Today’s guest post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement, and is a counterpoint to Derek Singleton‘s recent post on What Can be ‘Made in the USA’ over on Software Advice.
This is the kind of prediction I like to put in an envelope and promise to open in 5 years to see if it came true.
It’s great that Airbus came to the United States. There’s no doubt that many companies who tried China sourcing weren’t capable of doing it well. There was also a rush to put production in China that didn’t belong there. Those would be items that require flexible scheduling and for which air freight costs make China prohibitive for US consumption. No doubt some of that is in the $200B pie chart of products that are likely to move from China to the US. No doubt that Chinese labor costs are rising, but the 13% figure annual increase figure cited is for Chinese minimum wage, of questionable relevance to exports.
But $122B in computers and electronics? I really doubt that. That’s roughly 100% of the US imports from China of computers, phones, TVs and monitors, and parts for those items. Those aren’t being built in China for anything much to do with labor costs. It’s where the suppliers are. Foxconn has a million people assembling electronics. Why do manufacturers gravitate toward a particular location? Michael Porter, in “The Competitive Advantage of Nations” nailed it. It’s a combination of four factors.
- Factor conditions (this includes labor rates and a lot more)
- Related and supporting industries
- Demanding customers
- High degree of competition
China has three out of the four. They are especially strong in item 2. Nearly all the components are built there, except for a few high value parts.
Looking further, if companies pull out of China, where would they go? Phones, other than from Apple, largely come from Korean and Taiwanese companies.
Televisions are also largely from non-US companies. As they drop in price, shipping costs become a larger fraction of total costs, so many TVs for the North American market are being built in Mexico. (Mexican TV and monitor imports to the US passed China’s a few years ago.)
We’ll see how the prediction holds up. In the meantime, strategic sourcing professionals should make up their own minds, not just look at trends or predicted trends.