Many manufacturers are leaving China for potentially cheaper locations such as Indonesia or Vietnam – but there are alternatives to being driven out by high labour costs.
"The most talented can almost write their own cheques," says Technetix CEO Paul Broadhurst. Many manufacturers are leaving China for potentially cheaper locations such as Indonesia or Vietnam – but there are alternatives to being driven out by high labour costs. Here are three of them.
Mounting labour costs are prompting some to shift their manufacturing operations away from China. But some companies are using alternative strategies to hang on to the successful production outfits they've built.
1. Don't ship out – diversify
One alternative to the potentially drastic and costly decision to shift production is to consider changing the end product, rather than your location.
That was part of the thinking behind fashion giant Luen Thai's purchase of Desktop, which manufactures luxury bags and computer bags.
Around 70% of the company's garment production is in China, but soaring labour costs are of concern to CEO Henry Tan.
"In the garment business, I have to compete with lower-cost Bangladeshi factories," Tan explains.
"The accessory business is less competitive – our competitors there are all in China, so we just need to do a better job than them."
2. Don't ship out – streamline
"We pay three times the minimum wage at the moment," says Paul Broadhurst of technology firm Technetix, "and the most talented can almost write their own cheques."
But the UK-based firm, which designs and sells residential broadband telecoms network solutions, has no plans to quit China, where it has been manufacturing for nearly two decades: "The resources and skills in China for what we do are now second to none in the world."
The solution for Technetix is to get more from less. "We've recruited an executive from the automotive industry who is an expert in lean manufacturing to rebuild forgotten skills we had when we were manufacturing in Europe," says Broadhurst.
"We're now training up our Chinese operations in this, with a view to getting to the same efficiency levels of high labour cost countries."
3. Don't ship out – assemble elsewhere
Arkus and Romet Group, Poland's biggest producer of bicycles, scooters and motorcycles, saw costs go up by 15% in the space of a year. The company's response has been a change of strategy, according to Director Bodgan Brzuszek.
"An average Chinese wage of $300 a month might not seem much," says Brzuszek, "but the minimum wage in Poland is only $500."
Then there is the cost of shipping. "We can fit 70 finished scooters in a container, and pay $3,500 to ship it. Or we could fit ten times the amount of components."
So Arkus and Romet source components in China, but ship them back to factories in Ukraine and Poland for assembly.
An added advantage is speedy customer service. "If a German customer has a problem with his scooter, we can service it in one day," says Brzuszek. "A Chinese manufacturer cannot."
Editor's Note: This article was originally published by HSBC Global Connection, here, and is licenced as Public Domain under Creative Commons. See Creative Commons - Attribution Licence.