Well, not really...
I'm currently on another sourcing trip in China. I'm headed to Vietnam in a week. My first week in China has been very busy and has provided a lot of food for thought on the manufacturing shake-up that is taking place in China right now. Is it really a shake-up? Yes and no. It's not as if all hell's breaking loose over here. But, almost every supplier I have met with has groaned about increasing material, energy, and labor costs, as well as the impact of the currency exchange rates. Many of these things are not unique to China. Nevertheless, it's never fun to report increases in costs to your customers--and they certainly don't enjoy it.
One of the tough spots Chinese suppliers find themselves in, is it's not atypical for foreign businesses sourcing in China to consistently apply pressure to lower costs. Hence the erosion of quality in materials and product--or the practice of quality fade by suppliers to preserve their margins. In addition to constant cost pressure from many customers, there is often pressure to improve working conditions for laborers and decrease negative impacts on the environment.
What foreign buyers often miss or conveniently ignore, is the fact that improving labor and environmental conditions costs money. The burden of these improvements are typically placed on the supplier. Finally, China has enacted labor laws that should improve the average factory worker's security. Thus, as we are seeing now, costs are beginning to rise, and the most inefficient, energy intensive, high-labor, low value operations are either shutting down or moving elsewhere. This is really neither good or bad. It is good, because, like many have asked for, working conditions will begin to improve in China.
But what will many businesses do? Many will begin to look elsewhere for lower cost labor. Currently, there is no "next-China" on the horizon. Some are looking at inland China, but many are also eyeballing Vietnam, India, Eastern bloc Europe, and Africa. Many of these destinations may make sense currently and will likely become more prominent in the future. But China is far from being dislocated as the epicenter of manufacturing soon. Remember, it's not just your factory that you will move, but all of the supporting supply chain that must be found anew in your next destination. This will not be easy, as demonstrated by the extreme case of...Madagascar.
The most exotic destination I've heard of a company moving to, to date, is Madagascar. That's right--the exclusive home of the Dwarf Lemur and the Aye-Aye. One of my supplier's other customers has actually set up a source in Madagascar to assemble product. Contrary to intuition regarding a supply chain like this, the company claims they are saving money. While I find it hard to believe, I know very little about their situation. I do know that supply chain flexibility and responsiveness must not be critical to the business model. Keep in mind that Madagascar has little to none in the way of a manufacturing base. This means that the company must continue to source an overwhelming number of items from China and ship them to Madagascar. They cannot even get shipping cartons in Madagascar, so they must ship the shipping cartons from China.
Wonders never cease...
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