The End of the World As We Know It

Imagine waking up and reading the following: “China’s fast-growing middle class demanding higher wages and better working conditions.” “Global demand for raw materials creates 400 percent increase in manufacturing raw material costs.” “Major U.S. manufacturer set to recall 20 million products due to traces of banned substances in their product.” “China’s government reduces VAT refunds reducing manufacturers/exporters profitability.” It is happening and will continue to happen. The implications are clear that we are entering a new age where we will need to be much smarter at running our businesses.

The last 20 years will prove to have been relatively easy compared to today. What has happened is we have taken advantage of an under-developed country—China—to produce cheaper products with less functionality. We have offered these products to Americans at lower and lower prices, which has significantly improved our standard of living in America. But, at the same time, it has complicated the way we will conduct business in the future.

What has led us to this point? First, we hit the bottom of cost decreases in China. There is a limit to how much cost can come out of a product and still have it function properly and safely. The process of producing extremely low-priced goods can’t exist indefinitely in a developing nation without some reaction. Chinese workers are now demanding higher wages and shorter hours. Fewer of them are willing to travel from the west, live in a dormitory and then during Chinese New Year head west again. Many are not returning. The net result is higher wages, worker shortages and the requirement of many factories to move west for a suitable work environment. All of this adds costs.