By Robbie Whelan
Global supply chains will continue to expand in coming years,
but at a slower pace than before, and in ways that follow different
patterns, according to a new report from Standard Chartered
Bank.
Low-cost manufacturing, for example, is moving westward from
coastal cities as wages rise, leading to more goods produced in
inland China, India and other Asian nations, the report said. Yet
over time, inland wages are likely to increase as well, creating
opportunities for other emerging economies.
Increased automation and 3D printing could reduce the advantages
of producing goods in developing countries with low labor costs if
technology displaces a portion of the workforce.
"World trade growth has been weak recently and the expansion of
(global supply chains) has lost momentum," the report's authors
wrote. "Some of this slowdown is likely cyclical, but rising wages
in China and new automation technologies are challenging the
low-wage model, prompting companies to consider re-shoring, or
bringing production home."
China's dominant role in the global mass-production and delivery
of goods was built largely on low wages and large workforces. But
the country's wages rose by eight times between 1995 and 2009. This
leaves them well below U.S. wages, but the gap has narrowed,
Standard Chartered wrote.
On the whole, wages in emerging markets are still lower, in
absolute terms, than in developed countries. Chinese workers, for
example, still earn less than $10,000 a year on average, higher
only than Mexico, the Philippines and India, according to the bank,
which studied about 54 countries. U.S. workers earn about $43,000 a
year on average, trailing Japan, Canada, France and Australia.
Average monthly manufacturing wages were about $500 in China,
compared with $420 in Malaysia, $360 in Thailand, $240 in the
Philippines, $230 and Indonesia, $200 in Vietnam and $140 in Laos,
the bank found. More than 20% of companies surveyed by Standard
Chartered said they planned to move manufacturing capacity out of
China to Vietnam; 15% to Cambodia; 7% to Indonesia and Bangladesh;
3% to Sri Lanka, Thailand and India; and 2% to the Philippines.
The result of these changes are many, but Standard Chartered
highlighted a few:
- China is set to become a "megatrader" nation, with stronger
ties not just with its neighbors but also countries in Europe, the
Middle East and Africa. As China strengthens its communication and
IT infrastructure along its trade routes and encourages trading
partners to use Chinese currency, the country's role will become
more central to global trade, not just a source of cheap labor.
- More providers will relocate to second-tier Asian countries
that are emerging as manufacturing hubs, especially those involved
in new trade pacts, including the Trans-Pacific Partnership, should
they take effect.
- The services sector, rather than the manufacturing sector,
will be the biggest generators of supply chain growth in the coming
decades, including "manuservices" such as research, design,
marketing, distribution, accounting and human resources management.
The services sector is becoming more efficient as a result of
improvements in technology and communications.
Write to Robbie Whelan at robbie.whelan@wsj.com
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