China Begins to Outsource

Although the tidal wave of lemmings outsourcing manufacturing to China has begun to slow in the face of a weak dollar and Chinese quality problems, the popular perception is that China is still the place to find cheap labor coupled with a top notch infrastructure.  Perhaps those companies contemplating a move to China should look at what a high tech Chinese company is doing.

Lenovo has decided to change its manufacturing strategy and will outsource the whole of its own-brand notebook production to Taiwan makers, according to a Chinese-language Economic Daily News (EDN) report, citing the vice president of Lenovo's worldwide consumer notebook division.

Most of you will recall that Lenovo purchased IBM's laptop computer business a few years ago, and continues to be successful.  Labor cost in China is lower than in Taiwan.  Infrastructure capability is similar, but China has sufficient capacity.  The internal Chinese market, while representing still a tiny fraction of their customers, is growing rapidly.  So why outsource?  The article doesn't give an explanation, and follow-up research on this particular company doesn't dig up a reason.

Perhaps they have a sense of where Chinese wage inflation is heading, how resource constraints are already impacting manufacturing growth, and perhaps even some thoughts on the coming struggle between nouveau capitalists and the old regime.