China loses crown in low-cost manufacturing to India, Mexico

NikSha

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HT

China has lost its position as the world’s lowest-cost components manufacturer to India and Mexico, a study indicated on Wednesday, in a blow for the Asian giant as it fights the financial crisis.

The United States has also significantly closed the gap to the degree that China’s total manufacturing costs are now only 6 per cent below those of American factories, the study by AlixPartners business consultants indicated.

"Gone are the days when companies could see cost savings of 30 per cent or more by making 'no-brainer' manufacturing-footprint and outsourcing decisions, to China in particular," said Stephen Maurer, a managing director at the firm.

The company, which specialises in helping distressed businesses, compiled its Manufacturing-Outsourcing Cost Index by analysing a basket of manufactured components and assembled parts, ranging from small motors to die castings.

It compared the cost of making the items in China, India, Brazil and Mexico versus the US, tracking changes over three years in factors such as labour, overheads, exchange rates, transportation, and raw material costs.

The index showed major shifts in costs over the past six months that pushed China down the rankings and Mexico now on top, the firm said in a statement.

It predicted China's costs would improve in the second half of 2009, as more moderate oil prices and the economic slowdown reduced sea shipping costs, but added the country was unlikely to catch up with India and Mexico this year.

Manufacturing accounts for more than 40 per cent of the economy in China, which has been hit hard by evaporating demand for its products in key export markets such as the United States and Europe.

But Chinese manufacturer activity has shown signs of expanding over the past two months after nine months of contraction.




The Business Times
Manufacturing cost lowest in China? No more
 

Yusuf

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If the gap between the cost of manufacturing in America and China is 6%, then its not worth the trouble for the Americans to go to China for everything.
That way it will not finance its own enemy.
 

Yusuf

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On the other had it is good news for countries like India. As it is I am a believer in the fact that manufacturing is the key to Indias long term plans to raise its economic profile to a developed status.
We have neglected manufacturing for far too long and concentrated on services and being the back office of the world.
If India can compete with China in manufacturing, it will be the preferred destination of the US and will strengthen Indias economy and also further cement ties between the two countries.
I would love to use a Made in India Ipod.
 

Terminator

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Made in India tag is great to see.Lets see India has man power,Brains to create (Not copy/beg),We have consumers in our own country without even going out ,a democracy which has been here for over a 6 decade but the ingrediant which is missing is a leadership which has the will power.Our leaders are afraid what will world say even before they create a paper rocket.To bring many countries to toes we need to definetely build ICBMs.So that they may fear us.

As One thing that chinese lack is they create thinks in quantity without quality but we should build things with quality and increase their quantity.This way we can start eliminating chinese from western markets and we can sell second quality items to nations which are happy to have them(same like what chinese are doing)
 

Yusuf

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Made in India tag is great to see.Lets see India has man power,Brains to create (Not copy/beg),We have consumers in our own country without even going out ,a democracy which has been here for over a decade
Democracy in India is six decades old mate. Not just a decade.
 

Vinod2070

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I think India has a long way to go in manufacturing. I have not seen any capacity increase that would show any plans to take advantage of this fact.

China is far ahead of India in manufacturing as of now. They have created their own 4th generation mobile standards, DVD format standards and so on. We have a lot of catching up to do.
 

thakur_ritesh

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i am not very sure how much should one read in this article. the price difference that has happened has to do with the strengthening of prc's yuan which strengthened some 10% odd last fiscal which was done by the govt of prc, and on the contrary indian rupee weakened close to 25% during the same period visa vis dollar and all this has happened at a time when the global economy went into recession which led to flight of capital from indian shores which in turn led to a panic situation and saw the devaluation of the rupee. now as the global economy gets back on its feet there is bound to be inward investments as india presents it self as better destination on roi as also a huge consumer market which in turn will lead to strengthening of rupee and we could very well see a repeat of 2007 when rupee strengthened from 46 to a dollar to 39 which in turn will hit the export market dearly which at the end of the day will effect the manufacturing sector. the difference between india and prc is that prc completely controls its currency where as on the contrary india partially controls it which in turn gives rise to instability of the currency which in effect hurts the businesses and now with the present govt we are sure to move to full convertibility of the rupee, which in effect will lead to a lot of volatility in the value of rupee which will further effect the business sentiment.


all this reminds me of something chidambram said sometime last year which was pointing towards indian product line being associated with high quality at dirt cheap price which in turn leads to brand building and this i truly believe is a long term solution or else we will have a good quarter and three bad quarters compared to prc.
 

