Organisational barriers are holding back productivity gains in China

10 November 2016 5 min. read

Productivity improvements are, according to analysts, one of the key drivers to unleashing up to $5 trillion in GDP in China. A new report considers the barriers to productivity improvements faced by overseas companies working in China. The research notes that while companies are activity seeking to improve their productivity, they face barriers, such as a lack of commitment and insufficient training.

The movement in China from an investment-led, export focused economic model to a more domestic focused, productivity- and consumption-led economic model has the potential – according to McKinsey & Company – to add up to $5 trillion to GDP above the current trend by 2030.

A new report from the Technical University of Munich (TU Munich) and BearingPoint, titled ‘China Productivity Snapshot 2016 – Status, Challenges & Improvement Scenarios’, explores, among others, trends related to the difficulties faced by businesses with regard to driving up productivity across their production operations in China. The survey involves 64 businesses of varying size, with the majority of responses from executive level respondents.

Importance of productivity in China

Productivity in China

Productivity is a key driver for businesses, yet the factors that drive productivity remain elusive – productivity levels vary considerably between countries as well as between industries, with the UK said to be in the grips of a productivity paradox. China, as part of efforts to increase its competitiveness in the face of improving economic conditions, launched its “Made in China 2025” initiative – focusing, among others, on improving productivity and increasing the number of Chinese made products, precursors and services in product value chains. New initiatives, such as Industry 4.0, bring considerable potential productivity improvements, but too require considerable skills both at the level of implementation as with engagement.

The respondents for the survey place considerable importance on improving the productivity levels related to their operation in China, with 44% saying that importance is very high, 42% saying it is high, 14% saying it is moderate and none saying that the priority is low. When asked about their current satisfaction with productivity levels, 6% said that they are very satisfied, 31% say that they are satisfied, 23% are undecided, and 38% said they are unsatisfied.

Challenges as productivity barriers

Barriers to productivity

When it comes to the barriers companies face in relation to productivity across production, two factors stand out: a workforce with insufficient skills (3.47 out of five) and unreliable sales and operations planning (3.41). Companies also find that production is affected by a lack of adherence to process definitions (3.16), which is compounded by low workforce motivation (3.15) and high staff turnover (3.09).

Companies are also blighted by poor maintenance which increases breakdowns, and thereby downtime. Insufficient capacity planning (2.66) and frequent failure of equipment (2.66) are the least cited inhibitors to productivity.

Do you have productivity plans

Improving productivity

The respondents say that, even while they face issues, across almost all companies there are at least plans afoot to improve productivity. 49% say that they have procedures in place to constantly improve workforce productivity, 32% say that improvement projects are in progress while 16% of respondents have concrete plans for improving productivity. Companies are also improving the productivity of their equipment, with 33% saying that they are in the process of constantly improving, 30% saying that improvement projects are in progress and 19% saying that they are working with concrete plans – 9% say they are not engaging with the issue.

In terms of improving planning processes, 35% of respondents say they are consistently improving, 28% that there are improvement projects in progress and 14% that they have concrete plans.

Greatest barriers to transformation

Barriers to productivity improvement

While companies surveyed are working towards improving their overall productivity, many face considerable barriers from a range of internal and external factors. The most cited problem (53%), is insufficient commitment and motivation from subordinates – ironically one of the central issue for low productivity. Around 35% of respondents say that there is a refusal and active resistance to change, while 29% respond that insufficient training inhibits transformation to more productive operations.

The areas of least concern in relation to transforming various business activities into more productive operations are the inability to manage contingencies (cited by 8%), uncertainty about clear objectives and targets (10%) and inability to track long-term progress (16%).

KPIs for productivity

When asked about whether they have measurement of key performance indicators (KPIs) for production productivity in place, the vast majority (86%) say they do. However, while many had them in place, capturing the factors most relevant to productivity is lacking at around 12% of respondent businesses, while around 10% do not update their KPIs to meet changing industry best-practice or other market changes.