Last week I visited one of the world’s largest garment factories in Asia. They are just getting started on making UNIQLO. Here I saw a clean example of what I explained in my development economics article “From Scarcity to Global Strength: How Nations Develop”.
The factory COO showed me they had set up a separate factory within their factory just for UNIQLO’s special needs. UNIQLO also sends their own people in to do the quality assurance.
I wrote that “technology transfer is not passive; effective adoption requires active engagement and learning by doing. This involves imitating existing technologies, then adapting them to local conditions, resources, and market needs. Over time, this process fosters local technical skills, engineering capabilities, and organizational know-how, enabling a move beyond basic assembly towards more sophisticated production and eventually indigenous innovation”.
The above sentence from my previous essay was clearly seen in real-world conditions here. There is direct knowledge sharing in terms of quality standards by Japanese UNIQLO with this foreign factory. They share how to make higher quality garments. The machines used to make these garments are Japanese too, from a firm called Brother. Local masters learn to use it. Local maintenance teams learn how it works and how it is fixed. The knowledge of these sophisticated machines and know-how comes in because of clients’ higher standards. Those firms place orders there because of cheap labour. Over time the area will graduate and cheap labour will become less abundant, partly because the labour itself has become more skilled. The very people who are attracted by the cheap price make the labour more valuable, which eventually contributes to wage increases.
A good example of this is Apple in China. Current CEO Tim Cook has said in an interview that they don’t choose China because of the cheap labour, as it isn’t that cheap any more, but because the knowledge on how to build excellent smartphones sits there now and they couldn’t move it back to the USA without extensive investment in training US workers. Initially attracted by cheaper wages, Apple has invested in training Chinese workers for years, and designed their phone with Chinese manufacturers. Today, wages have risen by a lot but the know-how was built there and remains there, so do most of Apple’s orders.
In the same way, UNIQLO invests in training foreign workers, who work on Japanese, German and English machines. The opportunity this poses for manufacturing nations is clear: it’s not just a bigger market to serve and make money from but an entire foreign nation’s technological arsenal that they can learn, adopt and eventually build upon. This technology can be used and transferred widely, whether in terms of building atop it and innovating or taking cross-industry learnings such as for the defence sector, as China did it.
A UNIQLO order might mean a solid contract for a factory at first. However, it also means creating access for one’s own nation to absorb advanced technology that can help to leapfrog not just one factory, but eventually the entire nation and most of its industries.
You attract on price and graduate on skill.
