Is China On Its Way Out?
Some questions I often get asked are “Isn’t China on its way out?” or “Shouldn’t we be looking to manufacture in Africa, South America, or Southeast Asian countries?”
The reality is that China is set up like no other country on earth. China’s ability to draw on a variety of raw materials from different parts of the country and bring those together to produce parts which are then used to produce componentry which become final products is unprecedented anywhere else in the world. If you’re looking to manufacture a product of medium to high complexity, I’d say you’ll find it very difficult to bypass China completely.
If you’re looking to do your final assembly in another country, you will eventually end up sourcing some of your parts or componentry from China. So, you need to understand how manufacturing works in China, regardless of whether you’re looking to diversify and do some of that outside of China.
The main reason why people are now looking at other options is that Chinese labor costs have been rising for years while other countries’ labor costs are cheaper.
However, there are a lot of cons that you will find in other countries that you won’t realize until you are already too far down the track. China has a proven track record of what it can do, from low-end cheap widgets to high-end iPhones and everything in between. Other countries simply don’t have this range or the range of services.
Another thing that many people overlook is that, over decades, China has been steadily increasing its skill levels in many industries across a variety of materials, parts, and componentry. This depth of skill is priceless when your number one priority is a high-quality, consistent product on which you are trying to build a brand and a company. Countries with cheaper labor costs will likely struggle to ensure a base level of skills, especially across the broad range that China can provide. With China, you can create the product you want if you go through the process and the steps properly.
The example below highlights this issue:
We were working with a factory that made high-end backpacks for a German company, which were very complex in terms of the sewing and the various buckles, zips, and the way that the whole backpack came together.
They decided to move offshore to a factory in Vietnam because they could get the unit price lower due to cheaper labor costs. A year after they moved to Vietnam, they were moving back to China. They had discovered a range of different issues in Vietnam that weren’t present in China.
One of the main problems was the skill level. Although it seemed like sewing should be something that is consistent across the board, the level of skill required to sew these backpacks versus sewing a simple t-shirt was vast. Also, the quality issues that they faced across the board forced them to go back to China because the difference in unit cost didn’t outweigh the issues that they were running into.
To sum up, while there may be labor cost advantages to exploring manufacturing in other countries, our experience has taught us that these advantages are usually outweighed by the depth and breadth of skills, knowledge and experience of the Chinese manufacturing industry. It’s simply unbeatable.