#358. Have You Heard? Reports of the Death of U.S. Manufacturing are Greatly Exaggeration – ConclusionPosted on
Have You Heard? Reports of the Death of U.S. Manufacturing are Greatly Exaggerated – Conclusion
The past two weeks we have discussed reasons why it may no longer be cost effective to manufacture products in China for export to the United States. We will conclude this series by looking at the alternatives to China.
There are other low-cost countries that companies may look to for sourcing opportunities. Thailand, Vietnam, Indonesia and Cambodia offer a cheaper labor alternative to China, and there has already been significant transfer of work in apparel, footwear, sporting goods, and other labor-intensive products to South and Southeast Asia.
But these and other low-cost nations will not be able to absorb all the export manufacturing that is likely to leave China. A simple reason is that there is no replacement for China’s labor force. China not only has the world’s largest population (1.34 billion), it also has the highest proportion of able-bodied adults in the workforce (84 percent). China has an estimated 215 million industrial jobs, approximately 58 percent more than the industrial workforce of all of Southeast Asia and India combined.
Mexico, on the other hand, has the potential to be a big winner when it comes to supplying North America. It has the enormous advantage of bordering the U.S., which means that goods can reach much of the country in a day or two, as opposed to at least 21 days by ship from China. Mexico’s gains will be limited, however, especially in higher-value work now done in China. Because of concerns over personal safety, skill shortages, and poor infrastructure, many companies will keep manufacturing high-end products in the U.S.
China will continue to be a major low-cost export base for Western Europe, even though the wage gap will narrow significantly. The shifting cost structure between China and the U.S. will present more manufacturing and sourcing choices. For many products that have a high labor content and are destined for Asian markets, manufacturing in China will still make sense because of technological leadership or economies of scale. But China should no longer be treated as the default option.