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The future of manufacturing in China: 3 big trends

By Fredrik Grönkvist

“It’s only a matter of time before Chinese suppliers take over on Amazon. Who needs a middleman”

“China doesn’t need manufacturing any longer. They are going all in on credit cards and shopping malls”

And so it goes. Self-proclaimed experts, trying to predict the future. However, if anyone is qualified to make a prediction of the future state of manufacturing in China, that would be me.

In this article, I explain why, on one hand, China will remain a manufacturing powerhouse – and on the other, why you shouldn’t worry about your supplier stealing your market share.

I’ll also show you why branding and marketing expertise is actually more important than the product itself, in a world where manufacturing is becoming increasingly accessible – even to the smallest business.

 

1. Production will remain in China, despite increasing costs

Chinese suppliers are facing increased costs: Rising wages and rent hikes all contribute to reduce the already slim, profit margins of the average assembly manufacturer.

In addition, the government is also becoming increasingly efficient in collecting taxes. This is another ‘cost’ that some suppliers must start to add into their pricing.

Some manufacturers have already left, for example, in Vietnam and Cambodia.

So I guess this is it then. Game over. China is rapidly deinstruliaising to focus on the “consumer market” and Chinaimportal.com is destined for eternal obscurity.

Not so fast…

A couple of years ago, the talk was all about how Chinese suppliers would depart from the east coast and head in droves to the inland. That didn’t happen.

Instead, China’s East Coast grew into an even stronger manufacturing base. Shenzhen is the brightest shining star, and has cemented its position as the World’s center for manufacturing.

To me, that was rather expected. Shenzhen has today grown into an ecosystem that cannot be simply transplanted.

This is where you have the logistics companies, the component manufacturers. Increasingly, this is also where you find the manufacturing expertise needed.

So, what’s the conclusion?

China is losing out in some areas, but gaining in others. It’s not a coincidence that China becomes the manufacturing hub it is today, while Indonesia and India didn’t make that transition.

Things will change, though.

The future manufacturer in China is will mostly be ‘staffed’ by low cost production robots.

Inefficient manufacturers will also disappear, and give more room to those that embrace this change. That said, I don’t think that, for example, the Wristwatch or LED industry will ever be dominated by a few large producers. The future doesn’t necessarily favor corporations.

In the medium to long run, China will lose its cost advantage entirely, compared to the US, EU and Japan, due to cheap robotics, AI and 3D printing. But that’s at least two or three decades away.

 

2. Manufacturing is becoming as accessible to Startups and Small Businesses, as Software development

Manufacturing used to be something that required huge investments. It was certainly nothing for college students considering, until just about a decade and half ago.

Chinese suppliers are OEMs. Essentially, they are ‘Open Source Manufacturers’.

Chinese suppliers don’t care who you are, or what you sort of background you have. All they are interested in is your business. If you ask me, that’s a great thing.

Basically, the Chinese OEM factory made manufacturing accessible. A bit like the PC or Mac back in the 90s.

Until recently, international trade has been stuck in the past. Alibaba and Global Sources took suppliers online, but that didn’t solve every problem facing importers.

That is about to change, though, as supply chains come digitally. An entire ecosystem is coming into place, for companies of all sizes.

Today, a product can get financing on Kickstarter. Then, a B2B provider comes in with a program to secure the transaction with the supplier.

Once ready for shipment, just book a quality control online at Sofeast.com, and get a free shipping quote from Flexport – directly delivered to an Amazon FBA warehouse.

In the last few years, the entire supply chain has moved online, and this is just the beginning.

Product compliance is also becoming a lot more manageable, thanks to new services and devices that are set to drastically cut the cost to ensure compliance with relevant safety standards and labelling requirements.

Just buy a requirements list on ProductIP.com, and test your product for free using your Scio Pocket Molecular Sensor. The latter must be seen to be believed.

Soon, the days when you had to pay 500 dollars to test one fabric in one color belong to the past.

What’s next? Visiting the Global Sources Trade Show from your VR headset?

 

3. Importers will need to excel at branding and marketing to stay in business

As manufacturing becomes accessible to (almost) everyone, the market is becoming flooded with products.

The core of every business is the product, or service, it sells. However, a product is only as good as the marketing and sales processes that supports it.

The future belongs to those businesses that can not only bring a product to market, but also master the art of product branding, customer service – and online marketing.

In fact, these skills are combined more important than the product itself.

This has been proven, by the failure of Chinese suppliers to break into western markets and cut out the importers.

Many Chinese factory owners arrogantly assumed that they had the upper hand, given their direct access to production. Why not just leave the importers out in the cold and sell directly on Amazon?

They did, and for most it didn’t work out.

What makes a business successful in the OEM manufacturing game is irrelevant when selling on Amazon, and other B2C online channels.

Considering that many suppliers struggle to respond to emails within a week, they are nowhere near having the ability to last more than a month on Amazon.

That said, the younger generation in China has a much better understanding of branding, and the importance of solid customer service.

The question is how much of an advantage they will have in the future, given that they have better access to manufacturers than their American and European competitors.

That advantage is not negligible, but an understanding of the target market has been always more important, than an understanding of the supplier that makes the product. This holds true, regardless of where in the world you do business.

If anything, future competition will come from the ‘forced entrepreneur’ – a byproduct of the large number of people being left behind by automation and AI.


Fredrik Grönkvist is the co-founder of ScandinAsian Enterprise in Shanghai. Since 2010, he and his team have helped hundreds of companies worldwide, primarily in the EU and US, to develop and manufacture products in China. He is also the main contributor on www.chinaimportal.com, a leading knowledge base for small- to medium-sized enterprises importing from Asia. For further questions, you can contact him on http://www.chinaimportal.com/contact-us/

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