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China getting expensive and thus cheap China to outsource to will soon be a story of the past

Thursday, 18 April 2013

Cost of Product in Asia has been the force for their growth as many western firms have been fleeing there in what they described as lower costs and has massively outsourced to China and the rest of Asia. Things are changing in China and that low cost production is going up as predicted by some researchers since 2004.

As Asian wages continue to grow approaching the levels in the western countries, the flight of production to the Asia and particularly China has started subduing and to some extent, it is reversing - looking at American for example. Factories will instead start locating to areas where energy or electricity prices are lowest, some analysts who spoke to the Swedish media networks have contended.

Although already reported by other media sources some months ago, with reference to the USA, Frenchman Charles Gave who has worked with financial investments in over 40 years has been talking to the Swedish business daily. Dagens Industri about changing fortunes of the Asian outsourcing haven for western forms. In 1999 he founded the research firm GaveKal, which currently has high reputation among institutional investors.

GaveKal writes in a recent analysis report that the cost of running a factory will soon be lower in the U.S. than in Asia. This would mean that firms would start reversing and resourcing their operation where the market and cheap energy is.

For example, GaveKal follows that: In the middle of 2011 the two years' salary for a worker in the Taiwanese electronics company, Foxconn was approximately $50,000, as much as the unit cost of an industrial robot in the same period.

This according to the Analysis Company is driven by that wages are rising faster in developing countries than in Western countries, while the cost of the automation is falling.

"As the wage gap disappears competitiveness will instead be determined by energy prices in each country, it will be the next big deciding factor, "said Charles Gave to Swedish business daily Dagens Industri.

He says the United States is very well positioned for the change, largely because of the increased extraction of shale gas.

"Within a few years the U.S. will be energy self-sufficient. Moreover, oil prices is pitted to collapse and move down to $40 per barrel, while wages in Asia rises. In such a world, there is no need to have a factory in Shanghai when you may have it in Buffalo, "said Charles Gave, report the Swedish paper.

by Scancomark.com Team

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