Cost of manufacturing – cheap as China?

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With the cost of manufacturing goods in China increasing, is it time for companies to move their factories elsewhere?A survey of more than 200 Hong Kong based manufacturers, carried out by Standard Chartered, revealed that local salaries have risen by an average of 10% this year.  Foxconn Technology Group, one of the manufacturers behind Apple’s iPad, estimated that it had increased salaries by between 16% and 25% last month.The conventional response to steadily rising manufacturing costs has been to move operations to a cheaper location, however companies are not currently looking to leave China. Labour costs can be up to 30% cheaper in countries such as Vietnam but a lack of reliable supply chain means the move is often counter- productive.Rising Transport CostsAnother issue facing manufacturers is the rise in fuel prices and transportation costs. Shipping materials and products from overseas can severely affect profit margins and an increasing number of companies are considering ‘onshore’ manufacturing.The Centre for Economics and Business Research has warned that political uncertainty in the Middle East means oil prices may continue to rise in the foreseeable future. According to the U.S. Department of Transportation in 2000, fuel accounted for 20% of shipping costs. This figure now stands at 50%.‘Onshoring’ and the UKThe UK is currently in the midst of an economic crisis and as a result is an increasingly attractive proposition for manufacturers.  The “Labour market statistics: February 2012” reveals that total pay (including bonuses) rose by 2.0 per cent on a year earlier, unchanged on the three months to November 2011, a far cry from the 10% increase in some parts of China.Of course UK salaries remain higher, however increased productivity and automating certain manufacturing processes, would offset the extra expenditure. Taking into consideration costs beyond labour, such as supply chain risk and transport, it is becomes clear that manufacturing goods in the UK, especially for local consumption, is becoming an increasingly credible option.ConclusionAn increase in transport and labour costs means that China is no longer a cheap option for manufacturers. The UK now presents a competitive alternative for companies, particularly for those producing goods destined for the European market.

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