Journal Writing 02

MGT372 Section: 04 Name: Md. Irfan Id: 091 1122 030 Name: Sharafat Halim Id: 091 0615 030

The End of Cheap Goods?

Summary:
IT IS the end of cheap goods, says Bruce Rockowitz. He is the chief executive of Li & Fung, a company that sources more clothes and common household products from Asia than perhaps any other. In the low-tech areas in which Li & Fung specializes, the firm handles an estimated 4% of Chinas exports to America and a sizeable chunk of its exports to Europe, too. It has operations in several East Asian countries, where it diligently searches for cheap, reliable suppliers of everything from handbags to bar stools. So when Mr. Rockowitz says the era of low-cost Asian production is drawing to a close, people listen.

Analysis:
Mr. Rockowitz argues that Asian manufacturing has gone through a number of phases, each lasting about 30 years. When China was isolated under Mao Zedong, companies in Hong Kong, Taiwan and South Korea grew expert at making things. When China reopened in the late 1970s, after Maos death, these experienced Asian operators converged on southern China. With almost free access to land and labor, plus an efficient port and logistics hub in nearby Hong Kong, they started to make things ever more cheaply and sell them to the whole world. For the next 30 years manufacturers in China helped to keep global inflation in check. But that era is now over, says Mr. Rockowitz. Chinese wages are rising fast. A wave of new demand, especially from China itself, is feeding a surge in commodity prices. Manufacturers can find

some relief by moving production to new areas, such as western China, Vietnam, Bangladesh, Malaysia, India and Indonesia. But none of these new places will curb inflation the way southern China once did, he predicts. All rely on the same increasingly expensive pool of commodities. Many have rising wages or poor logistics. None can provide the scale and efficiency that was created when manufacturers converged on southern China. Nothing can replace the Chinese miracle. There is no next, says Mr. Rockowitz. Prices will now start to rise by 5% or more each year, with no end in sight. And that may be optimistic. So far this year, Li & Fungs sourcing operation has seen price increases of 15% on average. Other sources of Asian toys, clothes and basic household products tell similarly ominous tales. Some of the more striking offerings at the fair were ultra-cheap versions of global hits. A company named BananaU advertised tablet computers with Googles Android operating system for $100. Another pushed Windows-based thin computers looking much like MacBooks for under $250. E-Readers were everywhere and available for a song.

Conclusion
Chinese firms were curious about any product that lowered costs or made it easier to automate. When labor was cheap, Chinese firms used it inefficiently. Now they are learning how to get more from fewer hands. Li & Fung may be sounding the closing bell on one era of production, but the Taipei computer fair suggests that another is emerging.

Source http://www.economist.com/node/18805862