In the last months, an increasing number of articles highlight how some companies are either delocalizing away from China to cheaper countries or relocalizing back to the US or Europe (reshoring). What does this mean for China industrial sourcing?
Articles on China delocalizing or reshoring flourish. For instance:
China increasing cost effect on sourcing
No one can deny that it is harder for Chinese supplier to simply count on a low labor cost strategy and still be profitable for most of the lower end consumer products and sometimes even with mid-range products. This is due to the fact that (1) labor cost are increasing fast at the bottom of the range and (2) most low end product Chinese suppliers run very inefficient operations (lots of scrap and rework, unbalanced inventories, …).
This is why the vast majority of the products being delocalized out of China are in these product segments.
What does this all mean for China industrial sourcing, i.e. industrial equipment and professional electronic products? Will buyer have to reconsider soon?
China industrial sourcing
Fortunately, the story is different here. The real price pressure for industrial parts lays on parts where the raw material share of the total cost is high. Buying simple sheet metal parts or simple machined parts to send them to the West for assembly is getting less attractive than before. The case for buying the parts either back at home or in another low cost country (Eastern Europe, Mexico) is becoming stronger.
But this is another story when you talk about more complex, assembled sub-systems or systems. There, the room for efficiency and the cost advantage of Chinese supplier is still at full strength. The main reason is that there are many more parameters on which a supplier can work to keep costs down. It is also because the work involves more skilled people (workers, technical people, designers and engineers). In all these areas, China still has a cost advantage as well as a pool of ALL these resources together as only a few competing country can offer.
I am not the only one to say that. Other people are also starting to say that China cannot be seen as a uniform manufacturing environment. For instance, Steve Hall from Procurement Leaders gives several “Reasons why sourcing from China isn’t going to change.”.
China still has a lot to offer for those who know where to look for.