I agree we should not be looking for a mere 5% net savings at the huge cost of 10-15% employment in California. As a part of cost-benefits, we should also be considering other costs (besides labor and manufacturing) such as “cost-to-quality, cost of transportations, installations, warranty, repair, material defects, workmanships, and life-time maintenance.
I think in addition to the cost issue a quality issue must be considered. In my experience the quality of products from overseas makes me very leery of allowing inferstructure to be built entirely outside of the United States. There are benefits to having components coming from low cost contries but to have an entire product such a s a bridge be manufactured overseas is quite different. Who will be providing on-site quality reviews. Who will be charged with making sure the prints are understood, a quality process is being followed, and insure that all of the local and nationwide codes are followed?
There is certainly a perception that Chinese materials are inferior. Sometimes, unfortunately, this perception is accurate. However, I've seen a lot of resistance to allowing Chinese suppliers to specify materials in terms of Chinese national GB/T standards as opposed to ASTM, JIS, or DIN. I think this resistance is misplaced. In most cases, GB/T standards are equivalent or sometimes better than other countries' standards. The question is whether the material actually meets the specification, and whether the supplier has a good control plan in place to ensure compliance. If a Chinese partner is asking about GB/T standards, this can actually be a good sign that the partner is paying attention to standards in the first place.
Regarding the proposed bridge project, public infrastructure spending is supposed to have a "multiplier effect," i.e. every dollar spent creates a certain additional amount of economic activity. This was talked about a lot two years ago during the discussions about the American Recovery and Reinvestment Act, also known as the stimulus. At that time, the figure that was thrown around was 1.6, i.e. each dollar generates an additional 60 cents of economic activity. I wonder if this type of analysis was included in the cost analysis. If so, the bridge span would actually need to cost 65% less to achieve a 5% savings.
I agree this is not a good idea. As a mechanical engineer in California I am especially sensitive to the job market and state economy. Even at low level, consumer products manufacturing scale many Chinese material manufacturers take liberties and short-cuts with specifications. I have experienced this first hand with many consumer products I helped design. Everything from plastic to aluminum to steel. I've seen low quality aluminum that rusts due to introduction of steel scrap filler into the mold process and steel plate that is far from being tempered properly to achieve its desired strength. From my 12+ years working with Chinese Contract Manufacturers, they do not seem to be adverse to "helping" their customers by altering specs without customer consent. I just hope there is excellent California engineering oversight during the bridge component manufacturing.
It was commented that the centerpiece staduim for the Olympics in Bejing (the bird's nest stadium) was a success story for Chinese steel, that it was notable that they had to hold the stadium up as superior (compared to what is normally expected of Chinese steel).
I hope no one has rubber-stamped the quality control on the steel for this bridge. Chinese steel may be cheaper, but it also may be "cheaper". I hope not.
I'm with Charles. There's got to be more to this story. I would think that the value of using local contractors would far exceed a 5 percent differential simply by the flush of paychecks back into the local economy. The value of the local paycheck should be what, two or three times their face value? Perhaps this is a California effort to cut costs even if the long term consequences backfire. Kind of like the tax California put on Internet retailing that caused Amazon and other retailers to shut out 25,000 California affiliates.
Outsourcing of bridges? Doesn't this fly in the face of our national effort to stimulate the economy by setting aside funds for public works programs? In a separate story on this web site ("P&G Offers Free Simulation Software..."), the federal government talks about its efforts to "jump-start" U.S. manufacturing. It says, "President Obama's plan, based on the recommendation of the President's Council of Advisors on Science and Technology in a report titled 'Ensuring Leadership in Advanced Manufacturing,' calls for investment of more than $500 million in a variety of programs." Hasn't California gotten the word?
I was going to argue regarding the lower cost of doing business until you pointed out the 5% savings.
I guess I'm naive. I thought good business practice for cost justification of most anything would be to compare the costs between 2 suppliers (in this case US vs China), take the difference [savings] and multiply it by the number of years you want it to be paid for. If the savings cannot pay in full the cost of the project in that number of years, then you don't do it.
5% savings is $360,000,000 on a 7.2 billion dollar project.
Thanks for the reply, Doug. I think your last comments about only a 5% savings show how short sighted such an approach is. In a story I posted recently that touched on reshoring manufacturing to US soil, proponents advocate a total cost of ownership model for evaluating outsourcing decisions--not just looking at reduced labor costs.
Thanks for the comment Beth. How could it be possible to build a bridge more cheaply in China? Here's a quote from the New York Times article I referenced in the post:
"Pan Zhongwang, a 55-year-old steel polisher, is a typical Zhenhua worker. He arrives at 7 a.m. and leaves at 11 p.m., often working seven days a week. He lives in a company dorm and earns about $12 a day."
The costs of steel are also lower in China, but no specific data is available.
All said, though, the savings are only 5 percent. That's nothing compared to what was lost in employment, tax revenue, experience, etc.
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