Business In China From a Perspective of Operational Excellence - A Conversation with Ritsuo Shingo
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Ritsuo Shingo Ritsuo Shingo, President — Institute of Management Improvement
Ritsuo Shingo is president of Institute of Management Improvement, a company started by his father and namesake of The Shingo Prize, Shigeo Shingo, and former president of Toyota China and GAC Hino Motors. Dr. Shingo, distinguished himself as one of the world’s leading experts in improving manufacturing processes. Dr. Shingo has been described as an “engineering genius” who helped create and write about many aspects of the revolutionary manufacturing practices, which comprise the renowned Toyota Production System.
Dustin Ott

Dustin Ott, Global Director of Product Fulfillment - Boart Longyear

Dustin Ott stumbled upon one of Taiichi Ohno’s books while working as a Human Resource Manager at a small manufacturing company and has been captivated by the power of Lean ever since. He furthered his understanding of Lean and the Toyota Production System at Utah State University while working at The Shingo Prize for Excellence in Manufacturing where he served as Assistant Director. He has lead lean initiatives at organizations recognized by The Shingo Prize, the Japan Institute of Plant Maintenance, and the Malcolm Baldrige Quality Award. He serves as both a Business and Research Examiner for The Shingo Prize and has been fortunate to benchmark numerous world-class factories around the world including making multiple study trips to Japan.

Mr. Ott is Global Director of Product Fulfillment for Boart Longyear. Boart Longyear is headquartered in Salt Lake City, Utah and publicly listed on the ASX (Australian Securities Exchange) in Australia. Regional offices and operations are located in Asia Pacific, North and South America, Europe and Africa.

 


 

Dustin Ott: On behalf of The Shingo Prize, it is my pleasure to present this exclusive interview with Ritsuo Shingo on doing business in China from a perspective of operational excellence and lean thinking. Mr. Shingo has extensive experience in China after living and working there for 12 years. Primarily, he had the assignment of setting up operations for both Toyota China and Hino Motors. He is a leading mind in the topics of operational excellence and leadership. With his vast knowledge and expertise, he will be hosting the Shingo Study Tour to China Nov. 4-8.

Thank you for being with us today, Mr. Shingo.

Ritsuo Shingo: Thank you. My pleasure.

 

DO: One of the things I think our audience is interested in today is, if an organization wants to do business in China, particularly with suppliers or manufacturers there, we want to tap into your experience and get your thoughts on doing business with China.

So one of the first questions that I have from one of our listeners is, “Is it even possible for a state owned Chinese company to embrace the principles of operational excellence? What do you advise people to expect in terms of working with a state-owned company in terms of lean or operational excellence?

RS: Yes, I think it is very, very possible. When I ran Sichuan Toyota, the first joint venture with a Chinese company (Toyota’s first manufacturing point in China), I visited the parent company. They were manufacturing the copy of [Toyota] Coasters. But their plant was a mess. The workers did not work. They were reading the newspaper, resting, sleeping. Parts were on the ground. I could not tell if the parts on the ground were good parts or bad parts. It was a mess. It’s a joint venture, so more than ninety percent, almost all people in the joint venture came from that parent company. That was a state-owned Chinese company. In the beginning, I thought this was a very difficult job to train them and [not] a good manufacturing location and plant in China. But in one year we set up [the] plant. We trained them. They did a very good job and also made a profit. So I changed my mind, “oh, they could do that!” And in the first year of the business, we got a profit. After that, more than ten years consecutively, every year they got a profit. This has never been done by Toyota Motor abroad in the past. Not only abroad, but even in Japan. It was incredible and amazing that we could get the first year profit.

So it is very possible.

 

DO: Wow! So was the training primarily with the operators or did you have to train the management as well?

RS: Everybody. I trained the management people. And we had helpers and support people from Japan that trained the floor workers. So, everybody was trained, both management and administration people, and also floor workers.

 

DO: It sounds like the message was well received. Is that correct?

RS: I think very, very well received. And before our message could be received by them, we [needed to] set up a certain, basic relationship. And we did. That is the reason for the great success in Sichuan Toyota.

