By David Dayton in "Silk Road International"
First, Whither Shanghai? As I've been saying for years now–Shanghai, smanghai. Who really needs 18 million people all in one place and all those overpriced-buildings and traffic jams?! It's not like the mag-lev is really helping out your daily commute, is it? Now, I'm sure Shanghai is great for some, but it's not for everyone–just like China is not for everyone. Just like with each of your suppliers, you need to pick your city to base your operations and even the country that you're going to be based in very very carefully. Research, not hearsay should be the rule of thumb.
Here's an interesting take on what's "really" going on in Shanghai. By the way, the book that they review, I reviewed last year. And it was already not "new" then. But at least they got around to it. The point though, is really this: just because Shanghai has got the expo doesn't make it the best option for everyone.
And if you've not read "Capitalism with Chinese Characteristics" you need too. I now think that it's the BEST BOOK I'VE READ ON CHINA. PERIOD.
Second, General State of Chinese Manufacturing. The demographics of manufacturing in China and East Asia are changing. And not just changing in slow, cyclical patterns, but rather in large lurching jolts (that most recently coordinated with Chinese New Year). Here is a copy of an exchange that I had with a colleague from Singapore last month. His question:
I am trying to get my facts straight about the current state of China's manufacturing sector. What are the implications of minimum wage increases? Are companies going to start looking to build manufacturing facilities outside of China where there may be lower labor costs? Are there any general trends to be looking at?
I was wondering if you could write back with your understanding of what is happening in China's manufacturing space, and where you see things headed.
My Response: Wow, that's a big question. Let me see what I can do for you. I don't have any actual stats. But I can give you some anecdotal evidence and personal experiences that points to some shifts in Chinese manufacturing.
1. VN and other cheap labor countries are definitely having some effect. Some, not a lot across all industries, but definitely some effect in some specific industries. The interesting thing is that a lot of the factories in VN that we use are Chinese owned (Taiwan and HK) mostly that have moved from China specifically to VN for the cheaper labor rates. This will certainly continue in SEA as the govt's there invest more in infrastructure. China's logistics (infrastructure and supplier density) are still so much better than anywhere (but Singapore and BKK) that even with higher labor rates most people can still get what they want here.
2. Tariffs. We've worked on 5 projects (2 in VN, 1 in BKK, 1 in India, 1 in Malaysia) where we were there specifically because of the US tariff and duty laws (rather than anything that had been done by China or other specific countries. I don't know how exactly this type of thing will continue but it will continue and I know that it has affected a number of industries in China (furniture, plastics, clothing) already.
3. Domestic stimulus and other In-land projects (5-year plans). One of the surprising things that we're seeing right now (as opposed to before CNY) is that labor is NOT coming back to Southern China and inland factories and cities within China are starting to show up in our sourcing results. We have had 5 projects in last 3 months that have been delayed specifically because hundreds of people didn't come back to work in various factories (wood, plastics, clothing, metal across all industries). I see two things here. One is that govt jobs (construction, mostly) is taking up much of the migratory labor. And with better infrastructure inland factories are moving to take advantage of the cheaper land and (now larger) available labor pool. This means that costs will rise in Guangdong and all along the East Coast; this trend will most likely continue.
4. Internal competition in general is changing. We're seeing much more development of markets, infrastructure and general standard of living inland than what we saw even 5 years ago. The recent growth (off of the East Coast) has been noticeable. This will, I think, make manufacturing in general in China more like Zhejiang (lots of smaller, family owned, limited int'l experience factories) than Guangdong for the next decade. It will increase cultural differences/conflicts with foreign buyers, increase secondary costs of doing business in China even though primary COG may go down, and will increase total production times and extend supply chains into new locations.
5. Specific industries. As I mentioned before, it's hard to generalize to such a big questions. So, in a bit more detail (without having much more detail!!) there are specific industries that are big in certain locations specifically because of either foreign tariffs or govt incentives. Much of the furniture industry has all but moved out of China in the last 5 years. Plastics and clothing are in the same boat. Tech is located in SZ with pockets in Sichuan, Xi'an and Beijing. Factories that rely on large (cheap) labor forces and are not demanding for quality or tech (bags, mold injecting) will be leaving GD if they haven't already.
Finally, the unwritten rules for working in China (yes, and other developing countries too; China-apologists can just keep their knickers on.)
My List of Rules for Working in China.