China's Low Cost Manufacturers Run Out of Time; Hundreds of Factories May Close in Dongguan

Chinese contract manufacturers are closing their doors. Over 10,000 employees were laid off from Suzhou Science & Technology, as a result of the bankruptcy of a mobile phone parts manufacturer.

Aside from a weak economy, firms are struggling due to over reliance on a single customer and technological improvements that require large capital spending. For example, the article discusses how Nokia suppliers are closing, while those who make iPhone components are throwing in the towel as the technological sophistication required for new phones costs too much to implement.

This change has been discussed/forecast for years: the low hanging fruit of low cost manufacturing is gone. Chinese factories either have to move west (inland) or abroad to find cheap labor or they have to move up the value added chain. The weak economy is accelerating this shift and firms that have been slow to change are being wiped out in large numbers.

iFeng: 中国代工厂遭遇寒流 苏州万人大企业停产待倒闭
"Electronic foundry industry for decades, the majority still remain in the low end of the industry chain, profits, even more frightening is entirely dependent on a single customer, market a problem, immediately unsustainable." 3C-known industry research Liang Zhenpeng expert, told reporters that with the decline in domestic labor cost advantages in eastern and accelerate technological upgrading, the future does not rule out a large number of manufacturing enterprises will have a crisis.
The firm has actually been in trouble for some time, but it continued operations due to a contract with the local government. If the firm closed or moved before the end of two-years, it would have to pay a 150 million yuan breach of contract penalty, so the firm operated until this clause was fulfilled and then then shut operations. The firm suffered from bad management as well as bad luck: the Kunshan factory explosion last year impacted their business.

Business is weak all over, particularly in Dongguan. More than 10 large-scale factories went bankrupt as of October, but analysts expect more than 100 large scale factories will go bankrupt or cease operations by the Chinese New Year (February 19).

Liang Zhenpeng above analysis of the reasons for the closure of the factory, said: "The first is the collapse of the downstream customers or losses and huge amount of money owed, the foundry business capital chain collapse; the second is the major shareholder of foundry economic crisis, have drawn from subsidiary companies blood or divestitures; the third is the technology behind the foundry business, to keep up with technological upgrading and downstream customers to be eliminated, such as Hong Hui technology because technology is backward, poor abandoned Nokia production environment."

......Liang Zhenpeng that close down domestic foundries have become increasingly frequent, mainly because domestic production cost advantage has gradually lost the ability to downstream customers getting lower and lower premiums, but many companies are too high dependence on a single customer order As customer orders an end, businesses closed down immediately.

Factory direct consequence of the collapse of a large number of workers unemployed. Suzhou Industrial Park Administrative Committee official said: "After the sudden closure of a large number of workers, all of a sudden to the society, it is difficult to completely solve the employment problem in the short term, only gradually shunt to divert."

"Now the foundry business must plan ahead, you can not because there is some order to sit back and relax." Liang Zhenpeng suggested, "or relocation to lower-cost regions elements, such as the Midwest or Southeast Asia; while there is money or intensify an independent brand building like China Taiwan's Asustek and Acer. "

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