Building global supply chains and attracting investment

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We’ve spent a lot of time on this podcast discussing the policy side of economic growth and attracting investment. But what’s it like to sit on the other side of the table, across from senior policymakers, as a representative of large private sector players? What are you actually looking for from government? How do you decide where to invest? And once you have decided, what goes into setting up operations from scratch in an entirely new setting?

In this episode of Ideas in Development we are joined by Bill McRaith, who has spent his career building supply chains across the world, working on both the manufacturing and retail side of the apparel industry. He started in the UK, in factories supplying Marks & Spencer, at a time when almost all of the supply chain was local, in the same time zone and market. But that model was breaking fast, and his career then took him around the world.

Setting up a factory from scratch in 1990s China

Bill McRaith arrived in Panyu in 1990, after flying to Hong Kong, taking a ferry, then a taxi along dirt tracks through paddy fields, he reached a small factory which he had been asked to turn into something capable of supplying Western markets.

He had grown up in an industry that was already a century old in Britain, surrounded by trained mechanics, supervisors and technicians whose only real need was orchestration. In China, he had to start almost from scratch.

Anyone in the industry under the age of 50 assumes that everything was always available in China. But when Bill arrived there was no textile base, no work-study engineers, no line managers able to run modern production. Materials were imported from abroad, and every design innovation came from elsewhere. It took roughly five years of hard work, and expatriate hires running training schools across the various disciplines, simply to reach a UK quality baseline before anything could be refined beyond it.

The binding constraints were often human, not technical. In Britain the consumer was also the producer, so an acceptable standard was easy to understand for the workforce. In China the prevailing standard was acceptable for China and unacceptable for the UK, and the hardest task was getting people who had never seen the destination market to understand why a higher bar mattered.

The social adjustments were just as demanding. A three-hour midday break was standard. A move from a flat weekly wage to an incentive scheme triggered a mass walkout – a failure he traces partly to interpreters, highlighting just how important their role is.

“The labour turnover in the first few years in China dwarfed anything that I ever dealt with from that point forward.”

Labour turnover was worse in those early China years than anything he later faced in other settings, a point worth holding onto for any government tempted to read too much into initial turnover.

China grew without policy

“China had very little policy at that time… the reason China was so successful is there was a lack of policy. Policy didn’t get in the way of establishing industry.”

China, Bill argues, succeeded because there was very little policy getting in the way of building industry. It was neither restrictive nor lavishly enabling, with no great tax holidays on offer. You came in and you did business, properly, and the rules were built as scaffolding around industry as it grew, rather than ahead of it.

What mattered far more than regulations was responsiveness. When goods backed up at the Hong Kong border at month-end and year-end, or when his factory had no usable road, it was local government – at that time the heads of the local communist party – who cleared the way, and tackled bottlenecks.

“I have never worked with a group of people who were more willing to help us solve those problems. And I don’t mean that in a corrupt manner. They were focused on making business successful.”

Too many countries try to get the policy framework right first, pointing at modern China as the template, and forget that China grew the other way round, with industry first and policy fitted closely behind it.

Choosing where to build

By the time Bill moved to the retail and brand side, he had built many more factories across Asia where he encountered many of the same bottlenecks as China, but was no longer surprised when they arose. Now his job included scanning the world for the next place to build. The starting point is never the supply chain: it is the brand’s own strategy. If you do not know where the brand is going in the future, there is no point asking where the factories should be.

From there the screening widens. Companies look at free trade agreements and the trends in them, because a duty saving can dwarf any labour saving. He looks at regional blocs such as the East African Community, at a country’s position on existing supply routes, at its energy mix and its commitment to renewables, and at market size – Vietnam, for example, was rapidly overwhelmed by the electronics industry, leaving little room for apparel.

Above all he resists the instinct to chase the lowest wage. The labour differential between southern China and the UK has collapsed from roughly fifty-to-one to around three-to-one, and with automation rising, cheap labour is now a weak signal at best. His summary is that “the next China is a how, not a where”: the location matters less than the model you intend to build once you arrive.

