Conversation — The World-Wide Business Climate

—by Richard Mandel

As we progress further into global manufacturing and business, the old maxim about how politics makes strange bedfellows tends to apply to corporate politics, as well. An example of this, that occurred in August of this year, was an announcement from Omron Corporation that they were establishing another manufacturing plant in China — at this time, the facility is already operating with about 2000 employees. That’s a huge paradigm shift for a Japanese company, as Japanese-Chinese relations have been less than pleasant for generations.

Designfax recently spent 15 minutes with Frank Newburn, President and COO of Omron Electronics LLC, the US branch of the company (there are branches in Brazil, Canada and Europe, with manufacturing facilities in still other locations).

Dfx: Although you’re here in the US, Frank, has the home company suggested how they feel about having relations with China?

Newburn: I think that the feeling is, very strongly, that they must deal with China, whether they’re Omron Japan or any other company in Japan. And in the economic climate of today, that includes dealings on a manufacturing level or a market level. China cannot be ignored, and their influence will definitely continue to grow in the future. On the positive side, (Omron Corporate) has told me that the Chinese work force is very good, probably better than some underdeveloped areas in the world.

Dfx: Had Omron considered other areas, like Malaysia, Korea or Pakistan?

Newburn: Actually, Omron has manufacturing in Indonesia, Malaysia and Korea, besides Europe and America, so they have a pretty good idea of what workforces are like on a global basis.

Dfx: If there is a factory already in Korea, why open a factory in China?

Newburn: The Korean factory is quite a bit smaller than operations in China, which presently number four factories. I think they found the workforce and management force in China to be easier to work with, more cooperative, than Korea. The Korean workforce, in general, has a long history of strong unions, which makes them more delicate to work with than China. I have been told, too, is that we’re hiring Chi-nese college graduate engineers who are well schooled, very intelligent. Another issue there is that the Eng-lish language can be used more readily. We’ve been in Hong Kong for a number of years — expansion onto the mainland will be a natural experience.

Dfx: If you address this issue as an American corporate executive, how does it make you feel, in light of jobs and opportunities leaving here for China?

Newburn: It concerns me in two areas. Number one, our company serves not only the component end of the business, we also serve the automation portion. Our US market consists of automation firms. As we see American manufacturing shift to Mexico, Southeast Asia or China, our market diminishes. That’s definitely a business concern. And from a personal standpoint, I’m very much a “Buy American” guy.

Dfx: According to Frank Newburn, what would it take to get America competitive again?

Newburn: I see it two ways. We’re still leading the world in productivity and, in my view, in technology. As capitalism grows in mainland China, they may go the way of Mexico and wages will increase. Or they may even form unions like in Korea.

You watch this happen — there always seems to be one spot where manufacturing is less expensive than the last. I’ve seen it happen in other areas of the world. A lot of the investment in China today is not Chinese — it’s American, European or Japanese, and everyone’s worried where this may lead to next.

Interestingly, today’s customers seem less concerned where a product is made, with few exceptions. Automotive is one, but even that’s shifted.

Dfx: Would you suggest the reason is a shift in economics, or that there’s recognition that the products are just as good elsewhere?

Newburn: Initially, it’s economics. But on a global basis, wherever they’re manufactured, they do have to meet quality standards, as with Omron, for example.

Dfx: Perhaps China is viewed today as Japan was during the 1950s — they produced one-offs and knockoffs cheaply, while learning manufacturing skills, until they became an industrial powerhouse.

Newburn: Absolutely. And, in Omron’s case, as with most global companies, they’re trying to maintain their technology within the home country to protect their intellectual rights. That’s the one level of security they have to maintain.