 

DO: Ok, so from historical perspectives, I know that sometimes the Japanese and Chinese cultures don’t get along very well. But it sounds like you were able to overcome those. What would you attribute that to? How did you overcome those cultural barriers between the Japanese and Chinese?

RS: Ah, yes. It’s Japanese and Chinese, but wherever you are the same thing happens. First thing we should do is we, the Toyota people - we the Japanese - should understand the local people, in this case the Chinese people. And the Chinese people should understand what the Toyota people are thinking. So both parties should make a very good effort to understand each other, otherwise it’s very difficult.

 

DO: I spent three years in China and helped overhaul a factory there. We, too, had great success. We started with some training up front as well, but it’s really just a lot of work. I will say that the folks I was working with in China were very eager to learn the principles of the Toyota Production System. So, it sounds like you had a similar type [of] experience where they were very receptive to learning and to doing something different.

RS: Yes, yes, I think so.

 

DO: Good. Well that probably leads us to one of the questions we had submitted. “We say that the principles of operational excellence are universal. Are there any Shingo principles that fundamentally fly in the face of what is deeply believed in China? Are these beliefs long-held management practices, or are they fundamental human natures that are different than others in the world?”

RS: I think that, as you say, the principles of operational excellence are common to any [country], including China. I believe that wherever you are, you have your own concepts, basic concepts, like Toyota concepts – but how to apply to actual things, current things, will be different. So, you should closely watch the current situation, and decide to what extent you will apply [those concepts] or which concept you will apply to the current situation.

 

DO: What about the principle of continuous improvement or Kaizen. Are the Chinese receptive to that principle?

RS: Yes. I think that they don’t know the concept, but once we tried to definitively explain and tried to help them understand they understood [it] well and they did a very good job.

 

DO: Yes, I’ve had the same experience. I think that if you have an expectation for improvement, they are willing to do that. If you teach them to see the opportunities, then they are very willing to help make the improvements continuously.

RS: Yes, that’s right.

 

DO: Your father wrote a number of books - a lot of very good books. He once stated that, “National prosperity depends on improved productivity. And, conversely, it’s only on the foundation of increased productivity that we can build a wealthy nation and happy citizens.” Can you comment on China’s rapidly improving wealth and what it will take for China to stay competitive when they are having annual wage increases in the ten to twenty percent range?

RS: Frankly speaking, I don’t think China can grow like this. China’s current growth looks like “speeding on the surface” only - without taking care of the very, very important factors such as reliable quality, development capability, pollution problems including air and water, safe and reliable foods, safety of transportation. A lot of things are left unsolved. Just speeding on the surface is, I think, very dangerous.

 

DO: That is well said. That leads to another question. What about some of the other infrastructure challenges that China has? You have a lot of rapid growth. What about power, water? You mentioned health and safety. The limited experience that I have in China suggests that sometimes there are these power shortages, particularly during the summertime, when things were hot. Is that something that any of your factories experienced over there?

RS: Yes. I had that kind of experience in the Guangzhao area. The hot weather, and less rain in the summer, yes it stopped. In Chengdu, I didn’t experience this kind of stoppage of such power. So it depends on where you locate your plant. So that’s why I suggested that you talk this matter with your local governments and also ask the local manufacturers about the situation. Otherwise you’ll mis-locate the plants.

 

DO: Good point. So, probably, it’s a regional thing where they’ll have these brown outs. Our factory was near Wuxi, which is west of Shanghai and sometimes during the summer, the government would tell us that there was going to be a power outage on a certain day, but sometimes it would happen and sometimes it wouldn’t. So, I guess, that’s just one of the things you need to plan for if you’re going to be having operations in China.

Another question is, and I don’t know what your experience is with this, but given the growth rates in China, such as those they experienced in 2009-2011, it can often be difficult to attract and keep good people. Do you foresee this being a challenge for other western companies or any other manufacturer that might be wanting to do business there?

RS: My feeling is that if you are a company which seeks for the cheaper laborer – a labor-intensive industry – I don’t think China is a good place to invest. When I consider Toyota Motor, when we were building the plants in China, I came to the conclusion that there is a huge market in China. So if there is a huge market, then it is very reasonable for Toyota Motor to locate the plants to sell in the huge market. That is the reason why we locate our plants in China. I heard a lot of stories that there are a lot of Chinese companies who try to escape from China to the other Asian countries where they are seeking for the cheap laborers. You should find [a better] reason why [to locate there]. Cheap labor costs? No, no way! No way! You should stop! But if you find a big market, yes, maybe you can go.         

