Supply Chains Changing In China
Thirty years of competitive advantage in China may be ending
Since the mid-1980s, China has become the paramount manufacturing destination due to low labor costs. However, an "inflection point" in supply chains is being approached, according to Marshall Fisher, UPS professor of operations and information management at Wharton, and lecturer Edwin Keh.
In the 1980s, Fisher went to China two times to set up Wharton Business Schools. At the time, he visited a little-known company called Foxconn, which is now the main manufacturer of iPhones. He did not return to the region until 2006 and was "shocked by their [Foxconn] scale" as well as by all the changes in China over the period, "It was a wake-up call," he said.
More recently (2011), Fisher returned to China to meet with Wal-Mart executives. It was a time of turbulence for the country including a Honda strike, suicides at Foxconn and huge labor unrest. Everyone was uneasy about the labor situation, he said. A colleague of Fisher’s in China that obtained his PhD under the professor said, "You know, we always knew that wages in China were growing steady, at maybe 15 percent a year typically, and we knew that eventually they were going to hit a tipping point. And this is it. This was the sea change." Fisher said, "The idea of change was very vivid that July when I was visiting China, and I think it's become more so with passing time."
Lecturer Edwin Keh was formerly CEO and senior vice-president of Wal-Mart Global Procurement. He says the transformation in supply chains went almost unnoticed over the years but he has been monitoring it. "If you look at this on a quarter-by-quarter basis, you may not see it because it is not a singular event," Keh said, "but certainly it is a trend."
In their line of investigation, Keh and Fisher concentrated on shifts in major Chinese manufacturer operations. They are expanding or relocating operations to less expensive areas such as western China or even Indonesia and India; away from coastal provinces where wages are high.
About David Pulman GSK
David Pulman (https://twitter.com/DavidPulman) is the GSK President of Global Manufacturing and Supply, Corporate Council Chair for the Children’s Health Fund, Newcastle alum, botany enthusiast and a proud dad & husband.
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