High material, components costs push up China export prices: Global Sources survey

Export prices of various China products are likely to increase in the months ahead, especially if the cost of major materials and components continues to go up. This was highlighted in the latest survey of 232 exporters by Global Sources. Seventy-four percent of survey respondents said they boosted export prices in 2010, due mainly to higher material and component expenses. One-third of suppliers said costs increased by six to 10 percent last year, while 41 percent reported that materials purchases were 11 to more than 20 percent more expensive.

Fifty percent of respondents said they capped export price adjustments to five percent, while one-third posted increases of six to 10 percent.

With material and component costs continuing to rise, almost one-third of suppliers said they plan to improve the manufacturing efficiency at their factories, while 24 percent plan to implement another round of price adjustments. It is mainly the manufacturers based in Guangdong province that plan to boost productivity.

Twenty-eight percent of respondents in the Yangtze River Delta region and Fujian province said raising export quotes is their primary measure against higher material spending. One-third of exporters in emerging manufacturing hubs intend to hike prices as well.

"In past surveys, suppliers indicated they would make operational adjustments to boost profit margins. This is no longer an option with material and labor costs up across nearly every industry. As a result, we are seeing a larger number of suppliers raising prices and transitioning to produce higher-end products. This is a natural evolution for China's economy, as more makers shift from low-cost supplier to high-quality manufacturer for global brands as well as their own. The need for China exporters to work harder to market themselves and justify their higher prices in terms of service, product quality or production volume is more apparent than ever," said Craig Pepples, Global Sources' President of Corporate Affairs.

Suppliers are taking measures to cope with the rising cost of major materials and components:

13 percent of exporters plan to increase their minimum order requirement;

11 percent plan to move out of low-end manufacturing and switch to high-end production;

10 percent plan to use more locally made materials and components;

8 percent plan to use less expensive alternatives to buyer-specified materials and components;

3 percent plan to transfer some or all production facilities to lower-cost inland provinces or nearby countries.

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