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China As Manufacturing Center. Yes, Yes, Maybe, And Chill.

By Dan Harris and Steve Dickinson

This has to be some sort of record as this is my third post today on essentially the same topic: Does manufacturing in China still make sense? I just read an excellent nuts and bolts post, entitled, "China's First Steps Away From Low-Cost Manufacturing and What it Means For Your Company," by Ashton Udall over at the Product Global blog. Ashton is with "a product development and sourcing (manufacturing) firm dedicated to helping businesses, inventors, and startups, tap overseas resources to succeed in the Global Economy" that helps source product from China and, most importantly, from elsewhere in the world. To grossly summarize the post, China is here to stay. Ashton's post focuses on what companies should be doing in reaction to the recent media frenzy regarding increased costs in China. His advice is quite sound and it is as follows: ? Reactionary strategies will most likely get you into trouble. Don't be like the guy who ran out and put his home on the real estate market when he 'heard' that the real estate market in the U.S. was in trouble. Generally speaking, careful consideration of your own company's needs, your manufacturer's circumstances, and your competitive positioning in the marketplace will dictate far more in terms of where you should be sourcing, rather than what is being said to take place on a macroeconomic scale in your source country (unless massive civil unrest is taking place, a violent coup, or Starbucks is beginning to appear on every corner). ? As the sourcing landscape can be "ever-shifting", nobody (at least, I haven't met anyone with the gift of sourcing-clairvoyance yet) is quite sure of what exactly this all means yet. Some suggest that supply lines will simply extend deeper into China to take advantage of the huge pool of low-cost labor that still resides there. Others, emphasize that China will inevitably move up the value chain and low-cost manufacturing will indeed flee to lower-cost sources. There are arguments for and against both. It's likely that a combination of both of these trends, along with some that no one is in a position to see, will emerge in the near future. The only trend I would venture to say is imminent, is the ubiquity of Starbucks. ? This will impact industries, and companies of different sizes. very differently. Apparel is much more likely to move from country to country. Consumer electronics manufacturing is much less likely. Corporations looking to stay on the good side of Wall Street from quarter to quarter may be much more likely to see what lines of supply they can move in order to keep costs down. Smaller companies may be better able to absorb increases in cost through a long-term strategy of seeking out ways to improve the value of their relationship with their current suppliers. ? Don't fall into some false hope that the challenges associated with manufacturing in China will be less prevalent in other low-cost countries. Experience has shown the opposite to be true. ? Following on the last point, if you do plan to expand your supply chain into a new country, take the appropriate steps in developing new suppliers and give your company time to troubleshoot and refine the relationship and process before relying heavily on then new source. Or as my kids are always telling me, "chill."

Full post as published by China Law Blog on February 26, 2008 (boomark / email).