Where’s the Next China?
After a decade long offshoring boom, companies are seeking new destinations to optimize their gross profits and asking: Where’s the next China?
The last decade or so witnessed an offshoring boom. At the start of the boom, companies decided to outsource their operations internationally to low-cost countries in order to benefit from the economy of scale and scope offered by vendors, to mitigate technological risks and uncertainty, and to improve their focus on retained core competencies.
China became the first choice for international outsourcing of manufacturing. The country was propelled by the devaluation of its currency, a reduction of tariffs from its entrance into the World Trade Organization, generous tax incentives, cheap industrial land, and low labor rates. By becoming the “hot spot” for international manufacturing, China experienced an influx of foreign capital, which not only simulated its economic growth and development but also eroded its costs advantage over the years. China’s increasingly urban population now has higher expectations in terms of wages and working conditions.
A study conducted by The Boston Consulting Group suggests that it is time to “reassess” China and estimates that for some products, the country’s overall cost advantage could disappear in 2015. Additionally according to The Economist, as wage advantages disappear, firms are discovering the disadvantages of distance. The cost of shipping heavy goods halfway around the world has been rising sharply, and goods spend weeks in transit. The magazine also states that companies have found that manufacturing somewhere cheap and far away but keeping research and development at home can have a negative effect on innovation; a succession of wars and natural disasters in the past decade has highlighted the risk that long supply chains might become disrupted.
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The last decade or so witnessed an offshoring boom. At the start of the boom, companies decided to outsource their operations internationally to low-cost countries in order to benefit from the economy of scale and scope offered by vendors, to mitigate technological risks and uncertainty, and to improve their focus on retained core competencies.
China became the first choice for international outsourcing of manufacturing. The country was propelled by the devaluation of its currency, a reduction of tariffs from its entrance into the World Trade Organization, generous tax incentives, cheap industrial land, and low labor rates. By becoming the “hot spot” for international manufacturing, China experienced an influx of foreign capital, which not only simulated its economic growth and development but also eroded its costs advantage over the years. China’s increasingly urban population now has higher expectations in terms of wages and working conditions.
A study conducted by The Boston Consulting Group suggests that it is time to “reassess” China and estimates that for some products, the country’s overall cost advantage could disappear in 2015. Additionally according to The Economist, as wage advantages disappear, firms are discovering the disadvantages of distance. The cost of shipping heavy goods halfway around the world has been rising sharply, and goods spend weeks in transit. The magazine also states that companies have found that manufacturing somewhere cheap and far away but keeping research and development at home can have a negative effect on innovation; a succession of wars and natural disasters in the past decade has highlighted the risk that long supply chains might become disrupted.
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