An industrial beachhead in Ethiopia

Bill’s first attempt in Africa failed. An office opened in South Africa in 2000 to scope opportunities on the continent and was shut within the year. Nepotism and corruption were too high in the countries they assessed, meanwhile China was opening up and the WTO accession made staying there far easier. The return came around 2014–15, prompted by Bill’s sister – then Deputy Director of Trade for South Africa – who argued that a new generation of ministers had arrived with a different mindset. He committed a vice-president to a year of scouting for a beachhead from which operations could later expand across the continent.

Ethiopia was not chosen because it was the most capable candidate: a landlocked country with almost no materials base and few real manufacturers. What set it apart was a government whose own vision for building an industry matched the investor’s, and a credible champion in Dr Arkebe – “Every country needs a Dr Arkebe”.

“It wasn’t because Ethiopia stood out as being the most capable… It was like China back in 1990. There was nothing there. But here was a government that had a vision to build an industry that matched our vision.”

Government officials were empowered to make things happen, and Ethiopia also held the most free trade agreements, sat within a workable regional zone, and lay on the supply lines between Asia, Europe and the eastern US.

The other decisive lesson from Ethiopia was sequencing. Rather than building first and being told five years later what had been done wrong, Bill brought everyone to the table before a shovel went in the ground: government, the manufacturers and mills he recruited, government agencies, and the NGOs whose work is usually remedial – repairing damage that earlier, more ignorant investors had caused. Defining the requirements for the factories, the industrial park, the neighbouring town and the surrounding environment up front is a key part of the process.

What governments get wrong when they pitch potential investors

Because the buyers control billions of dollars of allocation, no end of countries and companies want to pitch to them – and most, Bill says, have not done their homework. A weak pitch only lists assets: we have cotton, cheap labour, we can make a T-shirt for a dollar fifty. A compelling pitch starts from the buyer’s published strategy, articulates it, and explains precisely how this country beats the fifty others competing for the same work.

Price alone does not move the large strategic players, and a pitch built on replicating the thirty-year-old China model is selling something that no longer exists.

“The supply chains that we are using today were built for the world as it was 30 years ago. And we have not yet built the supply chains as the world will look in the next 10 years.”

Apparel as a first mover, and the automation question

“Every country that has not yet (started) on that industrialisation road should absolutely be looking to the apparel industry. It is a high consumer of labour… it helps people understand quality and what it means to do it right.”

For countries not yet on the industrialisation road, Bill believes that apparel is still the right entry point. This is partly because automation is harder there, so the labour-absorbing window stays open longer even as firms such as CreateMe push the frontier. Apparel also teaches the meaning of quality, and can act as a first rung of the ladder, enabling a move into higher-value sectors.

The caveat is that the apparel model itself must change. The old system tolerated vast overproduction – apparel’s second-largest source of waste – because huge labour cost gaps made markdowns affordable for producers. With the gap closing globally, overproduction nowadays simply destroys margin - the winners will be (are) those new firms that are built for a networked, sustainable, speed-to-market world rather than the legacy players optimising for the past.

“I fundamentally believe we are in what I call an extinction event right now… maybe the biggest players won’t disappear. But they’ll no longer be the big names… they’ll be replaced by new players that arrive that are building the future, not trying to keep going the past.”

This presents an opportunity to the governments who can articulate how they fit into these supply chains of the future.

A Bill of health for LMIC’s industrial strategies

1. Lead with industry, let policy follow. China’s lesson is not getting regulation right up front, but its sequencing: industry moved first and policy was fitted closely behind it.
2. Compete on responsiveness, not incentives. A decisive advantage for Bill’s work was local officials who cleared customs backlogs and quickly built missing infrastructure. A named, empowered problem-solver inside government is worth more than a tax holiday.
3. Bring your own vision and then match it to the right investor. Articulate where your country is going and pair it to firms whose strategy fits with your vision.
4. Stop pitching on price. Cheap labour alone no longer moves strategic buyers. Build the case around free trade agreements, regional blocs, position on supply routes, energy mix and speed to market.
5. Convene everyone before breaking ground. Getting government, manufacturers, mills and NGOs at the table from the outset prevents the costly remedial work that often follows when standards are set too late.
6. Treat the apparel industry as an escalator. Its resistance to automation keeps the labour-absorbing window open, and the potential path to electronics and automotive make it the classic first-mover sector – provided the model being built is the future networked one, not the old overproduction model.