Monday, May 30, 2011

Are China's factories running out of power?

Why has Global Sticks, a manufacturer of wooden ice cream sticks, moving from Dalian, China, to Thunder Bay, Ontario?

It’s the kind of low margin manufacturing that is never supposed to come back after it leaves North America for cheaper labour abroad.

But wage costs are no longer everything they were cracked up to be. In today’s world of soaring energy costs, power rationing and export taxes on key commodities such as wood, wage gaps are less important. When the power goes off, it suddenly doesn’t matter if your labor is expensive. Factories don’t run on sweat alone.

As the price of the bunker fuel that transports those ice creams sticks to customers around the world tracks soaring world oil prices, the distance between your factory in Dalian and North American kids lining up at their neighborhood ice cream store, becomes more expensive every day.

When the price and availability of energy start to dominate your business plan, you say goodbye to your inexpensive Chinese labor force, and pack up and leave. (read more)