Rising costs in China’s major cities had in recent years prompted lots of manufacturers to move their operations to cheaper locations deep within the country.
Now, even such moves inland are proving insufficient to ensure good profitability. This is prodding some firms to just give up on China and shift their factories to some other nations in the region.
“In addition to rising wages, mainland factories face 25 to 30 types of tax and charges. The total production cost is now comparable to that of some European countries,” Daniel Cheng, chairman of the Federation of Hong Kong Industries, told a seminar recently.
Some firms are moving to Vietnam, which is actively boosting its supply-chain infrastructure. Setting up production in Eastern Europe is also an attractive option, in particular for those targeting at the European market.
“Import duty savings can account for as much as 28 percent of the costs. Proximity to the market also means just-in-time delivery can be more easily achieved,” Willy Lin, deputy chairman of the federation, said at the same conference.
For mainland factories, which include a large number of Hong Kong-funded ones, the future lies in automation and technology upgrade.
By investing in robotics, assembly lines can not only become more automated but also smarter.
Cheng cites the example of an LED factory that he visited recently. The factory has switched to robotic arms and computers to produce its items as well as run quality tests, he said.
New technology is the key to boosting the product value and variety.
“Take Mobile Eye from Israel, for example. It used to be a small firm but it has been growing tremendously fast. Its sensor and vision technology is now being used in many auto brands,” Cheng says.
Sales of the New York-listed tech firm last year exceeded US$143 million, rising from a level of less than US$20 million in 2011. Its market value is around US$9.5 billion.
Tesla, BMW, Ford and Volvo are some of the companies that use Mobile Eye’s technology in their auto-piloting or car safety systems.
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