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Chasing Low Wages and Fake Parts – China Report 2 of 2

As an electronics power house for the past 15 years, China has come under attack recently from other Asia based countries looking to unseat them. China’s vulnerability comes from internal sources. Wage inflation and counterfeit fears. I discussed this two weeks ago in all of my business meetings in Shenzhen.

Wage inflation. Definitely has been a growing concern from the beginning. What we see as the reaction is what we have always seen. A steady migration of factories from central Shenzhen to outlying areas, and in some cases a migration to lower cost countries. Nothing new in the strategy as it has been going on since the 80s when Japan was forced to teach Taiwan and Korea their processes to stay competitive. Also, a factor that the doomsayers neglect to consider, is the incredible electronics infrastructure web in place. This infrastructure is unparalleled in Asia. Only the USA can best this web of supporting industries. Consequently, it will take more than wage inflation to unseat China anytime soon. One last comment, let’s not forget our history. As wages go up, technology and automation also improve, ….so follow the curve and you could predict China continuing to follow Japan’s path from ’50s transistor radios to today.

What does this do for us? Our senior managers are watching this very closely. Our factories are keeping pace. I know this because we are seeing costs come down and new facilities going up. Clearly they have a few good years left in the market.

Counterfeit fears. No doubt that China, Inc. has a rep for slipping in grey market and fake components. Our factories worry about this because it hurts all legitimate businesses.

Again, the subject of our discussions. Our factory solutions are two part. One, only deal with top tier distributors who are ISO certified and can show traceability back to the original factories. Two, photograph each and every reel and bag label. Make those photographs a part of the certification package.

Not to minimize the problem, but to put it in perspective, the fact is that fake and grey markets have existed in the USA for years. In the ’90s as a senior manager of the distribution channel for a major component manufacturer, I had to root out and threaten legal action against unauthorized distributors hawking our products.

It is our job here to watch over the process making no assumptions, and thereby provide the safety net. “Trust, but Verify” said President Reagan.

Categories: Management, Purchasing