As Warren Buffet once said, “We will always be looking for low cost manufacturing, as long as the quality is high.”
In the past 25 years much of the American Manufacturing backbone has been displaced to other parts of the world. The best example would be China, where low cost labor, lack of environmental regulation, and quality still continues to grow, at last estimate 9.5% (China’s GDP). However, dealing with China means that the cost of manufacturing must also be added to the cost to ship it the the United States. In the last year, with the price of oil doubling, the cost/benefit of doing business in China has lessened. Alluded to in this article, the cost of transport is hampering globalization.
Combined with lead times for material of 30-60 days, and more people begin to look for other options. Maybe the world is not so flat. American companies are now interested in Central America for the closer proximity, milder political climate, and more favorable currency situation. However, Central America is prone to stong hurricanes, which would be a limiting factor.
As shipping costs grow, demand for oil is likely to fall. If companies make large logistical changes to their business and shift to a bigger Central American strategy, Asia might be the loser. That is, if Central America can keep quality high. I don’t think this will be as big of a problem as it might be with China. Belize City is a two hour flight from Miami. This is compared to New York to Beijing…which is about 20 hours. One trip can be done on a weekend (enjoying the beach a little as well). The other takes about a week for a productive roundtrip and most of the fun in China is tasting the smog. I’d rather the beach personally.
Even though fuel costs have fallen of late, Chinese manufacturers are seeing high levels of inventory. They are giving greater and greater discounts. We shall see what the ramifications are.
