Competition for China in the Global Market

Anodisation of aluminium is strictly controlled now due to the pollution of effluence

China local cosmetics brands are seeing huge growth in demand

Mould making capabilities are far cheaper in China

Price competition for China

Price competition for China is getting stronger day by day if we compare their costs to other developing countries.

Many are already trying to source in other developing nations like India, Vietnam, Malaysia or Indonesia. Indonesia, has a young and educated work force earning low wages trying to steal some of the economic glory. Vietnam is also a good at hand manufactured items, which are very competitive due to its lower wage costs.

We can buy paper boxes and liners for a cheaper price in India due to the current low value of the Rupee. The low cost of labour has kept India competitive for this and also other labour intensive items.

However, until India is able to build the sort of infrastructure which China has, then India will not be able to fully emulate the Chinese economic superstar. Transportation of goods from the factory to the port is difficult, so the competition for China must come from better developed countries. Good road infrastructure and lack of red tape at the port can make a huge difference to lead times and also reduce costs.

Over the last year China factories have faced numerous challenges which have seriously affected their ability to compete against packaging suppliers from other countries.

A combination of challenges have made the competition for China greater:

The effect of environmental restrictions

First of all the China government placed strict environmental restrictions on factories. Due to China’s commitment to the Paris Environmental Agreement, the government implemented very strict new laws. This will ensure that pollution as a by product of manufacture is greatly reduced.

– Glass bottle factories have been forced to change to gas fired furnaces instead of coal. As a result factories have had to bear huge infrastructure costs to rapidly build new furnaces. The frosting of glass bottles is now more than double the cost of a few years ago. Many glass factories have stopped frosting glass themselves, as it is difficult and expensive to dispose of acid waste.

– Anodizing factories for metal products are also facing similar problems, they cannot keep costs down by dumping the waste in illegal sites.

– Paper is also much higher in price due to more strict deforestation policies and also stricter rules on processing.

Higher wages are affecting China

The Renminbi had been steadily creeping up in value this year until the central bank intervened. This has made competition for China goods higher than earlier, even without any other influences. It has also meant that many suppliers in China have been quoting in RMB (instead of USD which is the norm). They are doing this currently to avoid taking a loss in profit on currency differences.

Wages in the developed Eastern area of china close to the main shipping routes have increased a lot over the past few years. In the past there was no problem recruiting new staff after the New Year holidays each year. But increasingly factories either have to increase salaries a lot to attract staff from other parts of China or have to introduce more automation in the factories to reduce labour. According to a Forbes report of June 2017 China average salaries in Shanghai and Shenzhen are already as high as salaries in Croatia, Romania and Bulgaria.

Oil prices and sourcing difficulties

The oil prices have greatly increased over the past year worldwide. This has affected the cost of plastic for all of us, wherever we buy from. China has been experiencing difficulties in sourcing some plastics such as surlyn which are in short supply.

Recently prices have shot up by 50% with some suppliers who are struggling to get stocks of materials.

Recently prices have shot up by 50%, some suppliers are struggling to get stocks of materials. Competition for China materials has meant that suppliers prefer to manufacture for local sales. The local market in China has really taken off a lot with many young Chinese consumers enjoying local cosmetics products. The sales volumes of the local market can be really huge and very attractive. They can command a higher price when they sell to the local market, as only the tax rebate makes export attractive.

If competition for China is high - why do people still buy?

If the cost is increasing so much in China, then why are people still buying there?

1. First of all reliability factor. Most China suppliers keep their promises and the local business and government infrastructure supports them, allowing them to be more reliable.

2. Speed of response. China suppliers work very hard and have an ‘open all hours’ approach to business. If you deal with a supplier in Western markets then working hours are not so flexible. You cannot get quick replies for quotes, especially not out of normal work hours.

3. Great ability in tooling and development. Whilst China is not the greatest nation for creativity, it certainly is very good at implementing others’ ideas at low cost. A new mould for injection moulding or metal casting can be developed relatively quickly and at much lower cost in China than in Europe. Let’s compare the cost of a mould fee for an injection moulded plastic part in Europe to China. In Europe you pay around 20,000 Euros per mould, whereas the cost in China can be between $1500 to maximum $8,000. So great savings can be made in product development.

4. Trust. ‘Better the devil you know’. It takes a lot of time to build up trust with new suppliers. Switching to new suppliers is not easy, there are often fitment and quality problems or delays. Often it is better to solve your differences with the existing supplier than to change supplier.

Big costs to move elsewhere

5. If you already have moulds developed with a particular supplier it is a huge investment to move them over to new suppliers.

6. Often factories who buy a lot from China will ship many goods from various suppliers in one container. It’s expensive to ship half empty containers from Vietnam to Europe. There should be enough order volume to ensure that you are not shipping half empty containers and adding cost.

What of the future?

In short, China is still a major player and will continue to be a major player for some time.But the tide is turning, it may not keep its dominance as the low cost supplier and have to reinvent itself to make itself relevant in the future economy. Maybe more innovation and less copying is the key?

For more information about the changes taking place in China, you might enjoy our article about why France is no longer the Mecca for the perfumery industry.

Stiff competition for china