Insight: Their parents made China the world's factory. Can the kids save the family business?

Foxconn Technology

19/06/2023 03:00

By David Kirton
       RUICHANG, China, June 19 (Reuters) - When Steven Du took
over his parents' factory producing temperature control systems
in Shanghai, one of the first changes he made was to turn on the
plant's heating in winter - something his frugal forebears were
reluctant to do.
    "If you don't improve their environment, the workers aren't
as happy and it's harder for them to do their best work," the
29-year-old said. "The change is worth the extra cost."
    Du, like tens of thousands of other young Chinese factory
bosses, is inheriting a basic manufacturing business that can no
longer rely on the labour-intensive model that made China the
world's largest exporter of goods.
    A shrinking and ageing workforce and competition from
Southeast Asia, India and elsewhere are making at least a third
of China's industrial base - the low-end manufacturers -
obsolete, Chinese academics say.
    This do-or-die mission of tech upgrades and practical
changes largely falls on a group of people in their 20s and 30s
known as "chang er dai", or "the second factory generation", a
play on the derogative term for spoilt, rich children, "fu er
dai".
    "If I'm chang er dai, I'm trying to save my family business
from bankruptcy," said Zhang Zhipeng, a research assistant at
the Shenzhen Research Institute of High-Quality Development and
New Structure, who estimates roughly 45,000 to 100,000 of this
cohort are at various stages of taking over up to one-third of
private Chinese manufacturing firms.
    The large-scale generational transition, which comes as
China's growth prospects dim, is the first in the country's
private sector since the chang er dai's parents emerged as
industrialists in the decades after Mao Zedong's death in 1976.
    Reuters interviewed eight chang er dai for this report, who
described their attempts to bring family businesses into the
modern era with efficiency upgrades while facing challenges such
as labour costs, shortages of workers and, in some cases,
disagreements with relatives on the best way forward.
    Du spoke on the condition that his business not be named to
protect the privacy of his semi-retired parents, whom he said
were in their 50s and largely leave factory affairs to him.
    Like his peers, Du grew up with a level of comfort and
opportunities his parents never dreamed of.
    He went to high school and university in New Zealand,
specialising in electrical engineering. He moved to the United
States, working at Apple supplier Foxconn's  2354.TW  Wisconsin
facilities. He studied Taiwanese and Japanese production
methods, focused on reducing inefficiencies.
    Those skills would come in handy in a factory the Chinese
state set up in 1951 and privatised in 2002. 
    His father's business acumen and his mother's hard work
helped turn the factory into a supplier to large Chinese
appliance firms. It also sells components used in
temperature-control systems for shopping malls, computer rooms,
battery cooling, and medical equipment.
    But production processes remained largely unchanged until Du
took over in 2019. He introduced specialised industrial software
that cuts across accounting, orders, procurements, deliveries,
and other processes previously handled by humans, Du said.
    He remodelled the factory floor to allow forklifts to drive
around easily, grouping storage and production units differently
to minimise physical effort for a workforce whose average age is
around 50. A worker now walks 300 metres to complete the more
complex tasks, down from one kilometre, and needs less than a
third of the time to do it. 
    While his mother spent long hours micromanaging production,
Du ends most days around 4 p.m. in a gym he set up inside the
factory, and allows workers to use, before driving home.
    "Young people like to be lazier, but laziness is actually a
manifestation of progress," he said. 
    Du raised wages by 10-20% in the past three years, to keep
staff turnover under 5%, but says his factory is 50% more
efficient.
    "Factories need to transition to higher-end manufacturing or
are doomed to fail, because their costs are rising," said Zhang,
the researcher.
    
    A 'MOTHER'S SON'
    Zhang Zeqing estimates he achieved a similar efficiency
boost by digitalising processes since he began co-managing with
his parents their egg-products factory in Ruichang, a
southeastern city.
        At Ruichang City Yixiang Agricultural Products, workers
in green uniforms place duck eggs into cups attached to a
conveyor belt that feeds a vacuum-packing machine. A new screen
above the machine displays the speed at which the eggs are
sealed and estimates average output per worker, as well as the
time and manpower needed to pack 10,000 eggs. 
    Barcodes track all products from farm to factory to store,
allowing supervisors to monitor orders, production and delivery
on their phones and make decisions based on real-time data.
    "Before, we'd record all this by hand on paper," said the
30-year-old. "All of the internal data was muddled. It led to a
lot of wastage."
    Like five of the other chang er dai who spoke to Reuters,
Zhang never planned to take over the factory. He wanted to study
landscape design in France.
    But he felt he had to step in, at least for a few years, and
convince his now 55-year-old parents that tech upgrades, and
setting up new distribution channels on e-commerce platforms,
were worth investing in.
    Something had to be done, he thought, as "the frontline
employees are getting older and young people are less willing to
work on the frontline". China has record rates of jobless youth
but many of them have university degrees and prefer not to work
in factories, even if they take a job below their education
level.
    Zhang's parents resisted at first, unwilling to spend money
on a business they thought was doing fine. But they relented,
eventually. 
    Sales have risen 35% annually since he came on board.
    "I sometimes wonder why our e-commerce was successful when
others failed. A manager at a company told me that because you
are your mother's son, she will support you infinitely, that is,
even if you fail," Zhang said. 
        
    'TOO CHALLENGING'
    To be sure, China as a whole is upgrading its industrial
complex in more significant ways than the changes implemented by
young factory managers like Du and Zhang.
    Some segments, such as the heavily robotised electric
vehicle industry, are disrupting global markets thanks to state
subsidies, as well as foreign capital and know-how. 
    Chang er dai, however, help lift the bottom, which is also
important for preserving China's share of world manufacturing,
two industry experts told Reuters.
    Some of the technology Zhang introduced came from Black Lake
Technologies, a company founded by Zhou Yuxiang, who counts more
than 1,000 chang er dai among his clients.
    "For the past decades, the model of many Chinese factories
was based on revenue growth, so very few of them paid attention
to production efficiency or digitalisation," said the
34-year-old, who also sees himself as chang er dai, though he is
not managing his parents' business.
    "They manage their operations typically through stacks of
paper. More advanced factories might use Excel, but that's it."
    Tian Weihua, an academic specialising in manufacturing
upgrades at the Science and Technology Innovation Research
Institute, a government think-tank, says the tech savvy and
foreign experience of chang er dai give them a better chance
than their parents to keep businesses competitive in a new
environment of higher costs, weaker external demand and emerging
manufacturing centres in cheaper, less developed countries.
    But "technological upgrading doesn't cure all ills", said
Tian, adding that further steps will be needed, including on
product innovation.    
    Not all chang er dai will get there.
    After studying textile design at the University of Arts in
London, Zhang Ying, 29, took over her family's garment factory
in the eastern city of Ningbo in 2017.
    But the business was struggling. Wages had more than doubled
within a decade, to over 7,000 yuan a month. Workers, mostly
migrants from inland provinces, were in short supply. She
wouldn't dare fire them.
    Last year, she took time off to have a child and left other
managers in charge. She has no intention to return.
    "It was too challenging: the pressure was too sudden and
great. I was getting hives from the stress and needed to be on
medication for a year, so I quit," she said. 

 (Reporting by David Kirton; Editing by Marius Zaharia and David
Crawshaw)
 ((David.Kirton@thomsonreuters.com;))