Need to China for new strategies (Forbes)

Imagine a 2020 China with thousands of plants and the millions of unemployed workers rushed into cities booming once again hoping to join projects in China's emerging bourgeoisie. This is an economic future which could be on the horizon - unless China and heavily invested in its economy companies adopt new business strategies to deal with fundamental changes in China's labor market.

For 25 years, China has relied on its low-cost manufacturing sector to generate an export boom. Rapid urbanization has produced a ready supply of hand of cheap work as workers migrated from rural agricultural manufacturing facilities in burgeoning cities. The Government has adopted policies pro-trade, establishing tax havens who became the Chinese manufacturing centre. Municipal governments were also involved in attracting investment, by providing incentives generous including land cheap or even free of charge. Each of these factors helped and supported by the Chinese Government's decision to maintain an artificially low value for its currency, the renminbi.

These policies have helped to keep a lid on labour costs (and the export price), allowing to China becoming the Assembly line in the world. American companies such as Apple (AAPL - news - people), Dell (DELL - news - people) and Hewlett-Packard (HPQ - news - people) outsourced contract manufacturers such as Foxconn, technology that is passed to employ an estimated 800,000 workers.

In recent years, however, contract labour of China has undergone some fairly radical structural changes. In 2008, has adopted a new law, strongly pro-labor substantially raised the cost of maintaining and building a worker. Many municipal governments have also increased the minimum wage levels in an attempt to reduce income disparities and enhancing social stability. A movement nascent Union built and hand work strike, virtually unknown a few years ago have become more strategy in more frequent securing higher allowances.

This pushed wages in China's main manufacturing centres. Since 2007, the minimum monthly wage increased by 31% in Beijing, from 33% in Shanghai, from 25% in Shenzhen and a whopping 102% in Wuhan, many operations auto site.

Yet the loss of good work market of China's main advantage need not retirement signal China as an economic power. The challenge Chinese economic and entrepreneurs - and foreign companies investing in China - is to implement new management strategies to deal with the evolution of the cost of the structure of the Chinese economy. In short, if companies operating in China want to compete, they must engage in the kind of continuous running tirelessly to reinvent themselves an essential ingredient to the success of companies American and European since the 1970s.

Because they have relied to their advantage, many Chinese companies did not see the need to implement improvements in operational processes required to drive profitability of the company.

Integration rationalized operations at sea, for example, spoken for years, with little progress. Cut waste between integrated divisions – as the efforts of R & D the United States and engineering design in China, is still an enormous opportunity for most Chinese companies. This type of integration, if done correctly, can have a tremendous impact on price, speed and quality, thus allowing China to maintain its edge as a rewarding for multinational companies to invest and produce.

For companies American and European based on the work of the Chinese, the increased costs could force to otherglobalists Viet Nam, Cambodia, Bangladesh and other low-cost, a race-to-the-bottom quickly runs its course strategy areas. But others may see an opportunity to push for changes in the manufacture and supply change practices that seemed never critical when Earth and hand work are relatively good markets in China.