Like many others, I’ve benefited from buying Chinese goods at low prices, either in retail stores or directly from China via AliExpress.
A few years ago, I learned a new term: involution. This is the term applied in China that describes the ruthless competition that drives lower and lower margins and forces companies to adapt or die.
An article in the FT describes one case where a Chinese manufacturer made a product for 40 and sold it for 100 making a tidy profit, but competition soon came and now he sells it for 10.
In China, there is a word that has come to describe the phenomenon: neijuan, or involution — a term that has become shorthand for a competitive dynamic in which everyone runs harder and harder for diminishing returns.
It forces companies like Mega-Senway to move fast. Huang explains how they cut their own costs so dramatically over just a few years. First they acquired the factory that manufactured the sensors they designed. Then he visited nearby factories to study their best practices.
A worker testing their finished sensors initially did it one at a time, he says. Huang redesigned the testing jigs to test four at a time, then eight, with a worker constantly loading or unloading batches. Now he has replaced the workers with robotic arms.
“We would update our processes two or three times a year,” Huang says. “The pressure came that fast.”
The five-year product cycles with annual price negotiations that the auto industry once ran on have disappeared, he says. One large automaker has cut out all middlemen and puts out tenders each month directly to manufacturers up the supply chain such as Mega-Senway. They submit prices, are told if they are the lowest or not, and submit again — round after round, until no one will go lower.
While good for consumers, the competition has become so bad the Chinese authorities had to step in as competition led to companies making losses and competing to see who could be the last man standing.
With higher tariffs in the US, more manufacturers are desperate to sell to other markets such as the Europe which may respond in turn to limit the goods coming in.
Switzerland a free trade deal with China a few years ago.
