by Dan Harris in 'China Law Blog'
Just read a really excellent Foreign Policy article, entitled, “The end of the Asian Miracle.“ The article is written by , “the investment guru who coined the term ‘emerging markets.’” To grossly summarize, the thesis is that the following five pending “game changers” could bode ill for China and bode well for the United States:
I found number two the most interesting because it is the most immediate in the sense that it is already directly relevant to Western manufacturers. According to Van Agtmael, “China is no longer the placefor manufacturing,” for the following reasons:
Many of the above are just various ways of saying the same thing: productivity in China is generally not very good at all, particularly when compared to countries like the United States. I now have a term for the problems that are so often inherent in manufacturing in China: the phantom 20%. I tell clients who are just starting to manufacture in China that in my experience (which really is the experience of my clients), it usually is not worth doing unless the cost savings are projected to be at least 20%. Of course this 20% figure can vary considerably, depending on the risks involved in manufacturing a particular product in China. But the point of all this is that there are a lot of inefficiencies and uncertainties in China of which Western companies new to China often underestimate and those costs can be the difference between cost savings and cost increases.
Definitely not saying you should not manufacture in China, but I am saying that you do need to look at your cost numbers with a jaundiced eye. People have been talking about the end of cheap China for years now (click here for a television interview I gave in China last summer on this topic), but I am definitely feeling as though this is the year that American companies are really starting to account for this and looking elsewhere in Asia for their manufacturing needs.
What are you seeing out there? What China costs were caught you unprepared?
Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes ChinaLawBlog.com as a source of China legal and business information.