Shenzhen Round-Trip

Shenzhen Round-Trip

BriefLetter - Issue 03/2007

It is high time to think about whether China and other Asian countries should remain preferred production locations for European consumer goods destined for sale in Europe, in the future.

The demand for expendable and consumer goods in Europe shows that consumers purchase more and more often the individual high quality product including service which retailers allot short-term and in small quantities – without big storage units. In other words: Today’s sales markets are changing drastically and to the same degree, just with somewhat of a delay – the situation at the Chinese and Asian production side is changing.

In China, buyers are going to face a snowballing cost trend. Rising energy costs, rising wages, a new ecological awareness and the laws and regulations associated with, the lack of skilled labor, rising costs for commodities, the introduction of taxes and rapidly increasing dues, the cost explosion for production supervision and the quality problems arising from it, long delivery cycles without adequate delivery guarantees. All this is going to make it more difficult to produce in China and in the end it is going to endanger the competitiveness on the sales market. What we are going to experience in China is going to extend to all of Asia. Sooner or later, the same problems are going to surface all over Asia. Ultimately it cannot be overlooked, that many Asian businesses are no longer willing to produce cheaply and leave the attractive added value to their industrial customers. Chinese and other Asian businesses push onto the European market. They are acquiring companies and brands which are going to facilitate their market access.

Surely, it is true that a production site in Asia is going to facilitate access to these developing markets. We still think that sensitive sales markets are best served when the production sites are in immediate proximity. This applies to Asia just as well as Europe, Africa and America. In the future, China and the other Asian markets are also going to demand differentiated products in comparison to other markets, aside from those few truly globally demanded Luxury brands.

The retraction of products and the distribution according to requirements and the sales possibilities of the respective markets surely need very thorough considerations and meticulous analysis. It is imperative to get a clear picture of the possibilities of recruiting qualified personnel. After years of job cuts this is not going to be easy. European wages and costs are bearable, if the products have the required standard of quality and if it is discernible “Made in Italy” or “Made in Germany”. In connection with this the education and continuous training of skilled workers and craftsmen is gaining in importance. Countries where handicraft has always played a big role, for instance Germany, should have a good starting position, when it comes to the renaissance of production of expendable and consumer goods. In many of the topics we have touched on, corporate culture plays a big role next to the value of classically grown brands. This applies also when a business rediscovers its manufacturer role, maybe especially, when it is about production.

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