there will be more instances where it is economically advantageous to invest in better equipment and technology than to hire someone. In other words, we will see increased spending in capital goods. China will experience a gradual departure from labor-intensive manufacturing towards one with improved productivity. This means two things: fewer low-skill jobs, and increased energy consumption. First, as a consequence of productivity rises, companies will require fewer employees to do the same amount of work. This means that Bottleman, despite his hard work, may lose his job pretty soon if his pay-rate rises too much. Second, energy usage will rise at the average factory as more processes are shifted towards machines. Both are huge problems for the Chinese government, as they will have to tackle higher unemployment and energy costs. Through this trip, I think I have seen firsthand the changing dynamics of a rapidly growing economy.