Is China still cheap to manufacture?
With the impact of borderless e-commerce adding to the pressure on local retailers, the Australian market is increasingly competitive. Ever-lower prices at the retail level make you wonder whether manufacturing prices in China are also getting cheaper or whether retail margins here are plummeting.
China Blueprint’s view is that traditional import markets, such as clothing and furniture, have long been highly competitive but are now getting increasingly hard for new entrants at home. This is not due to a lack of availability in China, but from increased competition in the local market.
We frequently hear of rising labour costs in Chinese coastal centres of manufacturing, but what goods and services represent good value?
At the top of the list would have to be manufacturing services such as mould making, sample development and product testing. These are crucial to the production of high quality goods and China’s expertise in this area is only increasing as it moves up the manufacturing value chain.
These services enhance the production process and excellent value can still be found in plastics, paper products, handicrafts, products made from raw materials such as stone, electrical goods, fast-moving consumer items and most metal-related products, such as fencing and poles.
Bunnings Warehouse is the perfect place to consider reduced margin. The stores have an incredibly wide range of products – from fairy lights to fences to furniture – for sale at unbelievably low prices. How do they do it?
They buy in bulk and it is this economy of scale that makes it harder for anyone else – particularly new entrants – to get decent margins on anything.
The sheer volume of the stuff produced in China these days has reduced items such as bags, clothes, shoes, televisions and toilets to commodities that are very difficult to make a margin on unless they’re bought in huge quantities. Importing these products is the land of the giants.
You get what you pay for
Because China is so vast and the options available so many and varied, it is very risky for China Blueprint to generalise on value in manufacturing and importing so we’ll stick to some old-fashioned advice: you get what you pay for.
China has morphed from a largely agrarian economy to a manufacturing behemoth in little over 30 years. It is moving into it’s next cycle of manufacturing and this means prices are going up – people have higher lifestyle expectations and their productivity has increased. China will begin to produce more sophisticated, value-added goods.
Unless you’re a Bunnings wannabe, the price of production is not always the only consideration. Price depends on what your brand is about.