Manufacturing in China, Restructure or Die!

By | November 3, 2016

The state of the Chinese manufacturing exporting industry has been in somewhat of a scramble the past year. In early 2016, many manufacturers went for broke as orders for production simply weren’t there. The blame for this reality has been bounced around, but loosely comes from recent labor law changes starting January 2016. In the wake of such an economic change, there have been a growing number of ways businesses have been able to stay afloat even during a time of crisis.

The end of 2015 saw a short drop off in the Chinese economy, and the whole world became wary of the potential impact it could have. China saw a brief bounce back before March 2016. Investors lost money during this time as foreign investment and interest seemed to be neglected in new paradigm shifts in China’s domestic political policy. The reaction to this was greeted by scrambling changes by Beijing to meet foreign investors’ needs, reestablishing a solid framework before the 3rd quarter of 2016.

China’s overall growth in 2016, China’s economy is expected to grow 6.6%, the slowest it has in over a decade. Another problem is the reality that Chinese officials may be intentionally projecting false figures for Chinese economic growth. Several market analysts have individually estimated Chinese growth to be slower than the country itself has led the word to believe. Because of this, many analysts and investors have become wary of the Chinese economy, and have responded accordingly this year.

Because of these market conditions, manufacturers in China have been scrambling. Essentially in the current market, manufacturers have two options: restructure their business model, or close up shop. The reality is that competition from manufacturing facilities in Southeast Asian countries like Vietnam and Malasia have the same low-quality products for low prices, lower prices than Chinese companies can afford. Because of this competition, businesses have been searching for ways to reinvent themselves.

In this editorial linked below, a company from Zhejiang Province, China, originally was a simple chair manufacturing plant. They made cheap chairs sold around the world. With the current market realities, the company could not keep up with the low prices. Management at this company changed its business model to capitalize on a niche market: gaming chairs. Within a few months, the company’s order book had been filled until 2020, becoming a major supplier for many retail and online stores around the world.

This type of restructuring is essential for many manufacturers in China, but there still is an inherent problem with mass production from a single country. As the world moves towards a more egalitarian market capitalist model, manufacturing costs will stabilize and countries like China will not be able to capitalize off of low-wage laborers. This slow shift has many industries slowly shifting their model to fit market needs and parameters.

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