Article
Managing new risks in China
This article has been taken from The Gen newsletter - Autumn 2008.
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Doing business in China has changed. The country is no longer just about cheap manufacture and low labour costs. As a result of international demand, China is evolving into a high-end, high-tech manufacturer. This has led inevitably to higher labour costs which means that, even though still cheaper than the West, China is no longer the only place for high volume, low value goods and manufacture.
Economic growth has resulted in a richer, more educated population, with a higher standard of living. The introduction of the New Labour Law in 2008 has made Chinese labour regulations more westernised; manufacturing wages have increased by around 22% to 27% per annum for the last three years, suggesting that salaries will double every three to four years. The Chinese RMB has also risen steadily since 2005, with an annual appreciation of 20% against the US dollar.
These higher labout rates cannot sustain low-end manufacturing. As a result, may of the low-end factories are closing down or having to move to China's western and northern provinces where costs are lower. However, inland logistics costs to take products to the ports on the East coast under high oil prices are also an increasing concern. To survive the Chinese companies that remain are having to shift to manufacturing medium and eventually high-end products.
The Chinese Government is introducing policies to support China's high-tech industry and is also funding companies struggling to shift to high-end manufacturing. However, in reality, enabling this is proving difficult: Government is failing to identify specific ways to improve the manufacturing sector; universities are failing to find internationally renowned professors to raise the standard of higher education; and business is failing to find the internationally recognised corporate advisors who can help them through this transition period.
Also, when business was booming, Chinese enterprise under invested in technology and failed to retain capable engineers. These enterprises are now lacking the appropriate resources to undertake basic research and innovation.
To help maintain political, social and economic stability, and encourage continued growth, China now needs to leverage globally available, high-level design and technology resources. The aim should be to merge external wisdom and internal strength to develop cheaper and faster innovative products and services for both Western and Eastern markets.
This is an area where Sagentia SGAI's expertise is proving effective. We have a wide range of proven innovative strategies. These, in conjunction with our real-life experience of both Chinese and Western business practice, are proving to be valuable tools. We are well placed to advise our international clients on how to work within an evolving Chinese economy, while also helping our Chinese clients understand the demands of other economies, also often in flux. The ultimate aim is to foster partnerships which can exploit the best of what East and West have to offer.