On China's manufacturing
Manufacturers are looking beyond China because China is no longer ipso facto the cheapest place to manufacture.
China manufacturing prices are rising due to in large part to its rising labor costs. In an FT.com article by Josh Noble, entitled, "The end of cheap: China's tipping point," a number of economists theorize that China's demographics have changed such that we should continue to expect China's wages to rise and its manufacturing to decline. An FT Tilt (a new FT site focusing on emerging markets) article by Hannah Kuchler, entitled, "Coach the latest to cut China production," highlights a number of foriegn companies reducing their China manufacturing:
Foreign Manufacturing In China. Would The Last Company There Please Turn Out The Lights. : China Law Blog : China Law for Business
Why Factories Are Leaving China
A labor shortage is trimming margins for exporters, who are moving to Vietnam, India, and elsewhere
As costs climbed in Taiwan two decades ago, Ben Fan moved his lighting factory to take advantage of China's cheap labor. Now, with Chinese wages on the rise, he's moving again. "It's just like what happened in Taiwan," says Fan, chairman of Neo-Neon Holdings, which sells lamps and lighting fixtures to big retailers including Home Depot (HD), Target (TGT), and Wal-Mart (WMT). "Chinese don't want to work in factories anymore."
So Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. He plans to shift 85 percent of his production across the border, and by December he'll have 8,000 workers in Vietnam—up from 300 a year ago—and just 5,000 in China, down from 25,000 in 2008.
Over the past two years, millions of jobs have moved to China's interior or elsewhere in Asia as factory owners try to cut costs. In Guangdong, the mainland's top exporting province, wages have almost doubled in the past three years, and more than half the factories can't find enough workers. The number of migrants who traveled to coastal provinces for work fell by 9 percent last year, to 91 million. "This lack of labor will only get worse," says Willy Lin, chairman of the Textile Council of Hong Kong, a trade association.
Factory owners complain that the higher wages are devastating profits, especially as their customers continue to squeeze them for lower prices. "Wal-Mart won't raise what they pay us," says Poh-Heng Toh, general manager of teddy bear producer Lovely Creations. Another Wal-Mart supplier, jewelry maker Profit Grand, has cut its staff to 450 from 600 largely because it can't find workers at the rates it's willing to pay, says Chairman Hsu Chi Lin. Wages, Hsu says, have risen from 2 percent of total costs a decade ago to 12 percent today, while net margins have fallen from 15 percent to about 8 percent. Factory owners are also worried about a potential revaluation of China's currency. The yuan is up 21 percent vs. the dollar since 2005, and many economists expect it to rise an additional 5 percent this year.
While China's growth—11.9 percent in the first quarter—is a factor in the labor shortages, they likely won't disappear once the economy cools. The country's one-child policy means fewer people are joining the workforce. Tax breaks for farmers and subsidies for companies setting up in the interior have allowed more people to find work near home. And a growing service sector means greater opportunities lie beyond the factory gate. "The younger generation is trying to get work that is much easier—waiting tables in restaurants or working in supermarkets," says Charles Yang, general manager of Apache Footwear, which makes shoes for Adidas. .......
Shoemaker Apache has moved simpler work, such as stitching the upper portions of sneakers, from Guangdong to lower-wage factories in the interior. Apache is also expanding a plant in Chennai, India, that will produce at least half its shoes within five years. The company's Chinese workforce will soon drop below 10,000, from 18,000 two years ago, general manager Yang says. "We've been squeezing like hell to get more out of the system," he says.
Why Factories Are Leaving China - BusinessWeek
When Outsourcing Fails
One in Five German Firms Leaving China
China lost its status as the world's cheapest country for manufacturing some time ago. The momentum now seems to be shifting away from outsourcing to the Far East, with one in five Germany companies pulling production out of the country. Chinese workers, they say, are getting too expensive. .......
When Outsourcing Fails: One in Five German Firms Leaving China - SPIEGEL ONLINE - News - International
New Challenges for Foreign Producers: 'China's Manufacturing Competitiveness Is at Risk'
.........Clearly, China is losing its luster as a location for low-cost production, as rising costs, inflation and the steady appreciation of the renminbi (RMB) have increased factory operating expenses. Many labor-dependent companies are already leaving China for India and Vietnam, especially those from Taiwan and Hong Kong, and more are considering the move.
A new report called China Manufacturing Competitiveness 2007–2008 -- produced by the American Chamber of Commerce (AmCham) Shanghai and conducted by consulting firm Booz Allen Hamilton -- surveyed 66 manufacturing companies, most of them foreign-owned, and found that almost one out of every five will move some of their manufacturing to other countries. The top destinations, in order, are India, Vietnam, Thailand, Malaysia and Brazil, and the reasons for leaving China were rising costs and an appreciating RMB. “The vast majority, 83%, don’t have any plans to leave China,” says Ron Haddock, greater China vice president for Booz Allen Hamilton, which conducted the study. “They still see advantages in China, but what’s disturbing here is that 17% actually do have concrete plans to move manufacturing capacity to other neighboring countries.” ........
New Challenges for Foreign Producers: 'China's Manufacturing Competitiveness Is at Risk' - Knowledge@Wharton
