Still thinking about it? Or already on the way to mainland China? Well, we’ve got news for you. The road to Guangzhou, Shanghai or Beijing is newly paved with some serious obstacles. For now, they are just rhetorical, political or moral. And they are, mostly, emanating from the U.S. Congress, which is under heavy pressure from its constituencies facing unending job losses and rising unemployment in the manufacturing sector: stop the price-wise unbeatable Chinese export machine in its tracks. Right now.
All this doesn’t sound good in the run-up to next year’s election, in which George Bush might be exposed to economic calamities as well. But the warning voices against unfettered domestic access for Chinese exporters are also coming from Mexican president Vicente Fox. He too has to stomach a heavy losses among the formerly cure-all Maquiladora assembly plants lining his northern border just opposite New Mexico. And protest comes from Europe, actually from the Italian foreign minister for the impending loss of luxury textile industries around Como to the onslaught of Chinese weavings.
EU exports in general, though, revolve around high-grade industrial and consumer goods, automotive and aerospace, where indigenous Chinese manufacturers still can’t compete. The EU’s trade deficit with China stands at $10bn, whereas the consumption-heavy U.S. racks up more than $50bn.
So no wonder attitudes towards China have been shifting over the last couple of months – especially in the U.S. “Alarm and allure” is the new word, still balancing risk and reward. “Threat to Silicon Valley” is the next higher alert demanding action. First of all: revaluate the too cheap Chinese Yuan against the Dollar. Lower customs duties in accordance with the WTO. Cut red tape and opaque bureaucracies. And so it goes, a litany of formerly-unheard complaints.
The tech analysts are already out on the trail. Consider not just labor cost, warned management consultant Pamela Gordon of Technology Forecasters Inc. at a recent electronics manufacturing seminar: “OEMs have moved manufacturing out of China and into Thailand, Australia, Mexico, Eastern Europe and even back into the U.S.”, she said. “Several EMS clients have asked us to investigate regions other than China, realizing that China is not a good fit to their customers’ product type”.
Sudden, surprising insights? But in regard to relocating production sites the focus now is on “landed costs” – factoring in transportation across the high seas by plane or boat. Good. But, there is renewed concern as more of the world is turning into a rougher spot: oil prices are rising, and transport capacity is getting scarce, threatening supply-chain interruptions. There are other worries as well. Since their “Third Plenum” in October, Chinese party leaders are set to address social unrest outside the high-rise coastal zones and environmental mitigation, especially in the over-developed Pearl River Delta. This would add to cost and create regulation – adverse to the rules of the free market.
Geographically diversified portfolios of manufacturing assets is what Stefan Jockusch of Siemens Dematic EAS recently argued for on Circuitnet.com web presence. “Developing and implementing a true global strategy is far more important for the long haul than any short-term benefits”. Close, and dual, sourcing, proximity to markets and consistent manufacturing platforms throughout, he says, are the keys to success. Long-haul strategies, there you have it. Hedging the concerns of exchange are rate risks, political instability, terrorism, diseases (think of SARS) and legal interference.
And, don’t overlook the advice from the financial community – always ahead on the path to prosperity, but at the same token short-term. At this point, return on investment is much higher in India, with its stock market booming. There you have it: the next move, says market researcher iSuppli, is just waiting around the corner. Werner Schulz
EPP EUROPE 410
