In June, Chinese workers detained a U.S. business man because he wanted to move his operations from China to India. This episode was symptomatic of larger issues with the struggle of Western companies to handle rising Chinese wages. China’s status as an outsourcing destination is quickly eroding as China is no longer the cheapest source for many products. Since the mid-1980’s, China used its low-cost labor force to become the top outsourced manufacturing destination; today, those Chinese supply chains have reached an “inflection point.”
This transformation has gone unnoticed for a few years, as it cannot be pinpointed to one single event. However, there are signs that this phenomenon is trending. First, Foxconn (iPhone manufacturer) is relocating its operations to cheaper interior locations in China, as well as India and Indonesia. Second, many Chinese manufacturers are investing in their own brands to tap into China’s domestic markets. For example, The Goodbaby Group dominates 70% of market share for juvenile products. Another example involves Daphne, a maker of women’s shoes. Daphne began as a contract manufacturer, but over the years built its own brand and domestic retail network. Finally, Chinese suppliers are investing in lean management techniques to improve productivity and control costs.
India’s commerce and industry minister visited New York City this summer to inform business leaders that India can rival China as a manufacturing center.
1. Why is China no longer the best sourcing country for some products?
2. Which countries are retailers turning to as sources of supplying merchandise?
3. When you purchase merchandise, how important is the country of origin in your decision?
SOURCE: China Knowledge @ Wharton, July 22, 2013