BBC radio news did an interview last night with the owner of a company out of Houston, Texas, who had moved his manufacturing from China back to the United States. Unfortunately, I tuned in way too late to hear the whole story, but I heard the following (I think):
1. His company pays its US employees $8 an hour. It was paying its China employees 50 cents an hour.
2. He had quality issues in China. He has pretty much zero defects in the United States.
3. His shipping costs from the new US base are considerably less, though he expects costs to run about $2.50 more per piece.
4. His company makes “Chi” brand hair irons.
I was planning to tie this BBC story in to a post today on various “hidden” costs of manufacturing in China and why the decision to go there for manufacturing is not as simple as some seem to believe. Then this morning I came across an excellent post on this same story on an excellent blog I just discovered. The blog is China Manufacturing Blog. It is written by Dan Feldman, a manufacturing expert who works for a Japanese company’s Qingdao operations.
The post is entitled, “Are Manufacturers Heading Home,” [link no longer exists] and its focus is on a recent Wall Street Journal article on the very same Mr. Farouk Shami and his decision to move production back to the US. Feldman quotes Andrew Hupert’s blog, ChinaSolved, on the setting sun for China manufacturing:
Due primarily to the fallout of the global economic crisis, but increasingly due to antagonistic policies between China and the U.S. and China and other foreign nations, Andrew Hupert of ChinaSolved writes, “[t]he sun is setting on China as a manufacturing center.” And if they are fortunate, “China’s millions of unemployed grads are more likely to end up at a workstation in an office building than on a production line in a factory.” Let us not forget that technology, namely the increasing cost effectiveness of industrial automation, also plays a constant role in reducing the size of the manufacturing workforce worldwide.
But Feldman then describes a conversation he recently had with Umesh Tiwari of Utopia Fashion, who set out the following as what his company looks for in determining where to manufacture:
1. raw materials,
2. space for factories,
3. a sizable labor supply,
4. strict governance,
5. political stability,
6. excellent infrastructure and logistics, including a highway system, a railway system, airports, ocean ports, and
7. electricity generation and distribution networks.
“Given these criteria, China still outperforms the Southeast Asian nations, even after the global economic crisis. In response to the crisis, he has pushed the low-end production lines out of China to Vietnam, Malaysia, Bangladesh, and kept the higher-end products for critical customers in China, local to his operation, to control oversight.” Amazingly, just a few weeks ago I had pretty much the same conversation with a client of mine who manufactures massive quantities of mid-to-high end jeans in China and my client said pretty much the exact same things.
Feldman concludes his post with the following questions:
What do you think? Does this story foretell the pulling out of manufacturers from low-cost countries? Or will each individual industry and company find a unique solution? What are your thoughts on the related policies being put forward by both the U.S. and China, or other foreign countries and China?
I too would love to hear your answers. Due to my law firm’s location in the Pacific Northwest and its historical client base, the overwhelming majority of our clients are in technology, medical or other services, or food. I have always assumed our client mix is very different than a firm based in Cleveland or Detroit.
So what is going on out there in manufacturing? Is China really on the way out? I personally think not. Yes, China is getting more expensive and yes China is high-grading, but does anyone really believe China will not be the factory to the world in 10 or 20 years?