Su-47

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I think India has a long way to go in manufacturing. I have not seen any capacity increase that would show any plans to take advantage of this fact.

China is far ahead of India in manufacturing as of now. They have created their own 4th generation mobile standards, DVD format standards and so on. We have a lot of catching up to do.
When it opened up its economy in 1979 and started manufacturing, China didn't have the technology or infrastructure to match those of Japan, Korea or Germany. But they went ahead and by playing to their strengths (large workforce willing to work cheap) and eventually became the manufacturing giant it is today.

The gap between India and China today is less than the gap between China and other manufacturers in 1979. So if we play our cards well, and use this opportunity to get some manufacturing to shift from China to India, we can also take a good chunk of the manufacturing pie.

I just hope political parties in india don't screw it up. Remember the Tata Nano plant switching from bengal to gujarat. In the case of an international company, they might move out of india altogether!
 

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You all know that this was to be expected. No one can stay at the bottom rung forever, not if you want to shift to the higher profit, higher end products.
 

Vinod2070

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You all know that this was to be expected. No one can stay at the bottom rung forever, not if you want to shift to the higher profit, higher end products.
Of course that is right. It had to happen one day.

The question is, can China afford the shift? Are they really competitive at the higher end? Have they enough innovation happening and not mere stealing of technology like the "Rolls Royce" recently and Daewoo cars earlier?

To have the hundreds of millions of jobs in manufacturing, China can't afford this shift. USA could perhaps, not China.
 

Officer of Engineers

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WB,

Please accept my apologies in using your old familiar name until I get used to your login here.

Let me go throught this with you.

NO, CHINA CANNOT AFFORD THIS ... BUT SHE MUST .. AS DO INDIA IN THE NEAR FUTURE.

Economy 101 states that you must allow the people who can do the job better than you do that job ... even if that job is nothing more than shovelling horse puckey. You have better things to do with your time. Suppose you are a stock broker and you own horses. It is worth your time to pay a guy $10.00 an hour just to shovel the horse puckey while you're making trades in the $millions. For that one hour you want to save the $10.00, you could have lost $millions.

Understand where I'm coming from?
 

Vinod2070

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WB,

Please accept my apologies in using your old familiar name until I get used to your login here.

Let me go throught this with you.

NO, CHINA CANNOT AFFORD THIS ... BUT SHE MUST .. AS DO INDIA IN THE NEAR FUTURE.

Economy 101 states that you must allow the people who can do the job better than you do that job ... even if that job is nothing more than shovelling horse puckey. You have better things to do with your time. Suppose you are a stock broker and you own horses. It is worth your time to pay a guy $10.00 an hour just to shovel the horse puckey while you're making trades in the $millions. For that one hour you want to save the $10.00, you could have lost $millions.

Understand where I'm coming from?
Of course, I have read all this earlier. The point is that huge developing countries like India and China can't just be at the lower end or the higher end of the spectrum. We have to be at all the places at the same time. We have to be at the higher end to give the best of our people the meaningful employment and at the lower end for the rest of the people who just don't have the skills to be employed at the higher end.

It is a pyramid out there. The numbers at the lower end are always going to be more at the bottom. With 20% or more of the world population, they can't all be at the higher end. No way!

There is just not enough space out there.
 

Yusuf

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I think India has a long way to go in manufacturing. I have not seen any capacity increase that would show any plans to take advantage of this fact.

China is far ahead of India in manufacturing as of now. They have created their own 4th generation mobile standards, DVD format standards and so on. We have a lot of catching up to do.
Well its not just electronics, i am bothered about all the industrial goods that China dominates. Even in my line of business which is industrial supplies, China has a very vast presence in India. I too import from China certain items. But then not all items coming out of China are of good quality. There is another item that i import, and the Chinese quality is horrible so it get it from elsewhere.

