manufacturing.jpgChinese manufacturers desperately need to push up prices and that has made the EU their export market of choice, according to a recent survey by Global Sources, the Nasdaq-listed trade publisher.

Almost half — 45% — of the more than 1,100 mainland suppliers surveyed said the EU was their favoured export market while 32% opted for North America.

The reason? The EU is seen to be an easier ride when it comes to making price rises stick. According to Global Sources:

Many suppliers feel that profit margins in the EU are better than in the US. The EU has more disparate distribution channels and more independent retailers and wholesalers. The US, on the other hand, is dominated by large retail chains capable of putting more price pressure on suppliers.”

Most suppliers plan to increase prices in the next 12 months, to compensate rising raw material costs and “intensifying price competition”

At first read, it doesn't make a lot of sense that suppliers should increase prices when their competitors are cutting them. Presumably, Global Sources means suppliers feel competition has kept prices artificially low and now they want to put them up.

The output prices of Chinese manufacturers continue to lag the increase in costs, according to the latest Purchasing Managing Index report on Chinese manufacturing from investment bank CLSA. Jim Walker, chief economist at CLSA says:

Chinese manufacturing profits were in a vice-like squeeze before this release but are now facing extreme challenges. Moreover, it is only a question of time before these price increases are passed through by Chinese manufacturers into global inflation. The era of cheap goods coming from China is over.”

As well as looking to boost prices, many mainland China manufacturers are working to increase efficiency using a variety of methods: 44% are upgrading management systems, 24% are automating key production processes and 14% hope to boost efficiency by reducing waste and decreasing defects.

I've long believed that it was only a matter of time before Chinese manufacturers start adopting practices, systems and techniques that are commonplace in the west. The Global Sources survey seems to confirm that this trend is already in motion.

Western suppliers of ERP systems and other manufacturing software should take note.

The China Supplier Survey can be downloaded free here.

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