Moving Away From China to Become a Trend? I Don’t Think So

Thursday, July 14, 2011 10:17

Back in 2008 when the price of nearly everything in China was at a record high, discussions surrounding moves away from China were taking place. Vietnam was being tapped as the “next” market, and a few stories began popping up in the US media of firms returning home.

And with China posting some serious inflationary gains over the last 18 months (6.5% in the last quarter alone), it goes without saying that some of those discussions of “where to next” are beginning to pop up again.

One article that I was just passed “Salem clothing firm moving back from China” offers a brief glimpse into one company who has made the decision to pull the plug on China and go home because of inflation and quality control issues:

An Oregon apparel company cites inflation and quality control problems as two of the reasons it’s moving its manufacturing out of China and back to the United States.

Nine 1 One Gear of Portland previously had its line of outerwear for firefighters and emergency responders made in China. Now it will rely on skilled workers in Salem.

For me this article serves as a good example of a firm who, if they so chose, would and could move away from China quite easily… with the proper plan… but that they in no way should serve as “the” for any trend..

That as they have been outsourcing the work to suppliers in China (i.e. they don’t own the factory), their model is built for dynamic movements (across suppliers… perhaps geographies). Which makes pulling up stakes much easier.

Second to that , the article references issues of quality control and inability to find suppliers willing to work with on their terms. Which to me are perhaps the more compelling reasons for why a firm would want to look to other sources, or bring back in-house.

So, at this time I would say that China still retains hold of its title as manufacturer of the world’s goods (even with additional inflation guaranteed), but that there are going to be moves away from China as firms look to find better quality in craftsmanship… or find that China is not a market for their products after all.

That being said, a friend of mine in HK recently made a very compelling argument for Indonesia as the next China. Good infrastructure with a large domestic consumer market. Not willing to say that it could replace China, but perhaps Indonesia’s market size could justify an investment that compliments a China investment.

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6 Responses to “Moving Away From China to Become a Trend? I Don’t Think So”

  1. Chris says:

    July 15th, 2011 at 3:06 am

    Rich, great points as always. 2 things I would add. First, there is another critical compenent of Nine One 1’s decision: They have no China sales / intentions. Perhaps that seems an obvious point but it is a critical compenent in the decision. Second, despite the constant interest in SE Asia and talk of moving manufacturing back to Europe or the U.S., in my own work I have actually seen the opposite. Companies that have never established a manufacturing or procurement presence in China are continuing to come to China. Late comers who now understand how late they are. Those that have been here seem to, if anything, be doubling down with increased commitment to being here and to doing things right in China. In the end, I would agree thsat the trend seems more talk than reality.

  2. Chris Devonshire-Ellis says:

    July 19th, 2011 at 10:43 pm

    We’ve seen at least 50% of all low end garment and other manufacturers, mainly Hong Kong and Taiwanese businesses, some foreign investors, move out of South China and relocate to Vietnam. That’s precisely why we set up offices there, you probably get a different perspective because you’re based in Shanghai. If you’re interested, we produced a complimentary download on relocating from China to Vietnam here: http://www.asiabriefingmedia.com/store/index.php?main_page=product_info&products_id=498

  3. Jay says:

    July 20th, 2011 at 4:35 am

    At a trade show in Japan recently I met a US company that was moving its manufacturing back to the US from China because the cost differential no longer made it worthwhile to put up with the hassles in China. As Japan was also a large market for the company they were also being told by Japanese customers that they would pay more for a US-made product than one made in China. In other words Japanese customers were putting a premium on the made-in-USA brand.

  4. Rich says:

    July 20th, 2011 at 7:04 am

    @ Chris C.- China sales are certainly something to consider. What I’d be interested in seeing (from the larger firms) is whether or not they move non-China market manufacturing away.

    @ Chris D – not sure if it has anything to do with me being in Shanghai, but certainly has something to do with your observations being focused to HK/ W firms. Groups I do not work with on any level. Are you seeing any multinationals (who own factory space) packing it in for Vietnam/ Indonesia?

    @Jay – Interesting anecdote. My only question is whether or not this is a Western vs. Chinese brand, or if the consumers are looking at a GE product from China and a GE product from US, and then saying they’ll spend more for the US light bulb.

  5. Chris Devonshire-Ellis says:

    July 20th, 2011 at 9:34 pm

    Rich – The majority of the relocations from South China to Vietnam are from LLJG (re-processing) operations, which by definition are not investment capital intensive and certainly not to the extent of buying land. It’s a different business environment there than Shanghai or elsewhere in China, and the dynamics and even investment structure regulations are looser. That is now coming home to hurt them. – Chris

  6. Chris Devonshire-Ellis says:

    July 21st, 2011 at 5:46 am

    I may also add that it depends upon what you mean exactly by “moving away”. According to the South China Morning Post today, two large domestic fabric manufacturers in Guangdong went bankrupt this week, with the losses of thousands of jobs. They’re not just moving away, those businesses are never coming back. Relocating would possibly have been a better option, at least tax revenues remain. Something to think about – because those for many are the stark choices – relocate or die. – Chris