CHINA BLUE, STONE-WASH BLUE AND BABY BLUE

CHINESE ADOLESCENTS IN THE BRAVE NEW WORLD[i]

The Author recently watched a documentary film at his favorite cinema, the Guild Cinema in Albuquerque. The title of the film is “China Blue”, a documentary about sweatshop workers in China. The factory in the film makes blue jeans for the American and European markets. The film is unusually straightforward. The 14-16 year-old girls that make the jeans tell their stories of long hours, low pay and late wages. The factory owner tells his. It should also be noted that much of the film was made clandestinely and the filmmakers were arrested and jailed for a time. Authoritarian states just operate that way.

It is an oft-told tale for the rural kids making their “fortune” in the Chinese Industrial Revolution. For the factory owner, it offers a move up into the growing middle class [ii]. For the Wal-Marts and the western consumers, it provides cheap clothes. And for the Author, it recalls earlier posts addressing the “Brave New World” of outsourced volatility and low margins to third-word manufacturers. This "brave new world" was described in the book "Our Brave New World" by Charles Gave, Anatole Kaletsky, and Louis-Vincent Gave of GaveKal Research.

“THEY SWEAT-WE THINK”

The central thesis of the book [Our Brave New World} is that structural changes in the world economy and the manufacturing industry could ensure that US and European countries maintain their dominance as designers, marketers and financiers of the worlds goods and services, while China and the rest of the developing world will perform the low profit tasks of manufacturing and routine service provision. This relationship has been paraphrased as “They sweat, we (US, Europe) think.”[iii]

“China Blue” may be just the new economic arrangement, called the “Platform Company”, that the GaveKal authors describe.

The new business model that GaveKal elevates is the “platform company”. The platform company is a multinational organization that does most everything required to bring a product to market except actually manufacturing the product. The platform company retains the high-value, knowledge-based activities such as research and development, design and engineering, marketing and post-sales activity. Examples of “Platform Companies” are Wal-Mart, Dell, Carrefour, the French\European retailing giant, and IKEA, the Swedish home furnishings retailer. Using Dell for example, Dell designs the computer, markets it, sells it and supports it. But the actual sourcing of the components is sent to China, Taiwan and elsewhere.

The actual manufacturing of the product is outsourced to Chinese or other manufacturers. Manufacturing is outsourced because it is currently cheaper, and will generally continue to be cheaper, in the developing countries, especially China. The type of manufacturing the Chinese and the Asians are doing is low-margin, high capital cost activity. GaveKal argues that it is also very competitive and there is little room for attractive profit margins. And if the Chinese don’t want the work, there will always be the Indians, the Malays, and the Indonesians. [iv]

OR IS IT THEY SWEAT AND WE SIT ON OUT COMFORTABLE PLATFORMS?

The factory floor in a developing country is not an appealing place. The young Chinese girls that work long and low-paid hours would be text-messaging and I-podding if they had the good zygotic fortune to be born in America or Western Europe. If the thesis of the Platform Company model is correct, the Chinese girls may be followed by their daughters and granddaughters while Western companies remain on their comfortable Platforms.

BUT AS WE KNOW IN THE DESERT OF THE REAL, NEVER GET COMFORTABLE!

i. See the Author’s Post from January 5, 2006, “A Tempest is Close Upon Us”, discussing the book “Our Brave New World” written by Charles Gave, Anatole Kaletsky, and Louis-Vincent Gave of GaveKal Research.
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ii. The factory owner works on vary narrow margins and very tight deadlines. Competition from other factories is bruising. One unanswered question is how and where the factory owner got the capital to open the factory. The factory owner is a former police chief. A police chief in an authoritarian country such as China is more a thug and a henchmen that a budding entrepreneur. One suspects that graft and corruption was the source of his capital, but this question was never addressed in the film.
iii. “A Tempest is Close Upon Us”
iv. “A Tempest is Close Upon Us”