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Defensive Tactics in China

U.S companies that source products in China are looking for ways to cope with higher production costs.

By John Hintze | Updated on March 01, 2011

The combination of higher costs and economic and monetary factors are prompting U.S. companies buying products in China for export to consider strategic shifts, including moving production to another country. And for those firms continuing to use the world’s biggest factory floor, product quality–and the access to working capital funding it brings–is a growing concern. Times are certainly tougher for companies that rely heavily on commodities. Bajer Design & Marketing, a manufacturer and distributor of ironing, laundry and storage products, was not directly impacted by the 80% surge in the price of cotton last year. But in place of cotton, other firms began using polyester, required for many of Bajer Design’s products, and that pushed up the price of the synthetic fabric by 30%.

Add to that higher oil prices boosting transportation costs and a 6% appreciation in the Chinese renminbi against the U.S. dollar over the last year. Plus, according to Moody’s Analytics, wage increases in China ranged from 10% to 15% over the past two years, and annual inflation has hovered around 6%.

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