The problem is support from the government to industries.
My brother had to grease the palms of the officials to get land for a factory that he wanted to set up. The amount he had to give was huge.
That is just one problem. Getting electricity and other necessary infrastructure has to come good. We need a good policy promoting manufacturing. Indian entrepreneurs will do the rest. If we can grow at 8-9 inspite of the governments apathy, we can surely grow faster than that if it sets everything in order.
 

Vinod2070

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Of course we come back to the same old issue. Corruption and antipathy of the GOI.

The day we get rid of them or even have them in manageable limit, will be the day of our deliverance from poverty.
 

ZOOM

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In my opinion, Topic simply doesn't cover various aspects which happens to revolve around Chinese Manufacturing prowess. Author of the topic seems to have more inclined towards making feel good factor or seems to have some resent towards China. Since his topic seemingly doesn't cover various other aspects which are boon to Chinese Industry and Small scale units like Tax breaks, Easy availability of Credit, Easy availability of Plot to manufacture or set up a factories, World class Infrastrucuture for easy mobility of Goods and servicesalong with various other incentives.

In contrast, well I don't know about Mexico, but in case of India, reverse is dominating the scene. As many of Small and Medium size Manufacturing Units in India which make up for more then 60% of India's GDP are still struggling to get Easy Credit, Offering from Bank to restructure their Outstanding Debt, Lack of Power, Too many regulation to control their easy movement, Strigent Tax and Duties. Despite RBI's effort to create more liquidity in the market, Commerical Banks are still not offering them loans on easy terms. Hack, even some of the Indian units are struggling to compete with units situated in countries like Pakistan and Bangladesh where government is easing its regulation to help their industry to revive.

One more thing, I would like to add, now China of 21st century is altogether a different country then what it was during 19th centuary. China is now known for producing some quality Produces which can cater needs of various other countries at lowest possible cost. There Products and services may not be good in quality as compared to their western counterparts, but they are doing much needed catch up to outpace others. One of the live example of such prowess is, Indian Automobile Component makers are facing very stiff competition from their Chinese counterparts owing to helping hands of their government. Indian Automobile Component makers are lobbying hard to bring carb on chinese import which is fast eating into their substantial returns. Hack, now even Indian based enterprises are setting up themselves in Chinese Mainland to directly purchase electronic and automobile component, thereby dumping the same into Indian Market.
 

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Yeah you have got on to the real point which has not been seen by goverment.
 

badguy2000

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When it opened up its economy in 1979 and started manufacturing, China didn't have the technology or infrastructure to match those of Japan, Korea or Germany. But they went ahead and by playing to their strengths (large workforce willing to work cheap) and eventually became the manufacturing giant it is today.

The gap between India and China today is less than the gap between China and other manufacturers in 1979. So if we play our cards well, and use this opportunity to get some manufacturing to shift from China to India, we can also take a good chunk of the manufacturing pie.

I just hope political parties in india don't screw it up. Remember the Tata Nano plant switching from bengal to gujarat. In the case of an international company, they might move out of india altogether!
your hard will should be appreciated.


But I am afraid that India has missed its last train of hope .

I alway think that big coutires like CHina and India can not be industrialized unless they occupies oversea market and use resource from other countries.

However, I also always think that the wolrd market can hold only one mass-exportor like CHina today and Japan in 1970s-1990s. the world also can not provide enough resource like oil to another manufacturing giant like China today.

Obviouly ,unless India defeats China in oversea market and rush to global resource, India can not acqure enought maket room and resource to finish its industrialization.

But ,with the current " India-style democracy" and " India-style infrastrure" , can india do it?

at least to me, It is a mission impossible!.
 

Yusuf

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Mate, beat India in the IT field.
If your answer is yes China can beat India in the IT field, then be rest assured that in the coming years India will give China a run for its money in the manufacturing sector.
 
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poor communication skills of the chinese will keep them as a cheap low quality goods manufacturer and nothing more.
 

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