With the rising labour costs that have occurred in China over the past decade and the introduction of the 2008 labour laws the climate for low skilled manufacturing is not what it once was. As a result there is much talk of new manufacturing frontiers and the potential for them to take away jobs and production from China. ASEAN, India and Africa are all areas that are being touted as new, affordable labour regions. But how much are they able to take away from China? And what is it about China that keeps it a compelling location in the face of growing competition? Here we outline the factors that, in spite of rising labour cost, continue to make China a primary location for many in the manufacturing industry.
Superior Manufacturing Capacity and Infrastructure
China has a mature and modern road and train network, assets that are key to developing quick delivery and reducing lead-time. It’s energy grid capacity is vast and has the ability to have many times the number of high tech factories and industries than many of the new manufacturing areas. In terms of export capacity its port network is unrivalled in the manufacturing sphere, in 2013 container port traffic stood at 174 million 4 times greater than it closest rival the US and vastly greater than its manufacturing rivals India (11 million) and Vietnam’s (8 million).
Material Supply Chain to Support Manufacturers
Ultimate efficiency of manufacturing process is aided by the presence of a full supply chain within the country of production. China has this at their figure tips for many industries. In textiles they have natural resources, yarn production and garment factories and in electronics all component parts can be sourced in Guangdong province let alone China. Whilst this is an area of development of its closest rivals, it is likely that places such as Vietnam and India will not have these capabilities for years, if ever, and will rely on imports from China for the foreseeable future.
Trusted Suppliers
Suppliers, brands and factories have decades of commitment to China and as a result have strong working relationships with people on the ground and a detailed understanding of the networks and ecosystem. To move to alternative sourcing countries, is a relative step into the unknown, where they are required to understand a different infrastructure and working culture – placing an added risk to relocation of operations.
Domestic Market
The size of China’s domestic market is a major consideration for brands. In so many industries it is fast becoming the largest consumer market in the world and if companies have or want a presence in the country then manufacturing operations within it are key. Shifting production outside of China can lead to import issues and decrease lead-time to market. If a domestic market doesn’t exist, however, it can mean the move away from China makes more sense.
High Productivity and Skills
Chinese workers have the level productivity and skills required to work at the highest efficiency. This is an important factor in lead-time and product complexity. In some areas for workers to achieve the skill level required it can take years not months and for the higher value added and more technical goods the production movement, if it occurs, is slower given the presence of superior skill sets and productivity within China.
So whilst talk of movement to other manufacturing territories is not without substance and for certain industries or large companies movements are occurring, there are still fundamental factors in which China wins out and despite growing labour cost it is one of just a host of factors to consider when looking to develop or relocate operations around the world.