New AMCHAM Report on Manufacturing In China.

Tuesday, July 28, 2009 18:49

Manufacturing Motives

the recently released 8 page report Manufacturing in China Opportunities in a competitive market (download here) is the first in a series of regular reports from AMCHAM, and it is well worth the read.

A report that draws on AMCHAM’s large membership of firms operating in China, its Small Manufacturers Business Council, and Booz & Company, the opening statement says it all:

Regardless of when China’s economy recovers, it is clear that the manufacturing landscape for foreign-invested companies has changed. Focusing on China only as a provider of low cost labor for exports is unlikely to be a winning strategy moving forward. With increasing competition and continued rising costs, implementing industry best practices is no longer an option but a necessity.

Perhaps more than any other report I have seen to date, this report presents what companies are experiencing on the ground and uses that as the foundation for putting forward their recommendations:

  • Develop a strategy to capitalize on the continued growth of the middle class while reducing dependence on export markets by moving beyond the premium segment and down the price/performance ladder.
  • Develop new business models for the domestic market and tailor current products to meet local preferences and conditions.
  • Align manufacturing and purchasing strategies and link local activities with the extended global supply chain to build and capture economics scale and scope, harnessing the duality of China in the process.
  • Continue to invest in manufacturing best practices to take advantage of “latent productivity” that exists in most operations to offset rising costs.

Now, none of this is particularly new to firms who have been in China for a while (I remember being at an event 5 years ago where the majority of attendees (250+) were selling into the China market), but the report does add some perspective on the fact that while many of the largest firms in the world are no longer able to leverage CHina as an export base.

A message perhaps that the central government would find more interesting than the average reader?

One of the more interesting comments, and one I had not heard before, was this:

Even with the current economic conditions, manufacturing in China has become more expensive. Companies reported that costs are still rising – up to 15 percent in 2008 compared to an increase of 10 percent in 2007 – particularly in compensation costs for management, support staff and blue-collar workers as well as raw materials. Although labor and raw materials costs have come down from the premium levels of last summer, they are expected to rise again once market conditions improve.

Keeping in mind that there has been a run up recently in raw materials (primarily from China building safety stocks), I found the staffing costs very interesting, and would be very interested in seeing if this is a function of firms paying more to keep staff, paying layoff packages, or simple business as usually merit raises.

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2 Responses to “New AMCHAM Report on Manufacturing In China.”

  1. Labor Cost Worries Linger, Even When Economy Stumbles - China Journal - WSJ says:

    October 22nd, 2009 at 1:36 am

    […] a few eyebrows were raised by a report this week from the American Chamber of Commerce in Shanghai. Surveying 108 companies, […]

  2. mike says:

    June 25th, 2011 at 2:58 am

    Regardless of when China’s economy recovers, it is clear that the manufacturing landscape for foreign-invested companies has changed. Focusing on China only as a provider of low cost labor for exports is unlikely to be a winning strategy moving forward. With increasing competition and continued rising costs, implementing industry best practices is no longer an option but a necessity.

    Do not agree, at this stage cost saving is s till is! And, on top of than China manufacturers invest a lot in new technology. Wait another 15 years and China will be like a Japan, expensive and high tech.
    Mike from http://www.pa-international.com.au