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Manufacturing In China. Because There Are 1.3 Billion People There.

By Dan Harris and Steve Dickinson

I expected the routine this morning from a Wall Street Journal article entitled "LG Display Plans Plant in China." I expected it would say that LG was going to be manufacturing in China either to save costs or, more likely, to diversify its manufacturing. But the following line from the article gave me an ah-ha moment:

"China's LCD market is growing rapidly, so we felt it's necessary to manufacture LCDs from the region in the long run," said LG Display spokesman Park Sang-bae.

Ah-ha! Now I know many of you have already realized this (and on one level, so had I), especially those of you in the business of buying and selling product, but China manufacturing is in its second wave. China's first wave was strictly for cost savings; its second wave is for internal consumption. In a backward analysis brought on by this article, I realized that many (maybe as many as three quarters of them) of my firm's clients who we have been helping go into China are going there more to sell than to save. Now I realized this was true of the clients going there to start a restaurant, going there to sell beverages, or going there to provide business consulting services, but it only just occurred to me that many of our manufacturing clients are going there to sell as well. After reading the article, I immediately recalled a recent conversation I had with a client who manufactures truck parts. I asked why they were going into China now (implying, as opposed to five years ago when things were even cheaper). The answer I got was that shipping costs had gotten too high and that they were worried about losing out to those already there. I also recall a similar conversation with a company that makes very high end, large and heavy testing equipment. Why was it going into China now, I asked (while thinking the answer would be that before now the capabilities had just not been there). The answer I got was that now that they had a strong sales and repair force in China, they were ready to start manufacturing there as well. What are you seeing out there?

Full post as published by China Law Blog on August 26, 2009 (boomark / email).