Just because I in my infinite wisdom, say rising labor costs are no big deal, and that China is still competitive for lots of manufacturing, doesn’t mean everyone agrees with me. In fact, the PRC government, via it’s China Daily article “‘Made in China’ – but for how long“, ask the rhetorical question:
How long will companies be able to afford to manufacture in China?
The answer, it seems (at first), is “not very long”:
Manufacturing wages across China have increased by 14 percent over the past year (see inside cover story), making the prospect of producing goods in nearby Southeast Asian countries such as Vietnam or in Bangladesh, Sri Lanka and even Africa seem a viable alternative.
To paraphrase the first half of the article, China is no longer a competitive manufacturing base for foreign companies. The second half of the article goes on to agree that labor costs are not always that significant, but this viewpoint is not introduced until the second half. Until you get there, the article seems to be telling us foreign factories to head for the door. If you don’t read through to the surprise ending, that’s what you are left with. It seems to be telling us foreign manufacturers that we should consider leaving China because…
Ann Taylor and Coach are moving out to chase cheap labor in neighboring countries:
Two large US companies, Ann Taylor Stores, the women’s clothing retailer, and Coach, the luxury handbag maker, are poised to relocate production to countries, where labor rates are cheaper.
A bunch of unnamed British manufacturers are considering moving from China back to the UK.
A recent survey by EEF, Britain’s leading manufacturing association, said one in seven of its members were looking at shifting production back to the UK, fed up with problems in countries such as China.
“Getting goods of the right quality, issues such as time to market and rising fuel costs have been driving this trend,” said Lee Hopley, EEF’s chief economist.
Reading the first half of this article makes me feel like the last guest left at a party, where the hosts are starting to yawn, stretch and grouse about how early they have to get up in the morning. They are thinking… Just get out and leave us alone! Go to Vietnam! Go to Africa for all I care! Everyone else is rushing for the door, almost gone! You brought a great casserole which everyone (including you) enjoyed, but it’s long been finished and complimented by all. The dishes have been done (thanks for helping). We’ve locked the liquor cabinet– no more scotch for you. Why are you still hanging around?
If even the China Daily says manufacturers are headed for the door who am I to disagree?
Actually, the bit about Ann Taylor and Coach are from a Wall Street Journal article U.S. Apparel Retailers Turn Their Gaze Beyond China, which quotes executives from Ann Taylor and Coach but also from Guess, Guess and JC Penny. Looking at the original article, here’s why I wouldn’t take it too seriously:
1. The original article was specifically about apparel retailers, not about manufacturing in general. Apparel manufacturing has a relatively high labor content and are particularly sensitive to labor rate fluctuations.
2. Even so, most of those mentioned already had operations in neighboring countries, and were simply considering altering the mix of products made in China with those made outside China. They were largely (not completely) discussing adjustments in strategy, not a major transition from China to lower cost counties.
3. The original WSJ article also contains “balancing” quotes from apparel industry experts who people who believe that, even for apparel manufacturers, China is difficult to replace.
Indeed, for the money, the quality of Chinese-made goods is tough to match, and labor is just one of the costs of production. Others include the costs of raw materials like textiles, production facilities, transportation and quality control and training.
The skills of China’s labor force and its familiarity with the ways and expectations of U.S. companies, exceed that of any other Asian country, said Mr. Rubman, the retail strategist.
Vietnam has a big labor pool, but textiles aren’t as available there as in China, meaning retailers would have to ship in fabrics, said Andrew Jassin, managing director of fashion consulting firm Jassin Consulting Group.
“The only replacement for China is China,” said Li & Fung’s Mr. Darling, adding that his firm is scouting production possibilities in northern and western China. Since those areas have played only a minor role in the country’s manufacturing boom, wages there remain relatively low.
Regarding the British manufacturers who are going home, note that labor costs are not mentioned as contributing factors. Also, note that they are only “looking” at moving out. It would be interesting to know more about those British manufacturers who can’t hack it here in China. What are their quality and delivery problems, and why are they so intractable?
Once again, the second half of the article tells us why we needn’t be rushing for the door just yet, but that that viewpoint is not evident in the articles introductory paragraphs. Unfortunately, I think that a large percentage of the readers, having their pre-existing premise validated, won’t make it to the happy ending.