Is America’s Gain China’s Loss? | DCR Workforce Blog

Is America’s Gain China’s Loss?

Domestic production appears to be increasing, as output at factories, mines and utilities shows a rise of 0.4%, according to data issued by the Federal Reserve. This bears out the report of the Boston Consulting Group which stated that 37 percent of manufacturers with sales of more than $1 billion and almost half of those with more than $10 billion “plan to or are actively considering bringing back production from China to the U.S.”

America seems to be turning into a low cost destination for manufacturing, while the jobs lost in manufacturing during the height of the outsourcing boom are trickling back to American shores or at least, closer to home from Asian countries. Another way to validate these claims would be to take a look at the status of the Chinese manufacturing industry (not ignoring the fact that it is a major outsourcing destination for American manufacturing but by no means the only one.)

Reasons for China losing US Orders:

Over the years China has become the world’s biggest factory. Almost everything from a spoon to the most sophisticated of electronics items purchased in the USA was stamped with the ubiquitous ‘Made in China’ tag. A study states that between 1990 and 2010, China’s share in global manufacturing exports grew from 1.8% to 14.4%. But, the tide seems to have finally turned and the ‘Made in America’ tag seems to be making its way back on store shelves and households again.

China’s industrial output is slowing, and its economy is also slowing down. Re-shoring and near-shoring (to Latin American countries) of manufacturing orders has gained momentum, while some projects found their way to competitors in other Asian countries. Some of the reasons provided for the loss of outsourced projects from America include:

  • The strengthening of China’s currency against the dollar
  • Availability of low cost natural gas in the US
  • Availability of manpower at lower wages, even as cost of wages paid to Chinese workers multiplied five-fold
  • Concerns with IPR Protection
  • Build-up of huge inventories of manufactured goods
  • Slowdown in demand
  • Lower productivity when compared to US standards
  • Strong competition from lower cost destinations like Vietnam, Indonesia, Thailand and Philippines among others
  • Rise in transportation costs

China’s double digit growth has finally been stalled, and huge inventories of manufactured goods are adding to its woes. A report by HSBC stating that September’s Chinese Purchasing Managers’ Index (PMI) increased 1.2 points to 47.8 was unable to bring cheer as manufacturing has failed to move above 50, and confirmed that it is contracting.

 

A year ago, Goldman Sachs predicted that China will overtake America’s economy by 2027. However, the manufacturing slowdown is a clear stumbling block in its path to growth, and it appears that China has followed the unenviable plan of putting all its eggs in one basket – that of exports. Their vulnerability increases when we consider their one-child policy, which would lead to the senior generations outnumbering the younger ones and becoming dependent upon them, as well as the massive urbanization that has moved most of the workers away from agricultural labor. The world is watching China with bated breath to see how it will manage to navigate its way through this slump.

As of now, they seem to be utilizing their knowledge and expertise in manufacturing to churn out products – and pitching them at highly competitive prices against goods manufactured in the developed world – with or without much concern for things like intellectual property rights. The price-consciousness of consumers in developing countries would provide them with a natural advantage; so it is too early to predict how long the Chinese slump will last, or whether they will be able to regain their previous growth trajectory.


Disclaimer:
The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.