DeRuiterConsultancy - A specialist company for the preparation and development of direct investments
DeRuiter Consultancy - International Market and Investment SurveyorsDeRuiter Consultancy - A specialist company for the preparation and development of direct investments
A specialist company for the preparation and development of direct investments
DeRuiter Consultancy - When the world is your market
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Why China?

Many believe China is the place to be to outsource manufacturing, but other countries could fulfil that job much better. Why and when to go to China and if not, where should you go to instead?

Our clients are often large and small enterprises globalising their operations to benefit from the positive effects of a larger business scale. In the decades since our establishment we have developed many market entry strategies and prepared local establishments and direct investments for that purpose. Ever since China opened up in the early 1980s, foreign companies have been flocking there either for the great potential of its huge market or to have their manufacturing outsourced, to benefit from the low-cost conditions.

However, we were and still are not always that satisfied with the results our clients achieved. With its population of 1.3 billion, China is certainly an enormous market, but it only gradually reached the stage where an emerging middle class with purchasing power could justify a distribution channel to sell imported or even locally made (western) products. The relatively few very rich consumers nowadays are gaining strongly in numbers on their equivalent class in Europe and the USA, but the focus here is only on high-cost luxury goods. Some 97% of China’s vast population is still unable to pay for any imported western articles.

In recent decades, China has become the manufacturing workshop for many global industrial enterprises. But other developing countries too, in particular the newly industrialising ones, are competing strenuously to be the destination of choice for western enterprises relocating their operations.

India has developed a strong focus on the service sector (accounting, insurance, ICT), in addition to its traditionally vast textile, garment and jewellery export sectors to recall a few.

Pakistan wants to become a major shipbuilding nation and already has a large share of the world’s manufacturing of crop processing installations, like sugar mills, and palm oil-processing plants. But global business is changing fast, and the perception of a decade ago might no longer be the truth of today.

When China opened its doors to the world in the early 1980s, many believed its huge number of people would make it the most sought-after market of the future. It had a solid industrial background, although due to last century’s political developments, in many sectors outdated. However, this important skill base together with the vast and “eager to prosper” population makes a perfect combination for a strong economic development.

Low wages in China in relation to the workmanship offered have attracted an enormous amount of foreign investment, leading, together with the fast expanding local industry, to the country’s long period of sustained economic growth of over 10% annually .

But with economic growth and extreme pressure on the labour market for skilled workers, the coastal regions remarkably quickly changed from low-cost manufacturing areas into today’s relatively expensive areas, more suited to the manufacture of complex, higher-valued goods. However, a skilled labour force and management capabilities are becoming scarce in these regions and subsequently costly. Textile, garment, shoe and other low-tech industries for example have already moved to inner areas of the country to meet the low-cost conditions required for making these goods.

China is still an extremely good place to invest in manufacturing, if the aim is on selling products to the huge local market. If the products are for export, then there are better locations to invest in today; Thailand, India and Malaysia offer a more suitable infrastructure; less government red tape and substantially lower manufacturing costs.

DeRuiter Consultancy - Asian wage costs comparison of industrial workers

The following diagrams show labour cost, infrastructure, skill base, and government contribution in comparison with other countries. The benchmark indicates the results of a number of parameters from UNESCO, World Bank, UNDP, ILO and others, complied into the graph.

Click on a diagram for full details: