China's Manufacturing Risks

China is becoming a risky place to do business according to a new survey. More manufacturers are pulling out of China and moving into areas in their own backyard such as Mexico and even back here in the U.S. More and more U.S. companies are indicating a demand for products made here that have moved to China in recent years. It is cheaper to order from the U.S. in the face of exchange rate fluctuations, labor costs, and shipping costs. American companies are able to compete now but the problem is that they do not have the capacity ready for orders. The biggest risks companies face in China are decreasing quality and intellectual property theft. There has been a sharp increase in these concerns since May of 08. Other risks include regulatory compliance, commodity price volatility, supply chain security breaches, and information technology problems. Piracy, sweatshop abuse, and recent worker protests are also contributing to upswings in costs and harm reputations of companies.

China seems to be forcing itself to grow when it does not seem able or ready. There are questions to the truth of the percentage rates of growth they have been experiencing in recent years as the leadership bases its legitimacy as a Communist nation on the expansion. The worker uprisings across the country signal demands for better pay and working conditions while the country downplays the extent of the unrest. China is no longer a haven for cheap labor and high quality products and intellectual property violations indicate the business community is becoming untrustworthy in partnerships. U.S. companies should consider expanding capacity at home and in Latin America to take advantage of the swings in costs. China is simply becoming too big for its low quality britches.

http://www.businessweek.com/bwdaily/dnflash/content/nov2008/db20081126_315336_page_2.htm

http://www.businessweek.com/magazine/content/08_26/b4090038429655.htm