China vs Eastern Europe: comparison of manufacturing locations

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No question, China is the first word when it's about offshore manufacturing. But will China remain the superstar of manufacturing in the future? The following presentation tries to tint it, and compare China to another emerging location: Central- and Eastern Europe.

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China vs Eastern Europe: comparison of manufacturing locations

  1. 1. by Dr. Balazs Csorjan, investment promotion specialist 2016 edition China vs. Eastern Europe: comparison of manufacturing locations
  2. 2. [NOTE] These slides are designed not to present but to read as a document. Switch to Fullscreen View, please!
  3. 3. Watching behind the scenes Emerging markets like China, India, or Central and Eastern Europe became the most relevant, fastest growing manufacturing locations of the world. When it’s about manufacturing site selection, there are a few, online guide available. In these few slides we try to collect and investigate some data about China and Central- and Eastern Europe, to provide you some comparison about the manufacturing locations.
  4. 4. China: the workshop of the world “When China wakes, it will shake the world” (Napoleon Bonaparte) There is no doubt: China is the nr. 1 manufacturing location of the world. There are some interesting data beyond this overworked truth.
  5. 5. Did you know? ● in 1814, China was far the largest economy of the world (and India was the 2nd largest - but it’s another story) ● China doubled its GDP per capita in last decade. That achievement took the industrializing United Kingdom 150 years. ● Economic growth is fueled by the government’s investments in large scale infrastructure developments ● in 2040, Chinese GDP is estimated to reach 123 trillion USD - again the largest economy of the world ● this is not a tiger on the picture
  6. 6. In 2010, China became the nr.1 manufacturing country of the world.
  7. 7. China receives the largest inward foreign direct investments (FDI) between emerging countries... ...however it’s pretty behind the FDI inflow of developed economies (EU, US)
  8. 8. Eastern Europe: the workshop of the world's largest market “Tell me where Central Europe is, and I can tell who you are.” (Jacques Rupnik) When we say ‘Central - and Eastern Europe’, we mean the Eastern member states of the European Union.
  9. 9. Did you know? ● Transition countries: 100 million people from the Soviet block to the European Union. ● in the last 25 years, it became one of the most important manufacturing location of the EU. ● In 2012, Eastern European automotive manufacturing reached the 59% of Germany's output, which is higher than France' and Italy's production all together. ● A leading electronics, food processing and textile manufacturing location.
  10. 10. Eastern Europe: the workshop of the world's largest market If the European Union was a country (coming soon), it would be the largest economy of the world.
  11. 11. comparisons
  12. 12. Labor markets In the last 15 years, there was a super-high wage inflation in China. From 2010 to 2011, wages doubled in Shenzhen, and increased +60% in Shanghai. You can see the result on the next slide. On the top of all that, Chinese social contributions are on the horizon. This time “western style” health care and pansion systems does not exist - but coming soon. Otherwise, McKinsey & Co predicted for 2015 that wage inflation will dramatically slow down in China, because workers simply price themselves out of the market. McKinsey has right: wages stabilised on a relatively robust level, China has to seek another economic model after its “superlow cost” model.
  13. 13. Will Eastern Europe provide lower labor costs than China? Eastern European total labor costs were 100-300% of the Shenzhen level, in 2011: Bulgaria provided similar labor cost than Shenzhen. After the high wage inflation in coastal China, today the country provides higher labor cost than Bulgaria and Romania, somewhere at the level of Hungary and Poland. Shenzhen, 2011
  14. 14. Comparisons: infrastructure
  15. 15. comparison: infrastructure Both destination has excellent transportation infrastructure, involving motorways and high speed railways. Eastern European public utility and environmental infrastructure developments are regulated (and mostly funded) by European Union, and there are relevant investments in Chinese public utilities There are approx. 1,000 business parks in Eastern Europe, with liberalized industrial property market (there are no limits to get a real estate). Eastern European industrial land average sales prices are between 20-40€ per sq.meter in larger cities, and under 20€ in smaller towns. 10€ per sq.meter is a good deal, however some municipalities offer free of charge industrial land. Manufacturing hall rental fees are between 2 and 5 € per sq.meter per month. The quickly growing Chinese industrial property market includes 29 million sqm leasable logistic/industrial stock. Rental fees are between 4-7 USD per sq.meter per month in premier locations - practically the same like in CEE.
  16. 16. Comparisons: business environment
  17. 17. The ghost of communism China is a so called “market communist” country. It means, the economy is led by the communist party’s 5-year plans. The companies are owned by the government - but competing on the more or less free market. In every day life, the “law and order” is not the strenght of China. Central-and Eastern Europe was also the member of communist block (some countries like Hungary, were “market communist” states, too). The communism is collapsed in 1989-90, and after a democratic and economic transition, Central- and Eastern Europe became the more or less free part of the West.
  18. 18. supply chains A recent BCG study states that… "While direct costs such as labor and energy will continue to have a strong influence on decisions about where to manufacture, it is important to take full account of other factors. Logistics, obstacles to efficiently conducting business, and the hidden costs and risks of managing extended global supply chains, for example, can offset much of the savings from labor or favorable exchange rates. It is also crucial to take into account hidden cost advantages of operating shorter supply chains, such as speed to market, greater flexibility, and a better ability to customize products for specific markets."
  19. 19. conclusions China still the workshop of the world, but manufacturing costs are rapidly increasing - the old school “low-cost” Chinese manufacturing model is dead. Product customization, improved speed-to market, EU funded manufacturing grants make Central- and Eastern Europe and nearshoring more and more attractive.
  20. 20. About Manufacturing Hungary Blog is an information source about the manufacturing topics in Hungary and Eastern Europe. Our goal is to support site selection team’s job, providing useful information. Dr. Balazs Csorjan, investment promotion specialist, the former regional director of Hungarian governmental investment promotion agency. Dr. Csorjan has taken part in 300+ site selection projects - he knows your questions.
  21. 21. If you liked this presentation, please do not forget to share it - maybe your partners will like it, too. Otherwise, do not hesitate to e-mail your questions: csorjan @ m35businesspark.hu or download the file. thnx a lot!

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