Last month we told you how Lenovo, the Chinese company that bought the rights to the IBM computer line, is moving manufacturing facilities out of China.
Lenovo has decided to change its manufacturing strategy and will outsource the whole of its own-brand notebook production to Taiwan makers, according to a Chinese-language Economic Daily News (EDN) report, citing the vice president of Lenovo’s worldwide consumer notebook division.
Now it sounds like they may be riding the edge of a wave. A wave, by the way, that we predicted way back in late 2006. Damn we’re good! And we don’t even have a crystal ball. Now the Chinese themselves are talking about the problem of rapidly rising costs.
Surging costs on the mainland could soon force thousands of factories in southern Guangdong province to close and encourage companies to relocate to Vietnam or other lower-cost centers, companies and industry officials said yesterday.
Some 60,000 to 70,000 factories in the Pearl River Delta region – which includes Guangdong – are owned by companies from neighboring Hong Kong, and the Chinese Manufacturers’ Association of Hong Kong says 10,000 of them could close or merge in the next few months. "Costs at some of these factories have risen 30-50 percent in the past few years – 100 percent in some cases," Paul Yin, president of the Chinese Manufacturers’ Association, said by telephone.
That’s a boatload of factories! And it’s not purely direct tangible costs that are rising, but the cost of regulatory complexity and limitations.
However, Yin said labor costs are rising across the mainland. A new labor law introduced on Jan 1 that aims to protect workers makes it more difficult for companies to hire and fire workers, retain short-term workers, and it enforces overtime pay.
So if you move a factory to China to capitalize on cheaper labor and general manufacturing costs, and those costs rise 50% a year… hmmm… Maybe it would have been easier to focus on some internal improvements instead. Unless you are truly trying to tap the nascent Chinese market itself.