 

DO: OK, so I think that’s a good point. So in essence what you’re saying is if you’re going to China for low-cost labor then perhaps it’s not a good idea.

RS: Not a good idea.

 

DO: But if you’re in China because there’s a large market for your products then it is good.

RS: Yes. That means you need a very serious study of marketing. Otherwise, you cannot compete. It’s a very tough competitive situation in China, both for foreign companies and domestic manufacturers. It’s very competitive, so you should be very cautious.

 

DO: OK, so I think what you’re saying is that you need to ask yourself the question “Why are you in China?”

RS: That’s right. That’s right.

 

DO: I’ve heard it said that if you’re going to China simply for the low-cost labor, and you’re inefficient, then all you’re doing is making waste cheaper. If you haven’t made any real productivity improvements, for instance, and you’re going to go to China to do the same thing, then it just makes your waste cheaper.

I’ve heard of many examples… particularly the textile industry is vacating China because of the cost of labor.

RS: Yes, that’s right. That’s right. They go to Vietnam or other countries.

 

DO: Can you tell our listeners about unions in China? Do you foresee them being a hindrance or a help when companies are introducing the Toyota Production System?

RS: This again, comes from my experience. In the beginning, I thought the unions would be a problem [for us when we] introduced TPS. But, in the end, I found the unions are very, very helpful. They try to be the bridge between management people and workers. Originally, I thought they always stand with the workers, not for the management people. But, in fact, they try to stand on behalf of the management and try to bridge the understanding of both parties. As Toyota did not know the Chinese people at all in the beginning, they tried to help to be a bridge between us. So that might be very, very helpful, from my experience.

 

DO: Yes, I must agree with you. My experiences with unions there were very different than they are here in the U.S. You know, job classifications are not a significant issue with the unions in China. And, in fact, the unions that I dealt with there were local unions, only within the facility and they were actually helpful. So, for instance, if we were going to do some cross training, they helped facilitate the cross training.

RS: Yes, you’re right.

 

DO: So, very different kind of experience.

How receptive do you think the Chinese are to the Toyota Production System if it’s seen as a Japanese model for business.

RS: TPS was already very famous, known and famous in China, and the people from the Chinese Central Government recognized that the Toyota Management System was also very, very excellent. So the federal government officers expected that Toyota introduce TPS and Toyota Management System. So TPS and Toyota Management System were well accepted.

 

DO: Very good. So what you’re saying is the Chinese folks were already aware of the Toyota system and it was only a matter of someone helping them understand how it worked?

RS: You’re right.

 

DO: So they were looking for teachers and people to help them implement it.

RS: I joined in Shanghai last month, a conference– this kind of conference of improvement in productivity. There were about 200 people there in the audience. They are very eager to know the TPS concept. They try to accept, they try to introduce, they try to implement these ideas in their society and the manufacturing plant.

 

DO: Yes, that was my experience there. They seem to know that this is something they need to be doing in order to stay competitive.

Does Toyota wholly own any of its factories in China or are they joint ventures.

RS: Toyota set up joint ventures with the Chinese automakers because that is the central government policy: to set up joint ventures, 50-50 percent. And all foreign automakers are restricted to have joint ventures only with two Chinese auto companies in passenger cars and two Chinese auto companies in commercial vehicles. So it is restricted. So we did not build any wholly owned, subsidiary in China for vehicle productions.

 

DO: Any concerns about doing business in China?

RS: I think a lot of the concerns are the very rapid wage hike every year. In Guangzhao area especially, every year they strongly request wage hikes. Then they go on strike. There are a lot of the Japanese-related suppliers in Guangzhao area – some hundred – and all people went on strike to get the wage hike. So that is a very difficult problem.

Also, a very quick flow of workers. They move quite often. So what the company is doing is always training– always training the newcomers. Every one or two years, they leave the companies. So they train the newcomers and train and train, and after two years they leave. So that is a problem.

