China’s Outsourcing

Some of my previous blogs have discussed how the landscape is changing for China manufacturing. With offices in Houston and Shanghai since 2002, Avela Corporation has been on the ground in China and witnessing remarkable change. The average quality of life in China has increased with country’s embrace of capitalism. Chinese manufacturing wages have gone up, and so has Chinese manufacturing quality.

While this is generally good news, also means that in some areas of manufacturing, China is no longer as competitive as it once was. If you are currently manufacturing in China, or you are considering it, this is no reason to panic. Anyone who has been in business for very long is well aware that the business landscape is continually changing. This dynamic is a good thing—it is how opportunities are created!

It is also nothing new. Take, for example, apparel manufacturing, an area that historically has been particularly affected by rising wages. Back when the American Colonies became industrialized, textile manufacturing and cut-and-sew work migrated from Great Britain to New England. Rising wages in the years following the Second World War drove a lot of that work to southern states and eventually it was outsourced overseas. Through it all, the fashion industry has found a way to survive and flourish..

We at Avela are seeing the same pattern repeat as manufacturing areas in southern and eastern China experience higher wages and manufacturing costs: some businesses are moving to low wage areas inland, or offshore. as their wages and manufacturing costs rise. Customers of these businesses may be unaware of the change, however. From the customer’s point of view, quality might drop without explanation, communication may be more difficult and take longer. In extreme cases, a source might simply close or convert to a more profitable product line.

Again, this can happen in any manufacturing transaction, but the language, cultural and distance barriers between Chinese manufacturers and western customers exacerbates the problems. It can be more difficult to see change, like a Chinese manufacturer moving offshore, coming. It can even be hard to figure the manufacturing has moved if your point of contact is trying to mask the news. If the change is unforeseen, it becomes difficult to identify and implement the best “Plan B.”