OT - Whirlpool in China and India - the difference

Just a post on manufacture in India compared to China from the NY Times.
June 12, 2004 Made in India vs. Made in China By KEITH BRADSHER
HENZHEN, China - When Crystal Chen, a 28-year-old mechanical engineer, started designing microwave oven doors for Whirlpool in 2001 in this gleaming Chinese metropolis, one of her biggest surprises was the size of the ovens.
Built to be installed over ranges in spacious American kitchens, the ovens were twice the size of the countertop microwaves sold for Chinese kitchens. And as she has kept working on them, the Whirlpool models, nearly all of them made to be exported to the United States and Europe, have grown even larger, approaching three times the size of a typical Chinese microwave.
By contrast, at a Whirlpool complex more than 2,500 miles away in Thirubhuvanai, on the southeastern tip of India, the washing machines built in a hot low-tech factory are products the Indian workers easily recognize. Unlike the microwave ovens in Shenzhen, these washing machines are very much designed for local use, not for export.
They have rat guards to keep vermin from nibbling laundry or hoses. They have extra-strong parts to survive being bumped around in trucks on India's potholed roads. And they are built with heavy-duty wiring to cope with the powerful ebbs and surges in India's electrical grid.
The difference is telling. Whirlpool's emphasis on using China to make goods for export while locating in India to enter the local market reflects a broader trend that is becoming apparent for many household appliances, from television sets to refrigerators. And it highlights a division that could spread in the coming years to other industries.
For all the dreams of selling goods into a fast-growing market of 1.3 billion Chinese, the reality is often very different. While China still holds considerable allure, many multinationals have struggled to earn profits selling here.
Companies setting up shop in China face domestic manufacturers that consistently undercut them by building factories at practically no cost, borrowing the money cheaply from state-owned Chinese banks and using various strategies to avoid repayment. To make matters worse, many department stores are still owned by municipal or provincial governments that give floor space to local products and resist selling foreign brands.
A result has been a struggle among manufacturers to see who can discount wares more deeply - a struggle with little appeal for multinationals that need to make real profits.
"We're not interested in chasing a price-driven strategy," said Garrick D'Silva, the regional vice president for Asia at Whirlpool.
India's economy has been growing nearly as quickly as China's in recent years. By dismantling many barriers to foreign investment, the government in New Delhi has also made the country an increasingly attractive market for globalizing companies.
Marketing is easy through thousands of privately owned retailers, from department stores to corner shops. Risk-averse banks in India charge such steep interest rates to local manufacturers, and so strongly insist on repayment, that some economists worry they may even be slowing growth unnecessarily.
India's steep tariffs, although starting to decline, long insulated its markets from international competition and still keep prices somewhat higher for many manufactured goods.
And because India did not follow China's draconian "one child" policy, United Nations demographers forecast that India's population will surpass China's as soon as 2040.
With all those factors, Whirlpool - while still strongly interested in tapping the Chinese market - has found greater opportunity to lock in profits and expand its market share in India than in China, Mr. D'Silva said.
LG Electronics of Korea, Whirlpool's rival in Asia for many kinds of household appliances, shares that view.
"We couldn't make a profit in China," chiefly because of the free loans available to local competitors, said Kim Kwang Ro, the managing director of LG Electronics India. "The main focus of expansion for LG is India, not China."
China's effort recently to brake its economy, in response to rising inflation and a growing problem of nonperforming bank loans, is also starting to take the edge off some companies' interest. China's political prospects remain murky.
By contrast, India has just gone through a peaceful change of democratic government that produced a mere two-day drop in the stock market followed by an immediate recovery in share prices and corporate confidence.
"The Chinese economy is looking rather unstable,'' Mr. Kim said. "Meanwhile, in India, the political, economic situation is becoming more stable."
Despite rising costs for steel and many other commodities that go into factory goods, prices for manufactured products are still falling in China because companies keep building more and more facilities to take advantage of the nation's extraordinary investment boom. Refrigerator prices, for example, fell 2.2 percent in China in the 12 months through April 2004. In India, they rose 3.5 percent.
India's combination of duties on imports and complex regulations on manufacturing start-ups has tended to benefit companies with factories in the country. "The harder the obstacles, the bigger the advantage for the inside firm," Mr. Kim said.
Many companies, of course, remain bullish on the Chinese market. Automakers are racing each other to build more assembly plants in China, but have moved more cautiously in India, where incomes are still somewhat lower and roads are in much worse repair. Anheuser-Busch just beat out SABMiller in a costly battle to take over a low-margin beer business in China's northeastern corner.
