Due to rising labor costs in China’s coastal areas, many companies are re-evaluating their manufacturing strategy. Often they face a choice between other low-cost Asian countries and inland China. These manufacturing choices are likely to differ from industry to industry. Companies sensitive to labor cost will move out of China, while companies requiring total manufacturing solutions will move to inland China.
Trends:
- Wage growth in China has outpaced most major emerging economies in the last 5 years, resulting in China’s labor costs being among the most expensive in the developing world
- Some consumer goods companies traditionally using China as a manufacturing base have started to seek alternatives
- Vietnam overtook China to become Nike’s largest manufacturing base in 2010, contributing 37% of Nike’s global output vs. 36% by China
- However, many high-tech companies are increasing investment in China, particularly in the west
- Global PC makers HP, Acer and Asus have invested hundreds of millions of dollars in western Chinese cities Chongqing and Chengdu, a fast growing laptop manufacturing hub which will produce 1/3 of global output in 2011
Drivers:
- Companies moving out of China tend to be in labor-intensive industries in which labor is a large component of cost
- China still has advantages in labor productivity, proximity to a large domestic market, and support from industry clusters, which are important for high value-added industries such as technology
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