Lots of experts are still talking about how manufacturers in China, faced with rising labor and other manufacturing costs, might preserve their competitiveness and profitability. Here’s rundown on the strategies championed (mostly by those who manufacture nothing… but that’s another story).
Everyone chased cheap labor to China. Now that it’s not so cheap in China, you can just chase it right back to the good ole’ USA. It’s called re-shoring and, if you believe the newspapers and the interwebs, everyone’s doing it! This is the strategy for you if…
- You believe the infamous Boston Consulting Group’s report stating that China’s labor rates will reach parity with the U.S. labor rates in 2015, and
- you take on faith the oversimplified factoid that U.S. workers are 10 times more productive than the Chinese (and if you further lack imagination and can’t fathom that the Chinese might also invest in productivity-improving technology).
Time to move your manufacturing from Shenzhen to Georgia. What’re you waiting for?
If the incremental (and likely temporary) variance in labor costs seduce you, and feel they are really attractive enough to offset the huge –but occluded– costs of moving from the coast into the hinterland, then this is the strategy for you. After making your move from the coast, you will be greeted at your small town destination by a cheaper and less productive workforce, and by conciliatory local officials who make all the right noises (they’ll build a paved road right up to your factory gate so transit time from factory to port is reduced to a little over 13 hours!)
We’ve not heard from these guys so much lately, but they are still out there. These are the guys who looked at the low Vietnam labor rates and decided that moving production from China to Vietnam was a no-brainer. Those who heeded the siren call were soon sorry they did. As it turns out, you see, labor costs rise when labor demand increases against a stable supply. Who knew? Same with supply-chain costs. Shocked!!!
Buy lots of robots for your China factory and you won’t have to pay those over-demanding workers ever again. Of course, you may never make back your investment, and you will lose your flexibility, but that’s a small price to pay for empty dorm rooms.
GO INNOVATE (mine):
I have long argued that concentrating on adding value through innovation while, at the same time, reducing waste is a better strategy than focusing on cost-cutting and chasing cheap labor. I just read a post ”SEARCHING FOR AN EDGE” on the Cheung Kong Graduate School of Business blog which states the case in an interesting way. This post talks about “service-rich” manufacturing. I might re-coin the phrase as “service-enhanced manufacturing”. But basically it says to add value for the customer by innovating.
The money quote:
Instead [of pinning their hopes on domestic consumption], Fischer bets that service-rich manufacturing that pays increasingly close attention to the customer’s needs as China’s next killer app.
Handled well, however, Chinese companies will move from an era in which they all shared a single advantage (cheap labor) to one where they will be able to develop different kinds of advantages – a privilege, Fischer notes, that “typically only large nations can enjoy.”