Some of the factoids Rich highlights from the survey results:
Operations management is a factor: 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.
Declining competitiveness: More than half, or 54 percent, of companies surveyed believe that China is losing its competitiveness to other low-cost countries.
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.
Majority staying in China: Despite the rising costs of manufacturing in China, 83 percent of manufacturers said they will maintain their operations in the country.
My comments:
Management problems — this is new???
Declining competitiveness — i.e. rising costs, yeah?
Vietnam and India — again, this is not new at all. However, just for the record, Vietnam means lower costs and India means a big market (and some other potentially good things).
More from Rich:
Firms saw access to the China market as the #1 reason for investing in China (Labor cost savings #2, access to other Asian markets #3)
Why this is interesting is that (1) Many people still view China as an export only option, when clearly the largest firms see China as key to regional competitiveness. This is a much more mature way to look at the market.
Can't really say I find this interesting, mostly because it's old news. This has been true for quite a long time. That being said, I agree that there is a big difference between MNC outlook and SMEs that still look to China as a low-cost export platform.
Top concerns: #1 RMB, #2 Inflation, and #3 Wages.
all concerns we have covered here, and I would say all will continue to bring pressure (RMB to 6.50, inflation to stay above 4-5% for next 6 months, and wages will always increase)
Agreed pretty much on all fronts. I would also say that the order of these concerns makes a great deal of sense as well.
Top 5 things where alternatives to China’s are more attractive: Labor Costs, Tax benefits, competitive landscape, IP protection, and utility costs
the first five represent China’s challenges in attracting FDI, and 2 of those are new ones (labor and tax), 2 of those are old (competitive landscape and IP), and one is a mix of both (utility costs). My opinion is that labor costs, tax benefits, and competitive landscape will surely continue to apply the same pressures, but as regualtions are clarified and industry shakeout occurs, some relief will come. IP Protection is getting better, but baby steps occurring in some areas while stagnate in others…
Labor costs have been going up for quite some time – clients of mine in the Shenzhen area have been complaining about that for many years. Tax benefits have been reduced considerably due to the new law, but for a maturing economy like China, this was bound to happen at some point. IP issues – well, I think my opinions on that subject are easy to find. Utility costs – that's an interesting one, but unfortunately not something I know a lot about aside from the fact that energy prices (which are regulated of course) have been allowed to move upward to some degree.
The survey is a good read and the recommendations are sound. This doesn't break new ground, however, but if the intended audience includes a bunch of companies that don't keep up with current trends on the ground here, then maybe this will drum up some business for Booz Allen. Or am I being too cynical?