China's Not So Cheap Anymore
Posted on June 12, 2009 by Claire Adamsick
Topics: Economic Development, Imports/Exports, Trade
Countries: China, Mexico
Made in China.
It's a label you might associate with cheap labor and mass production — but a recent study featured in BusinessWeek says that China's products may no longer be the best bargain for U.S. companies.
Outsourcing to mainland China has several "hidden costs" related to rising labor and currency rates, the report reveals. In the last three years, the yuan has gained ground on the weakened U.S. dollar and factory workers wages are going up. This translates to a drop in the average price gap between China and U.S.-manufactured products — from 22 percent to 5.5 percent.
And when you add in the costs that come with producing goods halfway around the world — storage fees, shipping delays and the price to repair or replace high-tech product parts — the ultimate savings are minimal. "A couple of years ago, outsourcing to China was a no-brainer," says Stephen T. Maurer, director of AlixPartners, the firm that led the study. Now, he tells BusinessWeek, manufacturers are thinking twice about where to send their business.
Some U.S. companies are turning to Mexico, where manufacturing rates are cheaper than China's and suppliers across the border are more accessible.
Posted on June 12, 2009 by Claire Adamsick
Topics: Economic Development, Imports/Exports, Trade
Countries: China, Mexico
Made in China.
It's a label you might associate with cheap labor and mass production — but a recent study featured in BusinessWeek says that China's products may no longer be the best bargain for U.S. companies.
Outsourcing to mainland China has several "hidden costs" related to rising labor and currency rates, the report reveals. In the last three years, the yuan has gained ground on the weakened U.S. dollar and factory workers wages are going up. This translates to a drop in the average price gap between China and U.S.-manufactured products — from 22 percent to 5.5 percent.
And when you add in the costs that come with producing goods halfway around the world — storage fees, shipping delays and the price to repair or replace high-tech product parts — the ultimate savings are minimal. "A couple of years ago, outsourcing to China was a no-brainer," says Stephen T. Maurer, director of AlixPartners, the firm that led the study. Now, he tells BusinessWeek, manufacturers are thinking twice about where to send their business.
Some U.S. companies are turning to Mexico, where manufacturing rates are cheaper than China's and suppliers across the border are more accessible.
