SMITH BRAIN TRUST — Decreases in demand and overcapacity have challenged China's manufacturing sector. “A large number of U.S. companies are moving production to other parts of the world and back to the United States, exacerbating this already difficult situation,” says Gary Cohen, a professor at the University of Maryland's Robert H. Smith School of Business and associate dean for the Office of Executive Programs.
Even some Chinese manufacturers are moving production to the United States. Keer Group, a maker of yarn, has opened a textile factory in South Carolina. And JN Fibers, a manufacturer of recycled products, has opened a plastics recycling plant in Georgia. Cohen says part of the reason is because wages have continued to rise in China, driving up overall manufacturing costs. “The most impacted are the labor-intensive soft goods industries, where there is a continuous search for lower-cost labor,” Cohen says. “Much of this production has moved to countries including Vietnam and India."
With the rising costs of production in China, even hard goods companies are exploring their manufacturing options. Cohen cites the example of Stanley Black & Decker. Although the world’s largest tool company has a manufacturing footprint in North America and Europe, the vast majority of its manufacturing has been in China. Cohen says Stanley Black & Decker must consider a “make or make” decision. Does it move production to a country with lower labor costs such as Vietnam, or does it regionalize production closer to home as a way to reduce inventories and lower transportation costs?
Cohen says a decision to move manufacturing closer to the customer is more likely. “The rising costs of production in China have forced companies to explore these options and the supply side of their value chains,” he says.
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