Farewell to China?

My first time in China was more than 12 years ago (I had not yet joined Panini).  At that time, their labor cost was almost negligible - compared to the western world. They also had a lower cost for energy and the raw materials were cheaper compared to western standards. Nobody doubts China production was a good business opportunity despite requiring many efforts to find the right partner and manage complicated logistics - unusual for our Panini team - to achieve good quality products and stable production.

I do not think of myself as a China expert, but from what I can tell after some years; I cooperated with very good companies, met highly committed and competent teams and some of the kindest people I have ever met in my life actively supported Panini business and made possible a reliable and winning partnership. I will also share I have eaten some of the sweetest and freshest lychees in the world (thanks, James) and have drank some great green teas during my visits to China, but that is another story … 

However, the World keeps moving forward. I have seen a growing world commercial power, an improvement of the average quality level (also in lifestyle I should say), and better logistics in China. But, on the other hand, I have also seen an increase of the labor cost (and energy as well), the (good quality) raw materials costs becoming aligned with the western ones, electronics components as expensive as in EU or USA (or even more, in some cases) and so on.  It is easy to understand these negative effects on Panini’s business. 

In the meantime, other areas in the World increased their production capability, their quality levels sometimes in conjunction with easier logistics, making them more attractive for our business. 
The recent changes in import duties in USA (+10%), the possibility of further increases (+25 %) and the uncertainty for the future represented the icing on the cake that made moving our production out of China more convenient than to keep it there.  

I will not bother you with details (maybe another time) but, due to the current Supply Chain organization, moving the production to Romania is our best option; and we are rushing to achieve it  as soon as possible. 

All that said, you might ask whether all that is a farewell to China or not, and my answer is "absolutely no" for reasons despite our cooperation being different: 

  • China is currently the World factory for a lot of components (power supplies, electric motors, wirings, CIS, and so on) that have good performances, good quality level and reasonable costs - I see no reasons why that should change and in some cases there are not many reasonable alternatives. 
  • Many Chinese companies are big enough to move on the global market and to relocate production plants out of China where production costs or import duties are not so high.  
  • Nobody knows what tomorrow will bring; import duties may change and new markets can arise with different or no constraints. 

So, instead of saying “farewell”, let me say “see you soon” to all our Chinese friends.

 

Manlio Lombardo
Supply Chain Director, Panini

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