Business Strategy Consulting

Can China save Australian manufacturing?

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The Weekend Australian (November 27-28 2010) reported that “Chinese exports to become a lot dearer”, so what does that mean for Australian manufacturing? While it is not 100% clear, there is a definite trend that China will not be as competitive against other manufacturing nations as it has in the last decade. As the Australian article points out, the following factors are driving costs up in China:
  • Increased costs of raw materials.
  • Wages increasing in China.
  • Shortages of labour in some industries.
  • Growing middles class in China.
  • Increasing domestic demand in China.
  • Increasing costs of energy.
These trends have resulted in the price and service offered by Chinese factories to the export markets is
less attractive, in short prices in real terms is increasing and service such as lead times is increasing and reliability of delivery is decreasing.
Anecdotal evidence, supplied by an importer of high quality linen clothes to Australia, stated the following:
“as the price of linen increases the competitive pricing edge offered by China decreases. Simply meaning,
the percentage of labour saving is becoming so small against the raw material cost coupled with the risks of
delays and quality issues – the total price offered (including a risk factor for poor service) is not longer competitive on some lines”“on some lines it is cheaper to have garments manufactured in Australia – the risks are lower and the service is superior”

“Italy is now responding with samples in two days where as China is taking weeks – this is a complete turnaround for ten to fifteen years ago”.

Why have we in Australia not “felt” the impact of rising costs from China? The most obvious reason ids the strength of the Australian dollar – which is a “fragile” currency and as we have seen in the past, can lose value a lot quicker than it gains value. So look out if the value drops to 85 cents.
Also, manufacturers and importers can quickly switch from one country to another to fulfil their orders – the result of a global market.So what do our Australian manufacturers need to do? Focus on marketing the “the true value of Australian manufacturing – price, quality , lead times, inventory costs and service” – it would appear the tide is turning – in Australia’s favour.