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The Future of “Made in China”

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As more scandals linked to Chinese goods unfold around the globe, consumers and businesspeople ponder the future and value of the emerging “Made in China” brand.

Despite a somewhat battered reputation, “Made in China” is here to stay as a brand that communicates not just affordability, but also good value for money.

If there’s one thing China-watchers generally agree on, it’s China’s (so far) unchallenged ownership of affordability. However, the country’s ability to sustain affordability as a continuing advantage has met its fair share of skeptics. Two points must be noted in this regard.

First, China will most likely remain the preferred “cheap shop” for some time.

Second, whether or not China-cheap will remain the Dragon economy’s key strength is less important than whether or not it will remain relevant as a point of advantage in the global economy.

Cheap Shop

While governments continue to squabble over decoupling the Yuan from the falling US Dollar — making Chinese exports even cheaper to the rest of the non-US world — elsewhere its business as usual. Global business leaders continue to increase their manufacturing presence in China, relying on the strength of their corporate brand to mask the recently crippled “Made in China” brand name.

In its notebook computers, Apple uses “Designed by Apple in California” to preempt the less desirable association with the “Assembled in China” tag that follows it.

The Fortune Press Center noted how “those [Fortune 500] companies that provide what China needs but doesn’t produce — such as airlines, fertilizer, and chemicals — did well. For companies such as Levi Strauss (No. 484) that created manufacturing bases in China, profits improved — in Levi’s case, a staggering 413.2%.”

The reductions in cost appurtenant to manufacturing in China have been affirmed time and again; yet many remain doubtful, arguing inevitable labor cost normalization as economic development ensues.

As The Economist reported, however, contrary to expectation, per-unit labor costs in China are flat to slightly declining, reflecting increases in labor productivity and offsetting any increase in hourly wages.

Note also how hourly wages in other developing countries can only be a fraction of their China equivalent. But strong, government-mandated economic incentives, better public infrastructure, and sustainable access to right-quality human capital continue to favor China versus other smaller countries, such as Bangladesh and Sri Lanka.

So, it would seem that, for the meantime, China will get to keep its competitive advantage as a manufacturing base in the area of cost. For as long as global corporations, unfazed by recent scandals surrounding Chinese exports, continue to build infrastructure in the country and believe that corporate and product-branding strength outweighs bad publicity, China has nothing to worry about. That is, unless China-cheap loses its relevance.

The China-cheap Edge

As an increasing number of Chinese businesses turn away from making brandless commodities to-wards building global icons, the transition away from “cheap” brand equity no longer seems a distant reality.

The final days of October marked China’s official rise to number-three spot in the list of the world’s largest economies, overtaking Germany and now trailing only Japan and the US. What’s more, the Chinese consumer is also evolving.

As disposable income balloons among residents of China’s frontier cities, exports may no longer be the coveted Holy Grail it is today. Rather, companies, both local and international, will squabble over the newly affluent (and “good and service hungry”) Chinese consumer — by itself, a greatly prized asset.

It can’t be denied that although the luxury manufacturing business in China is small it is steadily growing. It’s no longer just about lead paint in toys, poisonous dog food, and commodity-producing sweatshops anymore.

As big businesses bring factories to China, it is inevitable that more locals will learn to use new technologies to further innovate, as many already have. Moreover, local companies with huge bank accounts funded by strong local businesses are beginning to aspire outward (Think Lenovo, Petrol China, and CNOOC.)

Some Chinese brands have also outplayed global industry champions (Think Alibaba thumping Internet giants Yahoo! and Google.)

As we approach the end of yet another decade of strong growth in China, we realize more and more that “Made in China” is becoming less a question of manufacturing cost and more about scale and the rise of China’s global brands and corporate powerhouses.

To quote Toronto Sun journalist Eric Margolis, as we continue to ponder the future of “Made in China,” the more we’re convinced that the future is made in China.

Print ed: 12/07

 

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