Manufacturing costs in China and implications for US companies

Abstract

The world is a dynamic system that changes constantly: facts that were true yesterday may not be tomorrow, and the world of industry and trade is not an exception. During the last years, many social and economic shifts have occurred around the globe and they are reshaping the manufacturing and the supply chains. Among all these shifts, China’s increase of manufacturing costs is probably one of the most critical ones, given the exceptional importance of the country as a producer. For decades, companies from developed and industrialized areas have moved their production to China seeking the low manufacturing costs and taking advantage of the rise of industrialization taking place in the Asian giant. However, nowadays the conditions are not as favorable and the evolution of other regions is jeopardizing the competitiveness of the People’s Republic of China and having a huge impact on the statement of profit and loss of thousands of companies. Many of the affected corporations are redefining their strategy and building new capacity in other regions, but it is extremely complex and difficult to know in advance what to do in order to remain competitive for the coming years. From the point of view of a student familiar with the supply chain management and more specifically with the global supply chains, the phenomenon of China’s industrialization can only be praised because of how effective it proved to be. However, it seems that this golden age of Chinese manufacturing is coming to an end; at least in the way it is now. In this moment we are facing an uncertain situation and it is fascinating the wide variety of options, and even more fascinating the impact that the strategic decisions to adapt to the new reality will have on the companies. As an Industrial Engineer, I decided to work on this project because I am convinced that it is one of the biggest challenges affecting the Supply Chain and a good understanding of the whole problem will become a great tool for my career. The purpose of this project is to identify the main causes of the rise of manufacturing costs in China and analyze the best alternatives for US companies that are suffering it. Furthermore, the main objectives of the research are: 1. Performing a research about the current situation of manufacturing in China and about the facts that led to this reality. 2. Understanding the challenge of the affected US companies and identify the most suitable options for their future. 3. Acquiring experience within supply chain by collaborating with a US corporation and dealing with a real case