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Category: Manufacturing

Supply Chain News: Is the End of "Made in China" Truly on the Horizon?

 

Reports that Apple and Foxconn Again Looking at US Production, but How Much More will the US Consumer be willing to Pay for Goods?

Nov. 29, 2016
SCDigest Editorial Staff

Do a Google search on "the end of made in China," and you will a number of web articles going back several years.

So the idea that Chinese manufacturing will wither as not a new one, but has gained new currency with the election of Donald Trump as US president, combine with general trends that do seem to indicate China's export might is weakening.

Supply Chain Digest Says...

It seems clear the era of extreme Chinese manufacturing dominance is waning, and will be reflected in the numbers soon enough.


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The Nikkei Asian Review is reporting this week on new rumors that Hon Hai Precision Industry, the parent company of the more widely recognized contract manufacture Foxconn, may indeed be moving much of the assembly work it does for Apple - and which made it famous and at the same time infamous after reported workplace issues - from China to the US. It said that move is in part the result of a request to make the switch that Apple made to its supplier over the summer.

In fact, due to the rising labor costs, Hon Hai and Apple have already reduced their dependence on China a bit and expanded into countries like Brazil and India.

Nikkei Asian Review also wrote that "Previous rumors about a production transfer to the US were based on similar lines, but never actually materialized because producing in the US would have been too costly. Trump's proposed duties on Chinese goods, however, make the idea seem a lot more realistic."

As evidence of China's perhaps manufacturing decline, one Chinese reporter noted last year that of seven items of sportswear the he bought in the US, including brands like Nike and Adidas, only one was made in China. The others were made in Vietnam, Indonesia, Egypt, Bangladesh or Thailand.

The story also claimed electronics companies such Panasonic and Samsung Electronics were intent on leaving China, apparently with some degree of urgency.

Overall, Chinese exports are expected to fall in 2016 for the second straight year, though as usual reliable data is hard to come by. But that slump of course came after China became the "factory to the world" throughout the first decade of the 2000s, when export were rising about 10% annually.

But one key question not much looked at in the debate about "made in America" is what the cost of products would be if they were produced in the US instead of some low cost country - from Vietnam to Mexico - even if the source isn't China. Certainly, these countries didn't come under the term "low cost" for no reason.

An organization called Marketplace recently did an analysis on what certain goods would cost if made in the US versus offshore, including from China. While it is not an exact science - there are many variables, such as how much automation would be used in US production - the numbers are interesting:

• The retail price of an Apple iPhone 7 Plus could nearly double, to almost $2000, if made here versus China. A different analysis published in the MIT Technology Review, however, found that if iPhone assembly were assebled in the US but the components were still sourced globally, the cost of making phones (currently estimated at about $230) would rise about 5%. However, if the components were made in the US (with raw materials bought on the global market), that would add an additional $30 or $40 to the cost of making the device, an increase that would then be reflected in retail markups of around $100.

• JCrew's Wallace & Barnes raw indigo selvedge jeans, which is constructed in the US using denim from Japan's Nihon Menu mill, are listed at $248. Its other raw selvedge pairs for men that are made offshore cost $175.

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• A 42-inch, ultra-high-definition smart TV from Element Electronics, made in South Carolina, was recently selling for $329 at Target, comparable to the price of a similar Westinghouse model ($299, marked down from $449).

• New Balance athletic shoes start at a price of $65 , but the American-made pairs start at $165, a significant premium.

• A 330-watt solar mono panel from Canadian Solar, which manufactures most of its panels in China and Vietnam, currently costs about 69 cents per watt. SolarWorld, one of the biggest domestic solar panel makers, sells a similar 300-watt mono panel for 85 cents per watt. Considering the typical home uses 7,000 watts of solar power that difference translates into a price difference of $1,120.


Chinese Making Manufacturing Investments Abroad

While there are many variables in play, it seems clear Chinese companies are hedging their bets by making investments in manufacturing companies outside of China.

The value of Chinese company investments outside of China reached $1 trillion in 2015, up from just $57 billion a decade ago. Some analysts expect it to double by 2020. In just the U.S., already Chinese companies have invested an estimated $64 billion and employ 100,000 people.

The chart below shows the overall growth in Chinese investment in the US in recent years, and while it includes all categories such as real estate and energy, manufacturing represents a significant part of the total, such as Haier's acquisition of GE's appliances business earlier this year for $5.4 billion.



However, those investments have sometimes been blocked in the US and in Europe, and as SCDigest reported earlier this year, many Chinese companies have struggled culturally with their new US operations (see Chinese Manufacturers Struggle with US Operations, as Culture Clashes often Ensue).

Our Take: It seems clear the era of extreme Chinese manufacturing dominance is waning, and will be reflected in the numbers soon enough. Does that mean production will flood back to the US? No, and even a Trump tariff on Chinese imports could simply move the volumes to other low cost countries. That said, China's supply base give it a great advantage over just about every other country, and is an often overlooked barrier to a resurgence of Made in America. But regional manufacturing strategies will help US domestic production a bit.

Do you see Chinese manufacturing dominance fading? Why or why not? Will the US consumer pay more? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

Harry Moser

President, Reshoring Initiative
Posted on: Dec, 02 2016
Reshoring and FDI have grown rapidly in the last 6 years. 60% of reshoring is from China. Reasons: Chinese wages rising so fast and companies recognizing the costs and risks of offshoring. Consumer preference surveys say consumers will pay more for products for which quality or safety is important.
 
 

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