Don’t Write China Off Just Yet

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Will Manufacturing Return to the West?

On reading his obituary in the New York Journal, Mark Twain quipped, “Reports of my demise have been greatly exaggerated.”  China may soon find itself having to make statements of a similar nature. Commentators in the West have been excitedly predicting that manufacturing will return to the West as costs rise in China.

It is true that labor costs are rising in China, and have been for a number of years, but does that automatically mean that companies will suddenly up sticks and come running back to produce goods in Europe and the United States?

We don’t think so and here’s our list of reasons why:

  • Abundance of low cost product development in China – China’s universities are dedicated to churning out skilled engineers of all disciplines to support their factory-based economy. Over in the West engineering skills have long been in decline, and that skillset can’t be rebuilt overnight.
  • Experience matters – China is the world’s manufacturer, every town and city has an industrial base or bases and that means there’s a large experienced workforce waiting to be called-up; the West simply doesn’t have this level of expertise anymore and it won’t be easy to “poach” Chinese experience because most Chinese factory workers don’t speak a word of English and most Western factory managers won’t have spent their time learning Mandarin.
  • Inefficiency – Unlike Western and Japanese companies, China is still yet to undergo its “quality revolution” which, when it comes, will enable cost savings at all levels of manufacturing and take Chinese products to the next level in consumers’ eyes.
  • Wage models – The data supplied in the current predictions of manufacturing returning to the West is suspect at best, it usually refers to “skilled labor” and as much of manufacturing runs on “unskilled labor” it puts a very positive slant on the distribution of income. Some reports have put Chinese labor costs at only half of American or European labor costs – in that case they’re going to be disappointed to learn that the majority of workers in Chinese factories earn around $250 USD a month and that’s more like 1/8th of the cost of labor in the West.

Even if the predictions were true, and Chinese manufacturing was suddenly to become cost-ineffective when compared to the West, what is the likelihood that manufacturers would return en-masse to producing products in Europe and the United States? Given that labor costs in other developing nations are still extremely low, isn’t it more likely that those jobs would move on to Cambodia, Vietnam, Thailand, Bangladesh etc?

At SZCEIT we approach client’s manufacturing needs rationally and, at the moment, the costs of Chinese manufacturing are more competitive than in the West; quality can be easily achieved if you have the right relationships with the producers and that means big advantages for you and your customers.

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