Challenges for original equipment manufacturers (OEM´s) in China the past years have been following:
* Cost of resources and energy have increased
* Value of RMB has gone up by 25%
* New employment law makes it mandatory to buy an insurance for each employee. Also compensation has changed in terms of layoffs.
* Environmental protection requirements have increased after the Copenhagen summit. This causes a 5-10% investment increase for businesses.
Altogether - cost of operations in China in the past has increased 15% at least. China is still world´s manufacturer but this equation creates a problem.
How should the problem be tackled and what does this mean for OEM´s?
To start with, it is crucial to transform China from a manufacturing market to a service based economy. The improved standard of living will enable higher income and exposure to a wider international taste.
The support for OEM business will decrease. In the future, development strategy will support a new kind of development within services and technology, and coordination of regional economy. One of the examples is the Yangtze river region around Shanghai. Covering approximately 11% of China´s population, it accounts for 24% of the economy. Within a few years, this area is expected to have a population of 250 million people - same as in USA. Professor Sheriff from Hong Kong Polytechnic University´s bet for multinationals is to go for the three growing regions: Hong Kong / Guangdong, Yangtze and Beijing / Tianjin.
Report from eMBA study trip in Hong Kong - Shanghai.