We only have to look at the back of your new TV or on your child’s pair of pyjama’s and you will see the undeniable “Made in China” stamped on the label. Over the past 10 years we have come to expect that a large proportion of our goods are manufactured in China.

Why? Because the production costs and labour force in China are one of the cheapest in the world.

However, since 2011, when the current Five-Year Plan came into effect, wages have risen in 16 of the 31 provinces in China, according to data in CBX Software’s Q2 Retail Sourcing Report, and the average wage in China was expected to increase by around 10% in 2015.

Gone are the days when you could look at the minimum monthly wage in China and see it as one of the lowest. It now ranges from approx US$137-639. Other countries such as Vietnam ($101-142) and Indonesia ($71-230) are definitely more competitive. Here in NZ our average minimum monthly wage is US$1627

So how does this affect the western world?

If labour costs increase then obviously manufacturing costs rise which in turn can lead to:

1. High volume manufacturers look for alternative sourcing destinations
2. Manufacturers continue to support China but look to different provinces with lower minimum wage
3. Consumer prices increase
4. Low manufacturing cost no longer out weigh negatives of high MOQ, long lead time, inflexibility of product change and manufacturers bring production back offshore.

Many factory owners are moving production away from the coast to the west of China in search of low skilled labour and lower production costs. Others have migrated from China to Vietnam as production costs in that nation are estimated to be third of China’s. This makes a huge difference to the bottom line for many companies and that is why we are seeing a move in production for some of the large sports companies who are now using Vietnam as the preferred sourcing destination.

As a manufacturing company based in NZ we value our Chinese partnerships greatly and have built these up over a number of years. We visit China regularly and have Chinese speaking staff who deal directly with the factories in China on a day to day basis. However, over the past few years we have definitely seen an increase in price and it is our belief that in the next 10 years the Chinese market will not be as attractive to some companies as it is now.

At Fero, we try to take an agnostic view on behalf of our customers, looking at their production flexibility and budget before suggesting a supply chain solution that combines on shore and offshore sourcing. Along with many companies we’re investigating the options outside China too and will report on this in coming months.

^{Source: joc.com}