A study by Pepperdine University tells an interesting story about the coming end of the 'Made in China' era. Some of the key findings have been condensed into an infographic that reveals the reasons why China is losing its economic edge. Increasing wages, higher production costs, strengthening currency, and ever-present overseas shipping expenses are all working against China's efforts to maintain its position as preferred provider of materials and products.
The Pepperdine infographic has been out for one year, during which time things have continued to slide for China. GDP growth, for example, is at its weakest point since 2009. It seems as though the pendulum is swinging back in favor of American suppliers and manufacturers, and much of the pressure for this change is coming directly from buyers. Charis Atwood, Director of FF&E at TynanGroup, Inc., explains, "Recently, several of our clients have asked us to purchase specifically from US-based FF&E vendors. We are happy to comply with this request for several reasons: Orders can often be fulfilled sooner, we can resolve issues more easily with local suppliers, customs is not an issue, and the cost is still competitive once you add in shipping and travel expenses for overseas FF&E."
In the past, even with overseas shipping costs, the Chinese alternative has traditionally offered a 25% to 30% price advantage. Because that advantage is almost gone now, shipping costs and long-distance logistical concerns have become the deal-breaker for many buyers. Dan Boaz, Founder and President of Airfreight.com, has predicted this shift back to US production. "From a shipping and transportation standpoint, when US companies start to bring back their product and material orders from China, and source them domestically, they will streamline their logistics profile tremendously. No international borders to cross, no interruptions, no inspections, no losing critical windows of opportunity," observes Boaz. "What this really means is more control, less cost, and a shorter time to market with every delivery."
Buyers have experienced other challenges in dealing with China over the years that, because of low prices, have been overlooked. Scott Jost is VP of Innovation and Design at Berlin Packaging, a $1.4B company. Jost has witnessed a general dissatisfaction of some of his clients, that runs fairly deep. "Beyond the frequently-cited issues of language barriers and time offsets, there are others that may not be as obvious to the uninitiated. Many clients come to us after failed attempts at managing global sourcing projects, some so severe that they're soured at the prospect of ever doing so again."
US buyers will undoubtedly gain some benefits by bringing their business back home. They can enjoy faster delivery, quicker problem resolution, streamlined logistics, and a better overall experience--all at about the same price now. This sounds like a great value proposition. But what might we lose in the process of making this shift?
One aspect of purchasing from China that has been appealing to American businesses is the concept of the one-stop, massive marketplace, where buyers can fill most of their shopping list in one trip. Yes, there really are places in China, like the Yiwu Market, where anyone can buy anything. Building materials, jewelry, furniture, fashion, farm equipment, raw materials, component parts, and anything else you can think of--can all be found in one place. We don't have that kind of buying experience in the US yet. But I recently read about a new project that is being built, called PhoenixMart, which promises the same concentrated buying opportunities, but with American standards and worldwide selection. Maybe the addition of a super-sized marketplace on US soil will be the final straw that breaks the back of a China-dominated world economy.
Made in China? Maybe not for long.