The Waste of Overproduction
Any growth story is eventually met wth an industry wide waste of overproduction, or glut of capacity. When this happens, plants have to shutter, jobs are lost and there is tremendous upheavel and angst in dealing with a correction. Taiichi Ohno warned that the waste of overproduction was the worst kind. He might have been more focused on the process within the company, but the same waste exists across an industry. So if growth leads to the waste of overproduction, where have we seen explosive real growth? The Chinese automotive market, up something like 40% from last year. However, the Chinese government is trying to avoid the inevitable waste the comes with chasing, or leading, demand. According to the China Daily, the government will not allow any company to build new capacity if they have a factory that is currently not selling at least 80% of its capacity. Now I’ll put aside all the discussion on whether a government belongs interfering with business. But let’s keep in mind this is Chinese, and they are a communist country that is very interfering. But China is evolving into a new breed of capitalism. The government could have said “we will tell you who, where and why you will build a plant, who will run it and what time your shift starts.” That’s afterall what the Russians are starting to do as they nationalize business after business including the automotive industry. But instead they laid down a clear performance metric – if you can’t sell cars, don’t build plants.
I’m not saying this is good or bad but found the policy interesting, to say the least. Another point of fact that is important to this thread. Everyone is talking about the rising average income level in China. Note that this is AVERAGE income, not median. Yes, wages are rising across the board but the vast number of Chinese are still very, very poor and the average income increase is very disproportionately distributed towards those who already have a decent income and can already buy things. So, before you think the Chinese market is a great place to start selling – think twice.