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Foreign firms eye China's home market
April 20, 2010, Tuesday
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HAVING served the world as a manufacturing base for decades, is China still competitive for manufacturers?
Despite many problems, experts say there's much that's working in China's favor. Costs are still low and the skills level is high.
The pent-up demand of a potentially huge domestic market combined with improving IT, infrastructure and regulatory regimes all put China well ahead of other low-cost countries.
While the recent announcement of China's first trade deficit since 2004 makes it unlikely that the yuan will be allowed to appreciate against the US dollar by much soon, March's US$7.24 billion deficit is also a sign of the fast expansion of China's domestic market.
China's burgeoning domestic market is indeed an important allure for many firms, according to the latest China Manufacturing Competitiveness Study published by the American Chamber of Commerce (AmCham) and management consultants at Booz & Co.
More than 80 percent of 202 manufacturers surveyed said their primary motive for being in China is to provide products for the Chinese marketplace, up from 71 percent two years ago.
While booming local markets are key, there are other reasons for China's appeal, including political stability.
The stable currency has also been helpful, adding an element of predictability to budgeting and keeping costs down.
Two years ago, the AmCham study found that the rising yuan was the most serious worry for the companies surveyed, but since then government policy has calmed those fears.
Cluster effect
Lian Hoon Lim, partner and manufacturing expert at AT Kearney consultants, says companies are benefiting from what he calls "the cluster effect."
The big three clusters in China are the Yangtze River Delta region around Shanghai, the Pearl River Delta region running from Hong Kong to Guangzhou, Guangdong Province, and the region around Beijing and its neighbor Tianjin.
In these areas companies have access to a "skilled labor, an experienced local managerial workforce, material and component supply, and good infrastructure," says Lim.
"If you took those four factors and looked at the countries in Asia, including in the subcontinent, you would find that quite a lot of them lack one or more of these four points."
The AmCham study found that in 2009, the costs of labor and logistics as well as labor availability were viewed as less competitive in China than they were than two years ago.
Yet 28 percent of the companies surveyed last year said they plan to move or expand within China in the next five years, compared to 17 percent in 2008. Cities in southwest and central China, such as Chongqing, Chengdu, Wuhan and Zhengzhou, are among the new destinations cited.
(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. All rights reserved. Shanghai Daily condensed the article.)
Despite many problems, experts say there's much that's working in China's favor. Costs are still low and the skills level is high.
The pent-up demand of a potentially huge domestic market combined with improving IT, infrastructure and regulatory regimes all put China well ahead of other low-cost countries.
While the recent announcement of China's first trade deficit since 2004 makes it unlikely that the yuan will be allowed to appreciate against the US dollar by much soon, March's US$7.24 billion deficit is also a sign of the fast expansion of China's domestic market.
China's burgeoning domestic market is indeed an important allure for many firms, according to the latest China Manufacturing Competitiveness Study published by the American Chamber of Commerce (AmCham) and management consultants at Booz & Co.
More than 80 percent of 202 manufacturers surveyed said their primary motive for being in China is to provide products for the Chinese marketplace, up from 71 percent two years ago.
While booming local markets are key, there are other reasons for China's appeal, including political stability.
The stable currency has also been helpful, adding an element of predictability to budgeting and keeping costs down.
Two years ago, the AmCham study found that the rising yuan was the most serious worry for the companies surveyed, but since then government policy has calmed those fears.
Cluster effect
Lian Hoon Lim, partner and manufacturing expert at AT Kearney consultants, says companies are benefiting from what he calls "the cluster effect."
The big three clusters in China are the Yangtze River Delta region around Shanghai, the Pearl River Delta region running from Hong Kong to Guangzhou, Guangdong Province, and the region around Beijing and its neighbor Tianjin.
In these areas companies have access to a "skilled labor, an experienced local managerial workforce, material and component supply, and good infrastructure," says Lim.
"If you took those four factors and looked at the countries in Asia, including in the subcontinent, you would find that quite a lot of them lack one or more of these four points."
The AmCham study found that in 2009, the costs of labor and logistics as well as labor availability were viewed as less competitive in China than they were than two years ago.
Yet 28 percent of the companies surveyed last year said they plan to move or expand within China in the next five years, compared to 17 percent in 2008. Cities in southwest and central China, such as Chongqing, Chengdu, Wuhan and Zhengzhou, are among the new destinations cited.
(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. All rights reserved. Shanghai Daily condensed the article.)
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