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China manufacturing
OpinionComment
Edward Tse
Edward Tse

The View | Why China’s move up value chain means Dell’s departure is no big deal

  • Rather than being alarmed and making conclusions about the entire economy, the Dell news needs to be put in context of China’s development
  • Labour-intensive industries are leaving the country to be replaced by higher value-added sectors, and China’s advantages are hard to replicate elsewhere

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Robots conduct welding work at the workshop of an automobile manufacturing factory in Qingdao, Shandong province, on January 14. China’s steady progression up the manufacturing value chain means developments such as Dell’s intention to reduce its dependence on China might not be that damaging. Photo: Xinhua
Edward Tse
Nikkei Asia reported that the US-headquartered Dell Technologies plans to stop making any products that requires semiconductors made in China by 2024 and is planning to move half its production out of China by 2025. Instead of feeling alarmed, this needs to be taken in stride.
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The world’s third-largest personal computer manufacturer, behind Lenovo and HP, had a market share of 11.7 per cent in the third quarter of 2022 in China. Besides the three leading players of Lenovo, HP and Dell, there are a number of Chinese mainland and Taiwanese players offering competitive products. Compared to smartphones, internet-of-things products and smart cars, personal computers have seen less innovation.

Supply chains leaving China is nothing new. Labour-intensive industries such as apparel, footwear and toys had started moving to places such as Vietnam, Bangladesh and Cambodia some 15 years ago. Production of consumer electronics such as electronic toys and electronic phone sets have also started to leave China.
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Most of the supply chains that have left China involved relatively simple design and production processes that require minimal research and development and little ingenious product prototyping. The relatively stable nature of these product developments implies networks of suppliers of inputs do not change much.

While personal computers require quite a few parts, it is gradually becoming a commodity product. Replicating or moving the supply chain of personal computers away from China is possible, though this could incur higher costs. Dell’s costs of supply chains set up elsewhere could be 15 to 20 per cent higher than those in China.

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