noodle making returning to UK from China–what this means

noodles to Leeds

British Food company Symington’s, the inventor of pea flour and maker of Golden Wonder’s pot noodles, is returning its noodle manufacturing operations from Guangzhou to Leeds, according to the Financial Times.  The FT says the company cites equivalent/lower labor costs in the UK and better response times to customers’ requests as the main reasons.  (I’ve looked in vain on the Symington’s website for a press release.)

This says something about China.  

But it’s not new news.  Alerted by Hong Kong-based distributor Li and Fung and by David Pilling of the FT, I wrote  in late 2010 about the shift of labor-intensive manufacturing, like t-shirt making, away from China to places like Bangladesh and Vietnam.  As I commented back then, this wasn’t particularly new news in 2010, either.

China has run out of cheap labor on its eastern seaboard, a signal that at least this region of the country has to shift to higher value-added manufacturing.  The textbook solution for a nation facing this issue is to allow its exchange rate to rise, while holding local currency wages steady.  China, however, hasn’t followed the schoolbooks.  It has kept its exchange rate relatively stable, while aggressively encouraging local currency wages to rise.  Although this also gets the job done of forcing the most labor-intensive and low value-added businesses to go elsewhere, it runs the risk of creating a lot of inflation.  We’ll see how things turn out.  But, personally, I’m not betting against Beijing on this one.

What’s more interesting, to my mind, is what this says about the UK

Yes, the home country has won back the noodle makers.

There certainly are transportation time and cost savings.

Symington’s will doubtless use “Made in the UK” to its marketing advantage.  And there are probably political points being scored as well.

Nevertheless, this isn’t wresting high-tech business from Google, or Samsung or Amazon.  It isn’t bio-tech.  It isn’t competition for LVMH.  It’s labor-intensive work that would otherwise have ended up in a developing country further down the food chain than China.

“Reshoring” of this type is a two-edged sword.  On the one hand, it’s an illusion-shattering phenomenon for dreamers who recall the days when Britain held a privileged place as the manufacturing hub for a far-flung colonial empire–including Bangladesh.  On the other hand, it’s a place to start.  And with sterling gradually depreciating, UK labor will be in increasing demand.

as an investor…

…this may not be great news for UK manufacturing.  Nor is it a reason to be interested in this sector, because profits are likely to be slim.  But even a low-end manufacturing revival means more jobs.  That suggests that mid- to low-end entries in consumer-oriented areas like lodging, specialty retail and supermarkets may have better prospects than is currently factored into their share prices.

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