Losses from flight of manufacturing have to be offset
About 30 years ago, the center of global manufacturing started moving from theWest to Asia, most noticeably to China. Now the pendulum has started swinging in the other direction, toWestern Europe and the United States, with sports goods giant Adidas announcing it will establish new factories in Germany and the US.
The possibility of manufacturing flowing from China to theWest has been in discussion for some years now but few seem to have taken it seriously, with most Chinese dismissing it as a false alarm. Well, the alarm was not false.
Adidas CEOHerbertHainer recently told the Nikkei Asian Reviewthat the company will soon open a factory inGermany to meet the additional market demand for its shoes and set up another in theUS next year. Automation and 3D printing technologies will greatly lower the cost of labor in the relatively expensive Western countries, he said, and thus make the shift worthwhile.
Adidas’ newstrategy should set off alarm bells for China as the global technology revolution has made possible what used to be impossible even till recently. The cost of labor in China is low, which, along with its competitive preferential policies for foreign investors and a huge consumer market, has created the illusion for many that it is almost impossible for global investors to shift their production bases to the advanced economies where production costs are relatively high.