Partnering with Chinese manufacturers has been a significant factor in the explosive growth of the pet industry over the last 15 years.  I don’t know what % of hard goods are made in China, but I’ll be it approaches 75% or more.  When I owned my pet company, Avian Adventures, we moved our production from Mexico to China after realizing that I could save 40% AFTER SHIPPING by having my products made there.  Similar stories in our industry abound.  China has been an integral part of our industry for years, but that trend may be coming to an end in the next several years.

From 1979 to 2009, China enjoyed an “economic miracle.”  Their explosive growth was unique because of its sheer magnitude and longevity.  However, for many reasons related to demography and economics, that era of break-neck economic growth is over.  According to George Friedman of www.stratfor.com, we are entering the Post-China World.

Friedman has been tracking this evolution for over two decades.  His view has recently been validated by Paul Krugman, the New York Times  columnist, who wrote in July 2013:  “The signs are now unmistakable:  China is in big trouble.  We’re not talking about some minor setback along the way, but something more fundamental.  The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits.  You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.”

Obviously China will continue to exist and perhaps prosper, but China’s place in the world will be filled by other nations with even lower wages and other advantages.

In the 1950’s “Made in Japan” meant cheap, shoddy goods but, by 1990, Japan had reached a pint where its economic power now rested on superior products powered by advanced technology.  It had to move away from high growth to a different set of behaviors.  Today, China is confronted with the same sort of transition.

China’s growth surge was built on a combination of labor costs that were far below Western wages and aggressive lending policies by Chinese banks, even as businesses have been failing due to increased inefficiencies in the Chinese economy.  Now a huge dilemma has emerged:  If the Chinese banks continue aggressive lending to failing businesses, they will trigger inflation.  Inflation, in turn, will increase costs and make exports less competitive.  If they stop propping up failing businesses, unemployment will rise, which is seen as a massive social and political problem.

What does this mean for today’s pet product manufacturer?  I believe it means one of three things: 1) They can continue to keep their production in China and pass along the inevitable price increases to customers or take a lower margin;2) They can explore moving production to the United States.  As we’ve seen over the last few years Made in the USA has become increasingly important to pet product consumers.  If a manufacturer can find a way to get the product produced here and not pay more than a 20% premium to do it,  the move could prove a very wise decision; 3)  If they truly desire to have the lowest cost product, they will have to move their production to a lower-cost labor market.

But who will fill the gap made as China inevitably shifts away from the bottom tier of manufacturing?

Obviously there is no single country that can replace China.  Its size is staggering.  That means that its successor will not be any single country, but several countries.  In answer to that question, Stratfor.com has identified “the PC16.” *  These are the 16 emerging countries that are best positioned for explosive growth in a “Post-China World.”  They are:

  1. Tanzania
  2. Kenya
  3. Uganda
  4. Ethiopia
  5. Sri Lanka
  6. Indonesia
  7. Myanmar
  8. Bangladesh
  9. Vietnam
  10. Laos
  11. Cambodia
  12. The Philippines
  13. Peru
  14.  The Dominican Republic
  15. Nicaragua
  16. Mexico

Taken together, these countries have a total population of just over 1 billion people and have the requisite capabilities for significant growth in early-stage industries such as garment, plastics, footwear, etc.

It will be interesting to walk around Global Pet Expo in 2024 and see which of the above countries will fill out the phrase “Made In __________.”

* For more information on Stratfor.com and the PC16, visit:  http://www.stratfor.com/weekly/pc16-identifying-chinas-successors

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry. As a Managing Director at SDR Ventures Investment Bank, she is a registered Investment Banker and leads the team in executing pet industry transactions including mergers and acquisitions, capital formation and strategic advisory services.  She is also the owner of BirdsEye Consulting, the consummate source for pet sector consulting expertise.  She can be reached at birdseye@carolfrank.com