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OM in the News: China, Inc. Moves the Factory Floor to Africa

May 17, 2014
95% of the 600 employees at Hisense' Cape Town plant are South African

95% of the 600 employees at Hisense’ Cape Town plant are South African

Each TV motherboard that rolls off the Hisense Co. factory line in Cape Town moves China a tiny step toward a new global manufacturing base. But although the line’s South African technicians are producing at the same clip of 70 seconds per board as their Chinese counterparts, there’s a hitch: Hisense factories in China use half as many workers to make the same product. In South Africa, 1 technician monitors one machine. In China, the company’s technicians monitor 2 machines apiece.

Faced with rising labor costs at home, Chinese companies are setting up new factories on the continent and hiring more Africans, reports The Wall Street Journal (May 15, 2014). The companies’ efforts will test whether the masters of low-cost manufacturing can be as productive in Africa as they are in China. The average monthly wage for a low-skilled Ethiopian factory worker, for example, is about 25% of the pay for a comparable Chinese worker. As the wage gap widens between unskilled Chinese workers and their counterparts elsewhere in Asia and in Africa, as many as 85 million factory jobs could leave China in the coming years.

Africa’s poor infrastructure and uneven distribution of skills do erode its cost advantages. The World Bank estimates that a Chinese worker making shirts can produce about twice as many per shift as an Ethiopian worker.  Hisense faces the same skills gap. The home-appliance maker’s challenge was how to hire technicians and engineers in a country—and on a continent—where there aren’t many to go around. “South Africa doesn’t have an unemployment problem. It has an unemployable problem,” says the company’s factory manager.

China’s expanding African footprint has caused friction. A recent survey reported that 46% of Africans have a negative impression of Chinese employment practices, while only 19% are positive. One reason: The common Chinese response to productivity gaps has been to send more Chinese workers. China dispatched 214,534 workers to Africa in 2013.

Classroom discussion questions:
1. What issues must operations managers consider when opening new plants in Africa?

2. What might cause the Africans to have negative views of their Chinese investors and employers?

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