Moreover, for all their differences, India and China share a growing popularity as places for companies from the United States and other countries with high labor costs to set up shop.
Like many of its counterparts, Whirlpool is moving quickly to tap Asia's huge supply of well-trained engineers. Its employment of engineers and technicians in India and China has grown from zero in 1999 to 240 currently, with plans for 700 by 2007, or more than a quarter of the company's engineering work force.
"We're shifting quite a bit of our technology capacity to these countries from the higher-cost parts of the world, part of it from the United States and Europe," Mr. D'Silva said.
Like many companies, Whirlpool insists that it has been able to manage this without significant layoffs among its engineers and technicians in the United States. But it acknowledges that it has not been increasing the size of its American staff, either.
As it has expanded abroad, the company has increased the number of different models of everything from big Whirlpool refrigerators to KitchenAid coffee grinders. It has cut the time it takes to develop new models of the larger appliances to 12 to 14 months, from 30 to 36 months a few years ago.
Engineers in the United States now work in the day on new designs, using computer-aided design software, then send the project around the world in the evening so that engineers in India and China, earning less than $1,000 a month, can continue the work during their normal daytime hours.
The high cost of the necessary computer software is an important reason for the 24-hour programming, which allows different technical centers to take turns using a limited number of software licenses, said Herbert Fu, the company's product development director here in Shenzhen.
As the sun sets each evening in the United States and computer-design work is transferred across the Pacific, engineers in India and China operate very differently. The Chinese engineers tend to continue working on the same projects as their American colleagues: designing or improving products for the American market. The Indian engineers, who occupy a warren of cubicles upstairs from the factory in Thirubhuvanai, devote a lot more of their effort to revising designs for sale in the local market.
As with many outsourcing issues, the expansion of Whirlpool's engineering activities in Asia has been much more complicated than a simple transfer of American jobs.
The main job losses, in fact, have been in Sweden rather than the United States. Whirlpool cut employment in half at a microwave oven factory there in 2003, to 305 jobs, while expanding research and development here and increasing its output at a factory up the Pearl River in Shunde.
While the share of Whirlpool's work force overseas will continue to grow in the coming years, the increase will come from expanding the company's total employment; the overall number of jobs in the United States is not expected to decline, according to Stephen J. Duthie, a company spokesman.
In India, Whirlpool has catered to customers like Rupam Shekhar, a New Delhi housewife whose husband has a small export business selling bed linens and curtains. They live with their two children in a walk-up apartment on the outskirts of New Delhi.
The Whirlpool refrigerator they own is quite different from those sold to Americans. Milk in India is seldom pasteurized, for example, so consumers boil it in a very tall steel urn on a stove. Whirlpool made it possible to fold away part of the top shelf in the refrigerator, so that the urn, known as a patila, could rest on the shelf below.
At the same time, Whirlpool also uses a much smaller percentage of the refrigerator's space for the freezer than in other markets. Research showed that two-thirds of India's people are vegetarians who have little use for a freezer - except for storing a little ice cream and a few ice cubes.
Few Indian kitchens have room for refrigerators, and the appliances are also something of a status symbol: the cost is equal to nearly two months' salary for an engineer. So they are commonly displayed in living rooms or dining rooms. In response, Whirlpool now sells refrigerators in bright colors and curvy doors and sides.
Mrs. Shekhar, more traditional in her tastes, has bought a plain white Whirlpool refrigerator and put it in the bedroom, next to a small shrine to Hindu deities. She used to have to boil milk and chill it a pint at a time for her son and daughter.
"Now, I can boil it all," she said, showing off the inside full of steel pots and fresh vegetables.
Whirlpool has been able to overcome the typically fractious factory floor labor disputes and work stoppages in India by locating in the Pondicherry region, a former French colony that has a tradition of social peace described in Yann Martel's novel "The Life of Pi."
India also appeals to Whirlpool because it is easier to enforce contracts there than in China. A Whirlpool executive said that the company had a contract in 2002 with a Shenzhen company to supply many of the components for a new toaster oven, only to have the supplier raise the price sharply.
Whirlpool switched production to India. "We had a contract but we decided it wouldn't be prudent to enforce it,'' the executive said. "You never try to put a supplier too much in the corner because you get it back in quality."
But Whirlpool is not giving up on China, despite its difficulties here so far. In a workroom near Ms. Chen's cubicle, Cindy Wu, a 30-year-old engineer, was testing a new design for the fan blade that cools the microwave oven.
"Maybe someday,'' Ms. Wu said, "Chinese families will have microwaves like these."
Regards Jonathan Stedman
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