When choosing whether or not to source from a given country, many factors should be considered: the proximity of materials & components suppliers, the network of processing and assembly factories, infrastructure, wage levels, labor productivity, access to skilled workers, and so on.
Naturally, most companies that want to compare Asian countries tend to do so on the basis of easy-to-find numbers: minimum wage levels.
The conclusion is usually “China is not competitive; the future is in Vietnam, Bangladesh, India…”. However, they often neglect two factors:
- The trend of those wages
- The stability of exchange rates against the US dollar
Once you include these two parameters in the analysis, it is not clear at all why factories should leave China.
First, since China announced their 5-year plan to increase wages, other Asian countries adopted similar plans.
Vietnam has low wages, but for how long?
Second, not all currencies offer as little variation against the US dollar as the RMB:
Indonesia, the Philippines, and Thailand are particularly worrisome.
My conclusion is simple. Even easy-to-gather numbers don’t paint the picture of an uncompetitive China. Importers in most product categories are not going to leave China entirely anytime soon.
(Note: the numbers we used for these graphs are not perfect. For example, for China we took minimum wages in developed cities of Guangdong. But the trends shown on the graphs are correct.)
What do you think?
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