Chinese Manufacturers To Spend To Upgrade Plant
IT
Chinese plants are planning to spend up to 20% of sales
to work their way up the business ladder, and change the
perception that they are leaders in low costs only. This
is in contrast to US manufacturing management, which are
planning to spend only 3% to upgrade plant IT.
Chinese manufacturers are already leaders in manufacturing
outsourcing, according to an
article in Industry Week, the leading weekly for the
manufacturing industry in the US. The trend has reinforced
the perception that Chinese companies are low-cost leaders
in manufacturing. The problem for Chinese manufacturers
is that they are caught in a low-cost trap, and are often
unable to work their way up the profit ladder by charging
higher costs to their overseas buyers.
This has led to the problem of excess manufacturing capacity
in China. Only a few major manufacturing concerns have
sufficient capital and good management to invest in IT
to improve their operations. Their goal is to change the
current perception of cheap Chinese products, to one of
high quality.
For obvious reasons, only a small minority of Chinese
companies will be able to change this perception. Most
companies will continue to be caught in the low-cost trap,
and the excess manufacturing capacity issue will continue.
For the global economy, this means that product price
deflation will continue, and may worsen, while manufacturers
will be squeezed by commodity price inflation when they
purchase raw materials.
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