‘China Is No Longer Cheap’
2. September 2015
For the past 11 years, China was a second home for Scott Huff and he racked up frequent flyer miles as his company, Innovate Manufacturing, grew to four factories and an engineering services office there. Huff and Innovate’s focus going forward, however, has shifted to the U.S. where the company is opening a new injection and blow molding facility in Knoxville, Tenn.
In his September column, my editor, Jim Callari, wrote about the reshoring phenomenon, a topic I also tackled last March. China itself has been in the news these days, thanks to a flagging economy with particular weakness in manufacturing. The timing of those struggles and Innovate’s announcement was not lost on Huff, who also cautioned against counting on China’s imminent demise.
“These are interesting times,” Huff said, “but as I tell people all the time, nothing is a good or as bad as it appears to be. Things have changed, and China is under a lot of cost pressures. The cost of living in China has outpaced the growth of salaries in the last 11 years, and the cost of employing people in China has gone up substantially.”
As a result, Huff noted that labor intensive work, formerly a strong suit of China, was increasingly shifting elsewhere. For Innovate, which specializes in large reusable hydration products (picture sideline water jugs), labor costs were just one factor that pushed it to bring some manufacturing back to the states. Another big one was air—or rather the cost to ship it.
“If there are more than 8 ounces of air in that bottle, it better be very labor intensive to make it outside of the U.S.,” Huff said. Power costs also played a role, with Huff estimating that utilities in China are double what Innovate will pay in Tennessee. Finally, proximity to customers was key, with Knoxville a truck drive away from all the major population centers east of the Mississippi River.
Will companies still invest in China? Of course, the country has a lot to offer, not the least of which being a billion plus consumers. The reasons companies invest there, however, are changing.
“China is no longer cheap,” Huff said. “China is very capable, but the market is getting very competitive.”
Innovate's new Knoxville, Tenn. production facility.