China’s competitiveness according to AmCham
April 8, 2008 – 4:33 amA recent study by Booz Allen & AmCham Shanghai offers some very interesting data.
Most interestingly, study revealed that firms saw access to the China market as the #1 reason for investing in China; whereas labor cost savings ranked #2.
Top 5 things where China is more attractive to the alternatives include: (1) availability of supply base, (2) IT Infrastructure, (3) market growth, (4) logistics infrastructure, and (5) size of market.
Among the study’s other key findings:
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Still room for improving operations: The study found that three out of four companies lack fundamental best practices in their China operations, including integrating the dual functions of export platforms and domestic market penetration. Survey respondents cited a number of best practices that have yet to be fully applied in China. Just 11 percent reported fully applying integrated planning systems such as enterprise resource planning (ERP) software and material requirement planning (MRP). Even fewer companies - only 7 percent - had fully deployed analytical inventory calculation tools and processes, and 4 percent employed best practices for supply chain risk management. |
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Competitiveness in multiple areas declining : More than half, or 54 percent, of companies surveyed believe that China is losing its competitiveness to other low-cost countries. Seven out of 10 respondents cited the rising renminbi as a major reason for China’s decline, while wage inflation was cited by 52 percent of those polled. Wages for white-collar managers and blue-collar workers have jumped 9.1 percent and 7.6 percent, respectively. Staff retention is also a major concern, with 33 percent of respondents citing it as a reason for lost competitiveness. |
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| At the same time that costs are increasing, China is lagging behind global standards in many operational dimensions, most notably in logistics infrastructure, trade environment, access to technology, management capabilities, and protection of intellectual property. | |||
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Growing companies eyeing Vietnam and India: Nearly one in five companies surveyed (17 percent) say they have concrete plans to relocate at least some of their China-based operations to other countries. Although 88 percent of these corporations say that they originally chose China for its lower labor costs, they are finding that cheaper labor and tax benefits have made alternative locations more attractive. Among these corporations, Vietnam is the top alternative to China, according to 63 percent of this group, while 37 percent say India is their first choice. |
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| Among all respondents, when asked to compare China to alternate countries, they cited lower labor costs in those other countries as the largest differentiator, at 3.7 out of a scale of 5, indicating that China’s reputation as a source of cheap manufacturing labor is diminishing. However, the alternative countries lag China in market potential and infrastructure. | |||
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Majority firms staying in China: Despite the rising costs of manufacturing in China, 83 percent of manufacturers said they will maintain their operations in the country. China’s vast domestic market was cited by 78 percent of respondents as the reason to maintain the status quo, while 39 percent were unwilling to establish a new supply chain, motivating them to remain in China. |