There is the bribe problem of the government, either central or municipal, city or state, you can see this kind of problem. I think there is some fear, some concerns about corruption in the future in China.     

Also, a weak basic structure. They are just speeding on the surface. A lot of the basic things are left [unsolved].

 

DO: [Speaking of quick turnover], I had the same kind of experience. People would leave a company and go to work for another one for a very small amount of money. I understand why, a lot of the folks migrated in from the western parts of the country and, really, they are just there to work and they are willing to switch for very little more.

If Western manufacturing were to set up shop in China, how can they effectively overcome this perception or reality of inferior quality of products that are being made?

RS: Yes, I think generally speaking, outside of China, maybe worldwide, everybody believes that “Made in China” is not good quality. That is correct. I think stable quality-control of the products, including the frequent quality check-up of your suppliers and training them, this kind of activity is necessary and assures the quality of the products as you do in your country and establishes the reliability of the product. And a very important thing is if you find any problems in the [customer] market, you should “go to gemba” and solve the problem instantly. So that is the same thing you would do wherever [in the world] you are, but especially in China you should do it. And Toyota is strengthening this activity. Go to [the customer] market, see the problem, watch the problem and solve the problem right away and send the engineers from TMC in Japan to the right spot and try to solve the problem. In two or three years we established a new organization for quality of the customer at the market. We tried to solve the problem as soon as possible. Otherwise the quality of information, for us to go from the dealers, to the joint-venture manufacturer in China, then to, like, a Beijing office and the Beijing office met with the Toyota TMC engineers… it’s a long way to go. So we tried to close the gap, narrow the gap and tried to close the loop and get back to the TMC engineers as soon as possible. They would come to the spot and watch it and solve it. That is the activity that we were doing. So that is very necessary.

 

DO: In other words, what you’re saying is you need to shorten the feedback loops so you can solve the problem. If you’re on the factory-floor solving the problems, then you’re more likely to fix it if the actual conditions are known. That’s great insight.

Any thoughts on the problem in China with intellectual property?

RS: I think normally the copied products… it’s a matter of daily life, it’s nothing unique, nothing new. If you’re in Japan or the United States, maybe copied products are something unique. But in China, it’s nothing new. It’s common. Wherever you go you can find a copy of, like, a [Toyota] Coaster, you can find a lot of manufacturers of the copy of Coasters. It is next to impossible to try to stop the manufacturing of the copy of Coasters. Then what we should do is, we can distinguish [the quality] from those copied products and the real genuine products. Also what we should do is if you have a very core technology in the products, try to keep it in your hands, not in their hands. That means if, sometimes, even if we establish a joint venture, we should submit a lot of drawings, like 80% of the drawings, almost everything, but try to keep the core drawings in, [for example] the Japan headquarters. If you hand the drawings to a Chinese organization no one can assure that the drawings will not be spread into the market, it’s very difficult. And sometimes, maybe, we submit all drawings to the government, maybe or not, but it could be possible that that information goes to the competitors, the local manufacturers of that product. So, you should keep it within your hands. And also what is necessary is, once the copy manufacturer catches up with you, you should be far ahead of the copy-makers. That means, continuously, you should develop your products. Your technology should be far ahead of the competitors. I think that is the only way to protect your products.

 

DO: I don’t think there’s one thing that I’ve not seen copied in China. Everything from automobiles, to music, to movies, watches. Everything is copied in China. I think that’s some wise counsel. And going back to quality, like what you were saying, you need to shorten those feedback loops, but you also have to follow the rules of Judoka. You need to build the quality in the process. And the other thing you need to do is you need to teach people to stop and fix. So, if there’s a problem, there is a culture of stopping and fixing problems – “It’s OK to stop.” Because as you know, it’s really easy to continue creating bad quality products.

RS: Yes, you’re right.

 

DO: Well, Mr. Shingo, thank you. It’s been a real pleasure to visit with you again. Thanks again for sharing your time and your insights with us.

As a reminder, you can join Mr. Shingo on the Shingo Study Tour to China this November 4-8. For more information on this and other upcoming study tours, you can go to www.shingoprize.org/study-tours.html

I’m Dustin Ott and I wish you the best in your journey to excellence!