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December 6, 2005
China's China: Vietnam
Chinese manufacturers are looking for lower cost production. They are finding it in Vietnam. As today's Washington Post - ("China Ventures Southward") puts it:
While few would describe China as a beacon of labor safety or high wages, Chinese investors acknowledged in interviews that Vietnam beckons as an even cheaper, less regulated place to run a factory.
According to the Post:
For now, China's investment in Vietnam remains in infancy. Since 1988, Vietnam has attracted more than $50 billion, with roughly half coming from Taiwan, Singapore, Japan and South Korea, according to state figures. Mainland China has injected only $734 million while competing for foreign investment.
But much mainland money is filtered through partners in Hong Kong, which has sunk $3.7 billion in Vietnam since 1988, according to state figures. Chinese investment has surged in recent years. China has become Vietnam's largest trading partner, with two-way commerce expected to reach $7.5 billion this year, according to government figures.
. . .
Chinese manufacturers are now expanding into Vietnam, in part to lock up shares of the Southeast Asian market ahead of the creation of a planned free-trade agreement with China. Textile and garment-makers are shifting to Vietnam to sidestep quotas on their shipments into Europe and the United States.
Some investment is propelled by stricter enforcement of environmental standards in some areas of China. According to entrepreneurs in China who spoke on condition of anonymity for fear of angering government officials, leaders in coastal areas have been encouraging pollution-intensive industries such as plastics, steel and electronics to consider relocating to Southeast Asia. (emphasis added)
So China is already outsourcing some of its basic industries!
Does anyone still believe that we can succeed in the US under the old industrial paradigm of cheaper and cheaper and cheaper? There will always be someone out there who is willing to work cheaper - as the Chinese are finding out.
I doubt that Vietnam will cause much worker displacement in China. Vietnam is just not big enough. But, the trend will undoubtedly push companies (and the Chinese government) along the path they have already decided upon of moving up market. That will continue to present a greater and greater challenge for America - unless we find a way to re-invent the game.
To do so calls for greater attention to innovation -- and not just the old style where we invent it and let some one else make it. That static form of innovation is part of the old industrial model. In the I-Cubed Economy, dynamic, continual innovation is required. The new model is one of new products and processes tied to localized manufacturing. It is the fusion of manufacturing and services. And it is production rooted in jurisdictional advantage.
Right now, China is beginning to understand that one does not create sustainable jurisdictional advantage through low wages and low environmental standards. They are actively trying to create a new advantage - based on innovation and design.
We need to do the same.
Posted by Ken Jarboe at December 6, 2005 7:55 AM
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