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China is the Next China… This is a Recording

THE SOURCE CODE BLOG

November or Movember if you will, marks the start of the new annual production cycle in China. That’s because the year’s Christmas orders have long shipped (August/September) and customers looking for their materials to ship before the start of the new calendar year have to have placed their PO’s by no later than mind-November.

As such, I thought this would be an appropriate time to look at the bigger picture of the past few years and what 2013 could have in store. 

We’ll start by recapping the prevailing mindset of the typical buyer:

  • 2010 - Crap, China’s becoming a little more expensive… that means factories will leave. OMG what do we do?? I know, we need to find the next China. Fast, like now!
  • 2011 - Man, China’s more expensive than last year but factories aren’t leaving, I’m confused? Oh well, glad we were proactive last year and found another manufacturing opportunity in Asia.
  • 2012 - Damn, costs are still rising in China but I had no idea how hard it would be to set up production in another country! I’m nowhere close to being production ready. Plus the new country I’ve chosen can only fulfill part of what I was buying in China. Guess I’ll keep looking for other country’s who can produce the remaining part of my supply.    

Potential typical buyer outlook for 2013:

  • Incredible… costs continue to rise! But now I’m getting the lay of the land. Factories are indeed moving but they're not moving out of China, they're moving more inland to the west part of the country. Also I’m continuing to be plagued by production issues, communication problems and inconsistent samples from my suppliers in other countries. I see now… China is the next China.   

What’s coming next:

It’s worth pointing out when labor rates do have an impact on the final product price. It’s because production of that good is complex and the labor is warranted. 

Consequently a solution to watch for will be supplier’s use of automation. This is a direct way they can combat rising labor costs as well as improve efficiency of production. No longer will the mentality of “throw another body at it” work for production issues. Luckily for buyers this shift has already started to take hold and as costs continue to ascend look for more and more manufacturers to invest in automation.

I should point out increased production efficiencies alone will not completely make up for rising labor costs, living costs, changing exchange rate, etc. Therefore look for prices to continue to rise in 2013, but hopefully at a slower rate as more automation is introduced and factories move inland.       

Back in 2010 people were right to sense a shift taking place. Though, production didn’t swing to Thailand, Vietnam, Cambodia or Mexico. What people are figuring out, there’s still no viable alternative for buyers wanting to replace the vast quantity and variety of products they currently pull from China. As a signal to cement the shift, the big boys HP, Samsung, Apple, didn’t end up leaving China as it was widely speculated. Instead they reinvested in cheaper cities in the interior of the country. After all it’s a lot easier for factory management to direct people who speak a faintly different dialect than it is to learn Cambodian. 

That’s it for today. Stay tuned for the next weeks post.

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(For more than 10 years, GCP Industrial Products has successfully offered its customers a unique sourcing process that allows them to save money, streamline their supply chain and grow with new products. Our plans are to continue to grow based upon mutually beneficial relationships and the quality of our products and services to our ever growing customer base. To contact us please click here or phone 1-888-893-5427. Thank you.)