How do I get my manufacturing out of China?

How do I get my manufacturing out of China?

The answer is easy and you might be surprised to know China is probably expecting it.

Earlier this year, Chinese President Xi Jinping made a head of state visit to Ms. Park Geun-hye the president of the Republic of Korea.  It was a bold move because let’s be honest, China and South Korea haven’t exactly been BFFs for quite sometime now.  This little thing called the Korean Conflict made things about as uncomfortable as running into your ex at a party with their new spouse.

From this visit, there was a lot of buzz in the media about regional security pacts, but from where I stand, the focus of their time together was largely economic.  Mr Xi is an intelligent man and recognizes the huge trade potential with his local Korean counterpart.  Clearley he has been reading this blog because he has a pretty strong understanding of the benefits to local sourcing.  It is also possible this is in response shifting tides 8,000 miles across the pacific where US imports from China are slowing relative to domestic growth.  China is clearly aware their competitive advantage in labor cost is slipping.  If they didn't find it to be such a great concern, they wouldn't have taken legislative action last year to fix minimum wage growth to 13% per year for the next three years because for the the past five it was hovering somewhere around 19%.  What better way to recover some of that competitive advantage than to increase trade with regional partners where shipping costs become less of an issue?  In their final sessions together during the visit, both leaders said they are working to hash out a free trade agreement by the end of the year.  So don’t feel bad, China is fully anticipating your departure.

Despite the major economic changes over the past half decade, China still has momentum in the manufacturing sector, namely companies that are capable of turn-key production and more robust supply chain infrastructure.  But those things are changing too.  It used to be difficult to take a complicated product to a manufacturer in North America and ask them to return to you a fully functioning product in commercial or retail packaging, ready to ship to a customer.  And it used to be that you could find some great local machine shops, a highly competent plastic molder and an electronics company all in town.  But you would have to source components from each of them and still order motors from China just so that you could assemble your widget at some separate facility.  That is all changing.  Manufacturers in North America are diversifying their capabilities and forming alliances with other complementary capabilities to provide more turn key services.  Your Local Connection has found numerous suppliers in and around Denver and Norther Colorado who are accepting projects outside their traditional scope to accommodate the needs of their customers.  One such company is Wytan in Golden, who until recently produced only printed circuit boards.  Over the course of the last year, they have invested heavily in tools and equipment to offer a more broad spectrum of electronics assembly.  The other challenge is identifying higher tier suppliers.  It used to be that if you needed cheap motors, you would have to look to China.  Growth in major sectors such as narrow body aviation, new and clean tech have driven costs down for these types of previously un-sourcable component parts.

Lastly, it isn't as expensive as you might think.  If you already have tools developed in China, your capital costs are sunk.  You may fight some reluctance from your suppliers, but it is possible to move capital assets that are already yours.  Often times the savings you will achieve by lowering your order quantities and reducing working capital turns easily offset the cost of the move.

So making the move is far from impossible.  It will require some effort, but it’s certainly feasible to make it happen.