China still top for manufacturing investment, study

By George Reynolds

- Last updated on GMT

Related tags: Cent, Investment, China

China remains the number one location in which manufacturers plan
to expand their operations, according to a new study by service
consultants, Deloitte & Touche.

The study found that despite product safety concerns, rising labour costs, increased cost of raw materials and higher inflation, over two-thirds of surveyed companies are likely or very likely to expand operations in China within the next five years. While 82 per cent of positive respondents said they planned to invest in production operations, 78 per plan to expand sales and distribution, with 44 per cent expecting to use funds for research and development. From the 446 executives of manufacturing companies headquartered in 31 countries, 59 percent said their businesses had operations in China, while more than one-third had operations in Eastern Europe, Southeast Asia, and Latin America. Unsurprisingly, larger businesses with yearly revenues above a $1 billion are more likely to be operating in emerging markets, with three quarters with operations in China and about half in the remaining markets. Significant expansion in China was expected by 84 per cent of respondents. More than 80 percent of the executives expected their companies would invest in production operations in China, while roughly half anticipated an expansion of production activities in the other markets. Jane Lodge, UK Manufacturing Industry Leader at Deloitte, said China will remain at the forefront of operations for global manufacturers, but the events of this summer and the increasing cost pressures will increase the awareness of the risks of operating in emerging markets. "Until now, manufacturers have not always reviewed the risks holistically,"​ she said. "Success in emerging markets requires an intelligent approach to managing the risks and opportunities necessary to drive future growth, while avoiding risks that have no upside potential."​ In 2005, emerging markets accounted for more than half of world gross domestic product (GDP) measured at purchasing power parity, taking into account differences in the relative prices of goods and services. Their share of world exports is now 43 per cent, up from 20 per cent in 1970, and they consume more than half the world's energy, according to the study. A key finding of the study found that about one-quarter of the executives said their companies found it very difficult to attract qualified workers in China, India, Latin America, and Eastern Europe. Retention poses greater challenge in China, India, and Southeast Asia, where about one-third of the executives said retaining qualified workers was very difficult, the study found. However, despite these challenges and other risks, only 56 per cent of executives said their companies conduct a very rigorous risk assessment before entering an emerging market. Only 47 per cent of the executives said the individual risk assessments at their company were well integrated before they invested in an emerging market. Even among companies with more than $1 billion in annual revenues, just over half of the executives described their individual risk assessments as well integrated, according to the study.

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