Joseph Chu has a great sense of humor.
As chairman of the Federation of Hong Kong Watch Trades & Industries Ltd and a watch industry player for many years, he certainly needs it.
In the face of the pressing issues of technology, labor costs, and branding, Chu keeps his cool. Although when you speak to him, you will notice an unmistakable sense of urgency.
He laments the gap between the Swiss and Chinese watch movements. “For the Chinese factories, we are now trying to catch up with the movement and development. But still, there are some gaps,” he says, as if the Swiss did not have a head start of hundreds of years.
Chu is indeed a modern Chinese businessman. Japanese movement isn't the competition. The 500-year Swiss watch industry is. The Chinese aim high.
“Just like before, space stations were exclusive to America, so you couldn't break through,” Chu points out. Now, China can go on their own space mission. But it takes time.”
At last month's Watch & Clock Fair organized by the Hong Kong Trade Development Council, Chu was front and center as one of the hosts of the First International Watch Forum as well as the Asian Watch Conference. In between his duties, he sat down for an exclusive interview with China Business where he gave his views on the current Chinese labor situation and the 'Made in China' brand.
China Business: Where do you see the Chinese labor problem going?
Chu: China has already been a source of cheap labor and cheap land for manufacturing for the past 20 years. People have been enjoying this low cost. Actually, what I should say is that [the reason there has been] no inflation for the past 10 or 20 years is mainly [because of] China. The world inflation rate is low because of China. Everybody moved their manufacturing base to China. So products can be delivered to the States, to Europe, all over the world for a very cheap cost.
China can no longer compete on mere cost, right?
You can't expect China to stay in the same position for so many years. China has already undergone reform, so the land is not so cheap. Before you could manufacture lighters for one or two dollars. It's too cheap. [Today] you can use your land and labor to produce something of higher value.
Such as?
Now, they are focusing on handsets and producing electrical appliances. Then they've already learned from the automobile factories.
Talking about labor costs, when you produce something and the cost increases, the manufacturer will have to consider whether he can bear the increase. If he can, and cannot quote higher to the wholesaler, then the manufacturer quotes the same price. They try to adapt to the rise in cost. If they cannot absorb it and the wholesaler cannot, then the result would be an increase in market price.
What about branding perception? The 'Made in China' brand?
I went to the Winter Olympics in Canada and when I looked at the clothes, the make, the finishing is so good. It costs a lot. When I tried to find out where it came from, it came from China. So, it's only the branding. The quality is already of high standard, even better than some other places. But you still get the idea that what comes from China is not so good, so you have to change the concept. Before, made in Hong Kong is not very good in [terms of] branding. But now, 'Made in Hong Kong' is already a sign of good quality and achievement. Sooner or later, China will go the same way.
Is it a strategy on China's part to move labor inland to the provinces?
No, it's a natural development. Because in China, they have the one baby policy. So, being a parent, they will treasure their children. So, this means the population is not [leaving] very fast. So it cuts the source of labor. Another problem is that before, the manufacturing industry and the economic activity was very prosperous along the shore, in the South. So people will travel far from the North to work there. And every year they get only one chance to go home, during Chinese New Year. But now, every province in China, [factories] are picking up space. You can get a job even in your hometown. So why do they need to travel so far to the South to work?
Doesn't it bring down labor cost? Because they don't have to relocate.
They don't bring down labor cost, they bring it up. Demand and supply, you know. In this world, competition is always there. Hong Kong will compete with Singapore, the Philippines will compete with Malaysia. Even within a country, within China, a province will compete with other provinces. In some provinces, the labor cost is cheaper, in some, it is higher.
What are the cheaper provinces?
You know our government in China is trying to balance the wealth of each province. [Now they want] to invite investors to set up their factories in the side of China around Yunnan, Sichuan, and all those provinces. Maybe some places near North Korea.
In the watch industry, where is the labor cost cheaper? In what province?
In the watch industry, you can't just move your factory. You have a business chain. You can't just move one part of the production to one province. Once you move, you have to have all your parts, production, engineering, design.
Is it the same with cellphones? Gadgets in general?
Yes, it's difficult to say that “I can move.” Even in clothes, you still have accessories, patterns, threads, everything to make up the whole line. It's very difficult to move. Up to now, the center of production is still in Canton.
What about minimum wage?
In Hong Kong, we already passed the legislation. They are [still] arguing between HK$23–33 per hour. In the Mainland, they have the lowest wage in different provinces. And they adjust it at different times. In some provinces, they announce in June, some in March. So the earlier you announce, then you have the privilege.
As a watch industry insider, how many years do you give Chinese-made watches to be able to compete on the same level as the Swiss?
It takes a long time. You cannot expect a son to, within six years time, to beat the father.
What is your formula for success?
You have to watch your integrity. You have to work with your heart. You have to sit in the other's chair. There's this saying that you must speak with your bottom. Where you sit, then that's how you speak.
