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OM in the News: China Losing Edge as World’s Factory Floor

January 22, 2013
Chinese manufacturer

Chinese manufacturer

China is losing its competitive edge as a low-cost manufacturing base, suggests The Wall Street Journal (Jan.17, 2013), with makers of everything from handbags to shirts to basic electronic components relocating to cheaper locales like Southeast Asia. The shift—illustrated in weakened foreign investment in China—has pluses and minuses for an economy’s global growth. Beijing wants to shift to higher-value production and to see incomes rise. But a de-emphasis on manufacturing puts pressure on leaders to make sure other jobs are created. The shift is the result of a long-term trend of rising wages and other costs that have made China less attractive, especially for basic manufacturing.

Foreign capital helped build China into a low-cost manufacturing powerhouse and global growth engine. But its increasingly urban population now has higher expectations in terms of wages and working conditions and louder objections to the pollution that often comes with low-level manufacturing—demands that have eroded China’s cost advantage.   “We know we can’t keep relying on a low-cost competitive advantage. We need to accelerate the value-added upgrading of our products,” says the Commerce Ministry spokesman. “You couldn’t say we are happy to see this development.”

For China’s neighbors, the trend means more opportunities. Southeast Asian nations, which claimed 2% of global foreign investment in  1997, now account for about 7.6%.

Not all of the shift out of China involves low-end industries such as garment-making. Wintek Corp., with about 50,000 workers globally that makes smartphone components for companies including Apple, just said it will invest $930 million in four new plants in Vietnam to make displays and touch screens.

Discussion questions:

1. What are the advantages and disadvantages to this shift  for the U.S.?

2. What are the operations issues arising to companies that relocate manufacturing to other S.E Asian countries?

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Supply Chain Management Research

Andreas Wieland’s supply chain management blog for academics and managers

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