Half a decade ago, costs for manufacturing in China started to go up, and they keep on rising. Author Shaun Rein of “The End of Cheap China: Economic and Cultural Trends that Will Disrupt the World” explains in the China Post how China’s neighbor can profit.
The China Post:
In 2010, Nike began moving its shoe manufacturing operations to neighboring Vietnam. Last year, the accessories firm Coach announced it would cut back production in China — which makes 85 percent of its goods — in half by 2016 as it moves to factories in the Philippines, India and Vietnam.
“In about 2007-2008, a lot of businesses started realizing it wasn’t cheap to produce in China anymore,” says Shaun Rein, managing director of China Market Research Group and author of the 2012 book, “The End of Cheap China.”
“Salaries are going up 20 to 30 percent a year, it’s very difficult to keep talent and it’s become very expensive to find property,” Rein says. “The government is also starting to worry about pollution and water usage, so high polluting, high water usage factories are having a harder time getting government permits.
This evolution, in one sense, is good news for China — and good news for China’s neighbors.
“It’s a great time for Southeast Asian nations to take away market share from China,” Rein says…
Still, the transition away from China isn’t always easy. Rein tells of a U.S. furniture maker who moved manufacturing to China in the 1990s, then moved production to Vietnam and Indonesia five years ago. The company, a client of Rein’s, then moved production back to China a couple years ago after the cheaper wages were offset by higher transportation costs and lower productivity.
“Even though its cheaper labor, anything highly skilled needs the right management oversight and supervisors,” Rein says.
Although labor costs are rising, China still has the advantage of offering a complete “ecosystem” — infrastructure, clusters of supporting industries and highly skilled labor — to be worth the cost for some manufacturers, especially products on the higher end of the value chain.
“You have scales of economy in China; the ports and rail system are world class,” Rein says. “It takes hours to get from the airport to the center of Saigon.”
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