Executive Briefings

Say Good-bye to Cheap Goods from China? Not So Fast.

"It is the end of cheap goods," says Bruce Rockowitz, 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 specialises, the firm handles an estimated 4 percent of China's 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  Rockowitz says the era of low-cost Asian production is drawing to a close, people listen.

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.

Prices will now start to rise by 5 percent or more each year, he says, with no end in sight. Yet manufacturers in some other fields see things differently.

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"It is the end of cheap goods," says Bruce Rockowitz, 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 specialises, the firm handles an estimated 4 percent of China's 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  Rockowitz says the era of low-cost Asian production is drawing to a close, people listen.

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.

Prices will now start to rise by 5 percent or more each year, he says, with no end in sight. Yet manufacturers in some other fields see things differently.

Read Full Article