International Law

On The Demise Of China Manufacturing....Kidding. Part II

By Dan

For the only barely related part I of this post, go here.  

I just got back from a very long and very fruitful trip to Tokyo. I was there with co-blogger Steve on behalf of the Sea Shepherd Conservation Society, assisting with the trial of anti-whaling activist Peter Bethune. If you want to see some television interviews of my on this case, click here or here. Then, pretty much out of the blue, I ended up staying in Tokyo (with Steve having to run off to Manila) to assist on a Japan vessel arrest. A little known fact about Steve is that he is fluent in Japanese as a result of having worked a number of years with one of Japan's leading law firms at the beginning of his legal career.

My staying in Tokyo did give me a number of great opportunities to meet with clients and potential clients who I had not seen for years. With the Honda strike in China getting so much news, we found ourselves talking a lot about where manufacturing would be going as China continues to get more expensive. The consensus regarding various countries seemed to be as follows:

1. Thailand. No. Not cheap. Politically unstable.

2. Indonesia. No. Too corrupt. Too much poverty. Too much violence. 

3. The Philippines. See Indonesia.

4. Sri Lanka. For the most basic of clothing manufacturing and the like. Maybe.

5. Mexico. See Indonesia and the Philippines.

6. Vietnam. Great place to visit. Great demographics. Good labor force. But, horrible logistics and just not quite there yet. Oh, and much smaller consumer market. Great place for some things though, like furniture.

7.  Malaysia. See parts of Thailand and parts of Indonesia, above.

8.  Cambodia. Come back in ten years.

9.  Laos. Come back in twenty years.

10.  Haiti. "You are not being serious, are you?"

In the end, the consensus was China, even with increased costs. "If you are going to make something that requires sourcing components from other facilities, it almost has to be China." China is just so established for that. It just works. Yes, we are going to look at going inland in China but the more you do that, the more it starts looking like Vietnam and the more you start facing the same sort of problems.

David Wolf over at Silicon Hutong just wrote a very interesting post on these same sort of conversations by clothing manufacturers. His post is entitled, "Not So Easy to Replace," and its conclusions do not differ much, if at all, from those here.

So is the next place the present place? I think it is, and I have to say that not a single one of my firm's clients has even mentioned leaving China because of rising wages there.  But I do remain bullish on Vietnam. But for how much longer will China be THE factory to the world?

Let's get your views....

Full post as published by China Law Blog on June 16, 2010 (boomark / email).