China As Manufacturing Center: Yes, Yes, Maybe, And Chill.

Asia Manufacturing Lawyers

I just read an excellent nuts and bolts post, entitled, China’s First Steps Away From Low-Cost Manufacturing and What it Means For Your Company over at the Product Global blog [link no longer exists]. The post focuses on what companies should be doing in reaction to the recent media frenzy regarding increased costs in China. Its advice is quite sound and it is as follows:

  • Reactionary strategies will most likely get you into trouble. Don’t be like the guy who ran out and put his home on the real estate market when he “heard” that the real estate market in the U.S. was in trouble. Generally speaking, careful consideration of your own company’s needs, your manufacturer’s circumstances, and your competitive positioning in the marketplace will dictate far more in terms of where you should be sourcing, rather than what is being said to take place on a macroeconomic scale in your source country (unless massive civil unrest is taking place, a violent coup, or Starbucks is beginning to appear on every corner).
  • As the sourcing landscape can be “ever-shifting”, nobody (at least, I haven’t met anyone with the gift of sourcing-clairvoyance yet) is quite sure of what exactly this all means yet. Some suggest that supply lines will simply extend deeper into China to take advantage of the huge pool of low-cost labor that still resides there. Others, emphasize that China will inevitably move up the value chain and low-cost manufacturing will indeed flee to lower-cost sources. There are arguments for and against both. It’s likely that a combination of both of these trends, along with some that no one is in a position to see, will emerge in the near future. The only trend I would venture to say is imminent, is the ubiquity of Starbucks.
  • This will impact industries, and companies of different sizes. very differently. Apparel is much more likely to move from country to country. Consumer electronics manufacturing is much less likely. Corporations looking to stay on the good side of Wall Street from quarter to quarter may be much more likely to see what lines of supply they can move in order to keep costs down. Smaller companies may be better able to absorb increases in cost through a long-term strategy of seeking out ways to improve the value of their relationship with their current suppliers.
  • Don’t fall into some false hope that the challenges associated with manufacturing in China will be less prevalent in other low-cost countries. Experience has shown the opposite to be true.
  • Following on the last point, if you do plan to expand your supply chain into a new country, take the appropriate steps in developing new suppliers and give your company time to troubleshoot and refine the relationship and process before relying heavily on then new source.Or as my kids are always telling me, “chill.”

3 responses to “China As Manufacturing Center: Yes, Yes, Maybe, And Chill.”

  1. In Singapore we feel it is an Asian century, not a Chinese one. Many Asians feel the same. Except the Chinese! There are many options not just China, and many other markets as well. China is just one.

  2. Correct,
    There is still just one place totally geared up for manufacturing. China has seen an increase in labor and other production costs but it is my opinion that in the longer run improved logistics will be able to offset most these increases. Both government and industry have proven to be extremely good at putting the focus on efficiency gains. Investing in logistic supply chains and getting the right infrastructure in place for that is an inevitable next stage of Chinese industrial development and a challenge they would love to take on.
    Only manufacturers that are dealing with relatively simply supply lines and use 3rd party outsourcing might shift to other locations but they have always done so in order to save a few pennies. The ones that have set up in China are not likely to write off their plants and relocate.
    Indeed other countries try to offer similar deals that have made China such a succesformula for manufacturing but unlike China in the early eighties they now have a formidabe competition to deal with.
    There is so much blabla that places like India, Vietnam, Bangladesh and Indonesia are taking over China’s production. Think about where most inputs would be coming from?…Yes China. E.g. The costs of leather in India is a factor 10 higher than the average Chinese tannery churns out. Good luck putting those extra millions of pairs of shoes together in Agra and source all your quality materials locally. Maybe 20 years from now…..
    Want to manufacture something more spohisticated?
    Anything far from the biggest concentration of OEM manufacturers in the World (Guangdong) is going to cost the production planners some serious headaches and a lot of money as well.
    The only big tickets items that endanger the Chinese industrial apparatus are QC scandals and non-tariff and tariff barriers that might be imposed by the US and Europe for either political reasons such as job security, general China bashing or badly implemented protectionism. Well the latter is politics as well.

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