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Are Rising Manufacturing Costs In China A Threat To YourBusiness?
Are Rising Manufacturing Costs In China A Threat To Your Business?">
If you're a manufacturing business are rising manufacturing costs in China a threat to you?
The manufacturing landscape in China is slowly but surely changing, and the only way to survive is to evolve.
But how is your business affected by rising manufacturing costs, and what can you do to combat them?
Keep reading as Oxygen 2.0 explores in this blog...
Rising Manufacturing Costs In China Are A Reality
China's entire economy has been built on a foundation of exports, and as a manufacturer you're one piece of thatlarge and successful puzzle.
As we reach 2015 though, things aren't looking quite as rosy as they used to for China's once seemingly invincibleeconomy.
Many things have increased the cost of manufacturing in China, most especially:
Increasing labour costs
The rising value of the RMB against other global currencies
High prices to house operations in coastal areas (such as Guangdong and Shanghai)
higher cost of shipping from China
The 2011-2015 five year plan from the Chinese government stipulates an average increase of 13% year-on-yearto employee salaries, and it is the government's plan to increase domestic consumption to ease China's relianceon exports by putting more money in ordinary people's hands so they have a greater spending power.
The fact that Chinese products and manufacturing are becoming more expensive to foreign companies or buyersis also a problem, as suddenly your products don't seem to be such an attractive proposition for them.
Where costs increase in China, we see lower costs in other competing companies such as Vietnam, ThePhilippines, Mexico, or India. This compounds the issue for Chinese manufacturers who are duty-bound toincrease wage costs, as in The Philippines and Mexico for instance, these rose by 8% and 1% accordinglyagainst an average of around 13% in China (Source: The Economist).
Back in 2012, AlixPartners, a consultancy, suggested:
"If China's currency and shipping costs were to rise by 5% annually and wages were to go up by30% a year, by 2015 it would be just as cheap to make things in North America as to make them in
China and ship them there." (Source: AlixPartners)
Of course, we know that rising manufacturing costs in Chinahaven't reached those lofty heights just yet, but it is a soberingthought for manufacturers here. What happens if costs do keeprising? At which point do we cease to be of interest as asupplier for foreign customers?
What may be great for China's economy as a whole may notbe so good for your business however, so what are youroptions?
Evolve To Stay Competitive
While costs may have increased, the fact is that now we're herein 2015 the doomsday scenario as suggested above has notcome to pass. We're still very competitive and attractive foroverseas buyers, such as those from the USA.
However, passively relying on the 'low cost' of your goods to see your business through is a flawed strategy asthis strength continues to be eroded.
Also, you're more than just a manufacturer of cheap goods, right?
So to evolve you need to start to position yourself differently.
If you're providing OEM consumer products which are then branded for someone else, how about creating yourown brand? Brands offer:
Greater recognition and desirability
Higher prices can be demanded
Brand equity, where customers want only your brand
If Xiaomi, a virtual unknown globally a few years ago, can do it, then why not your business?
Even if you're not producing consumer goods, there are things you can do to increase the reputation of yourbusiness and demonstrate that despite having higher costs than competing companies in, say, Vietnam, youcontinue to be the best option.
China and you have the pedigree to make the best quality and deliver it
Other lower cost countries don't have the infrastructure to deliver the best products
You have the expertise in your field, can prove it, and so are worth more
But how do you position yourself as an industry-leading brand who can be trusted?
Speak your possible customers' language.
Producing high-quality free content, such as blogs, reports, and Ebooks will go a long way to cementing you as amanufacturer who can be trusted and who should demand higher prices. After all, an expert's time is money. Thesame could be said for an expert manufacturer who knows their industry inside-out and understands exactly whattheir customers require's products too.
You can bet that India, Vietnam, The Philippines, etc aren't going to be doing this, but in a country like China
where there is half a century of experience, you need to demonstrate that and can by telling the world in English.
Also learning where more customers are to be found is important.
Is resting on your laurels and not finding new overseas business because you 'already have clients' a goodstrategy? No! They may disappear one day, so then what?
But simply using Alibaba and waiting for new clients to find you passively isn't enough. Creating a great Englishwebsite, regular content, and sharing in Western channels such as LinkedIn and YouTube is one way to getnoticed more than Chinese (or other region) competitors who probably won't be doing it for the same reasons thatyou aren't yet: Lack of English capability and lack of knowledge about Western internet.
Your Turn...
We know that costs are rising for Chinese manufacturers.
Despite still being competitive enough to be attractive for overseas clients, the increasing costs and competitionfrom other 'cheaper' countries are putting the squeeze on your operations.
Basically putting yourself out there and getting known globally in a way that other companies here aren't is animportant way to evolve and combat rising manufacturing costs in China by getting more business to compensate!
But becoming a global brand, creating and English website, and publishing expert English content to attract newforeign sales is not easy for most Chinese manufacturers.
That's where Oxygen 2.0 come in.
It's our mission to help manufacturers become brands! Click below and get started on your journey to becoming abrand by getting a free website, branding, and marketing assessment where we'll examine your site and sendyou a FREE report followed up by a phone or Skype call if you'd like to discuss it.
By using this free advice you can learn how best to get started on marketing yourself as a brand and improveoverseas sales:
Posted by Adrian Leighton on Fri 27 Mar, 2015
Adrian has been in China for 7 years! He is experienced in all things inbound marketing, socialmedia, blogging, and SEO. When at play he enjoys weight-training, reading, watching TV shows withhis wife, and baking!
