Is China Getting Too Expensive??

It seems that people are becoming concerned about the rising cost of labor in China. Combine this with a spike in global oil and manufacturing input prices and China does seem to be losing its shine for many manufacturers. But is manufacturing really disappearing from the Chinese economy?

Over the last 30 years, China has experienced a boom that has resulted in probably the largest build up of manufacturing capacity in human history. The result of this is a tremendously large and versatile manufacturing power house. Highly labor intensive industries and low technology production with tight margins will always be forced to be wherever the cheapest labor is and many of those factories will close. What is not talked about so much in the media are the efficiencies that manufacturing in China can bring to a business through economies of scale (when selling to the domestic Chinese market) and the cost savings on manufacturing inputs.

For industries with a lot of specialized components and machinery, being close to the factories that produce their inputs can be a real cost advantage. Chinese factories can often produce finished goods at a lower cost than factories elsewhere are able to purchase their inputs. No other country on earth has the volume and variety of manufacturing facilities, producing millions of distinct niche products. If a factory needs to be close to a tannery, a plastic molding facility and a copper wire manufacturer, there are very few places in the world where you have so many choice. This competition also breeds competitiveness between manufacturers and reduces pries further.

It is interesting to note that as China is developing, some businesses are finding their operations are getting cheaper. The first reason to explain this is the emergence of domestic consumerism. Factories selling to the Chinese market, can often improve their economies of scale to a large enough degree that it outweighs the costs of rising wages, oil and other factory inputs. In industries, where the efficiency and accuracy with which employees work is important, factories are finding cost benefits in a new generation of better educated Chinese citizens who make fewer mistakes and bring solid skills to the labor market. These workers are opening up new industries in China that simply would not have functioned 10 years ago, and as their skills improve, the efficiencies they generate translate to lower costs. As the Chinese get more experienced at manufacturing, their production lines are also becoming more efficient as production supervisors are able to point out where possible efficiencies and factory managers are eager to buy the latest machinery from around the world.

So it seems the answer is full of mixed signals. China is far to diverse and complex a place to say anything as broad as it is getting too expensive. China began its industrial life in the poorest of manufacturing condition. That coupled with the low cost of labor created their reputation as a manufacturer of cheap, low quality goods. As the country develops, their factories, technology and labor have all improved. This has pushed up costs in labor intensive industries where technology improvements have minimal impact. Other industries where state-of-the-art production line machinery and skilled labor improves output have noticed big cost savings. Some industries become more competitive as others lose their place in the sun. Certainly this is what 'Socialism with Chinese characteristics' is all about.

Free Management Articles: http://worthyarticles.com

Mark Respinger is the Managing Director of Caerulean Consultants Ltd. Based out of the Toronto office, he has considerable experience working on projects in China and around Asia. Caerulean Consultants Ltd specializes in IT outsourcing, manufacturing and investment management.

Please Rate Is China Getting Too Expensive??

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated