CSCMP's Supply Chain Quarterly
October 22, 2018
Forward Thinking

China no longer the place for low-cost sourcing

With Chinese labor costs rising fast, manufacturers must act now to control costs for products sourced in Asia, says the CEO of one procurement consulting firm.

"The Golden Age of inexpensive sourcing" from The People's Republic of China is over, asserts Robin Jackson, CEO of the London-based procurement consulting firm ADR International. Costs for manufacturing in that country are rising due in part to a wave of strikes that resulted in manufacturers paying higher wages. According to Jackson, one parts supplier to Honda settled its labor dispute by granting a 47-percent wage increase to its workers.

"As China continues to grow rapidly, there is no longer a surplus of labor, and it is no longer cheap," Jackson wrote in his company's monthly newsletter. "Recent studies have shown that the migration of labor from the farms of inland China to the coastal factories has slowed to a trickle and that Chinese workers are now demanding a higher share of the economic growth through high wage–increase demands."

Jackson recommends that companies consider sourcing from other countries, like Vietnam. Another option is to immediately begin working with existing Chinese suppliers to find ways to restrain costs.

In addition to higher product costs, the price of freight transportation from China to Europe and North America has also risen as ocean and air carriers reduced capacity during the worldwide recession. Because the greatest pressure for price hikes may still be a year or two away, companies would be wise to negotiate transportation contracts for a period of three years or longer, said David McClimon, chief operating officer for ADR North America, in comments on the article.

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