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Reports of China’s death as a sourcing destination are still highly exaggerated

The topic of “where is the next” China remains hot.   There are some recent articles in the US press claiming that manufacturing is moving back to USA due to cost issues in China. Those articles even suggest that this is the start of a larger trend.

But it is shear sensationalism, and not based in the reality, to claim that the recent actions of a few players (for example, Apple setting up one production line in the USA) is the start of a larger trend which will witness an exedous of production from China.

The only production that is moving back to the USA is for items that have very little labor with a BOM dominated by raw materials and compenents which are made in the USA.

Those products should have never gone to China in the first place.  And these cases are very few and far between.

Yes, the costs along the Chinese cost are going up.  So the “Next China” is “Interior China”.  Read all about this trend at this post  “The Big Picture 2010-2013

Yes, some low end, very labor intensive products (mainly textiles) is moving out of China to SE Asia. But South and SE Asia are certainly not right for companies that need a complex BOM, skilled labor and quality.

The publication “Week In China” has a well-researched article explaining what is really happening.  Here is a highlight:

…pressing priority is figuring out how to reduce costs in China itself. Foxconn, Taiwan’s best-known manufacturer in mainland China, seems to have taken a similar view, opting to move inland to less-developed provinces in search of lower costs for its contract electronics business. And some firms are already back in China after trying their luck overseas. Zhang Yuanheng, a shoemaker from Taiwan, told 21CN Business Herald last month that he knew of a number of Taiwanese manufacturers who had already returned after an unsatisfying stint in other markets, with cultural differences, lower productivity, unconvincing infrastructure and logistics costs largely to blame. So don’t write-off that ‘made in China’ label just yet…

Related reading:

Heavy hitters weigh in on future of China Sourcing

Resources:

“Week In China” is available exclusively to HSBC’s corporate and institutional clients. But if you visit the blog post “Psst, I got a secret to share” you will learn how CSIC readers can access the publication for free compliments of HSBC

About the blogger

Written by Mike Bellamy – author of, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book) and founder of PassageMaker Sourcing Solutions (www.PSSchina.com). Read about him in the Financial Times: “A Foot in Both Cultures”



Mike Bellamy

Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center (www.ChinaSourcingInfo.org). Author of “The Essential Reference Guide to China Sourcing” and founder of PassageMaker Sourcing Solutions. Mike is co-founder of CSA, the China Sourcing Academy.


3 thoughts on “Reports of China’s death as a sourcing destination are still highly exaggerated

  1. Ray Jia

    Simple and labour intensive products are moving away from China. The manufacturers of such product categories are facing unprecedented difficulty. China’s private sectors have already embarked on the efforts to add more values apart from merely cheaper labour, these include technology, service, design and brand.

  2. Mike Bellamy, with CSICMike Bellamy, with CSIC Post author

    Jim,
    Thanks for your comments. You have some good points and I would like to make an adjustment to my choice of wording and explain a bit about my thinking on this subject.

    There is high quality to be found in SE Asia. There is world class automotive components coming out of Thailand, my office printer is from Malaysia and the high quality backpacks you mention are from Vietnam and the Philippines While conducting a global RFQ, I often get quotes out of SE Asia, but I personally have yet to place much production there for non-textile products. But your point is well taken, we should not write the area off as there are pockets of production worth taking a look at in these areas. With resources like GlobalSources.com it is easy to get quotes from China and SE Asia, so I agree with you that we should explore all options.

    I would also like to make a correction/ clarification.

    Original wording:

    “some low end, very labor intensive products (like textiles)are moving out of China to SE Asia. But South and SE Asia are certainly not right for companies that need a complex BOM, skilled labor and quality.”

    I have been in a lot of backpack factories actually and admit making a high end backpack is not easy. I would probably not use the term low-tech to the people working in their shops, but in the big picture “cut and sew” is not on the upper end of the technology spectrum when we look at all the common production methods out there.

    The term “low end” in the original blog post can lead to confusion. For example, the backpacks you mention are very high end. But the production methods used to make backpacks are fairly low tech. I should have used the following wording:

    “some low tech, very labor intensive products (think textiles rather than electronics) are moving out of China to SE Asia. While there may be pockets of production in South and SE Asia, China remains the primary destination if you need a complex BOM, high tech production methods along with skilled labor and quality.”

    On a side note, I shared the podium at a recent seminar with an executive from Li and Fung (the world’s largest trading company). Their product portfolio is dominated by cut and sew items. The most interesting statistic he shared is that the amount of goods they source in China is increasing at a higher rate than what they source in S and SE Asia. So China is still keeping a lot of the “low tech” products that I assumed would have left. I’m working on a full blog post and should have it out in a few weeks. I welcome your comments to that post and this one.

    Thanks again for reading and commenting!
    Mike

  3. Jim

    While I agree with the general feeling in your article, I can’t agree with this: “Yes, some low end, very labor intensive products [are] moving out of China to SE Asia. But South and SE Asia are certainly not right for companies that need a complex BOM, skilled labor and quality.”

    Writing an entire region off like that shows exactly the same problem that the articles you complain about. For example, most higher end backpacks – North Face, Deuter, Macpac etc – are made in either the Philippines or Vietnam. Mariveles in the Phils in particular is a hotbed of quality manufacturing.

    By all means point out the flaws in the ‘back to the USA’ narrative, but there’s no need to totally write off SE Asia.

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