Manufacturing Sourcing Outlook in 2015

Date: November 26, 2014

Manufacturing Sourcing Outlook in 2015

2015 Global Sourcing Trends:
China maintains its manufacturing sourcing competitive position

International sourcing remains one of the most crucial factors determining the success of companies within a broad spectrum of industries, particularly the global apparel, footwear, home and electronics industries. Ever since China joined the World Trade Organization in 2001, China has become virtually the default option for companies looking for low-cost outsourced production. China’s exports leapt almost five-fold between 2000 and 2009. These manufacturing-sourcing developments were most noticeable in the labor-intensive sector, heavy industry, and high-tech industries. However, it is almost trite to say: sourcing trends are anything but predictable.

According to the AlixPartners Manufacturing-Sourcing Outlook, the United States is becoming increasingly competitive within the field of manufacturing in global sourcing trends. Mexico remains an attractive location for ‘near-shoring’, and India’s positioning within the international sourcing landscape also makes it a formidable competitor. Such sourcing trends may cause some analysts to worry about China’s strategic position; however, most experts note that for numerous products with a high labor content, manufacturing in China still remains the best option because of its technological leadership and economies of scale.

Indeed, China has been enjoying cost advantages of 15% to 20% compared to other low-cost countries since the early 2000s, and it is difficult to conceive of a time when its positioning as the key export platform for the North American market might be seriously threatened. The U.S. is steadily catching up, with a nascent resurgence in manufacturing, falling wages, a weakening dollar, an increasingly flexible workforce, and rising productivity. Nevertheless, China remains competitive in the manufacturing-sourcing battlefield. It has developed robust, expertise-oriented ‘clusters of excellence’ throughout the country and has an immense installed base of production capacity, as well as an extensive network of component and material suppliers.

Overall, despite certain patterns within the manufacturing sourcing scene which suggest that the cost gap between sourcing in China and manufacturing in America may be closing, there seems to be little indication that there could be a surge of American companies opting to manufacture their own goods rather than sourcing the production elsewhere. Furthermore, the impact of the increasingly dynamic cost equation on global sourcing trends will vary between industries. After all, when it comes to a company’s international sourcing decision-making process, it would have to align its strategic needs with its considerations as to the product’s labor content, transportation costs, and the chosen country’s competitive strengths. Within the next five to 10 years, it is unlikely that countries with slightly lower labor costs would necessarily be able to usurp China’s manufacturing-sourcing position, particularly as these countries frequently suffer from inadequate infrastructure, lack of skilled workers and lack of economies of scale, a dearth of domestic supply networks, and political and intellectual property risks.

In short, 2015 global sourcing trends certainly point to a steady growth in the production of footwear, textiles, apparel and toys in sourcing locations like Vietnam, Indonesia, Pakistan, and India; nonetheless, China is likely to maintain its position on the international sourcing rankings based on factors like the availability of raw materials, and low manufacturing overheads like taxes, all of which should be considered in the light of the varying wage rates between individual countries. For industries like the toy, textiles, and electronics industries, therefore, China is expected to be able to hold its own for the coming decade, as the largest source of production. 

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