Prices of products made in China are rising. This is bad news for organizations that rely on China for manufacturing. Today, many scared sourcing executives are asking, "Where's the Next China?" Unfortunately, there isn't a "Next China."

Sourcing executives would do well to recognize this reality, spread the word to those who will be impacted, and prepare their sourcing teams to confront a new set of challenges.

The Context: Change in China

There have been three keys to China's manufacturing dominance: pro-trade government policy, solid infrastructure, and a huge, underemployed labor pool. It is this last ingredient -- China's huge labor pool -- that has kept manufacturing costs so low for so long.

However, in the last few months, we have seen the landscape change very quickly in China. In the wake of several suicides, high tech powerhouse Foxconn raised wages dramatically. In response to multiple strikes, Honda also offered workers significant pay increases. While the speed of change is breathtaking, the fact that things are changing is not a surprise to most sourcing executives, who have seen the writing on the wall for years.

Prior to the Great Recession, wage rates were already increasing, particularly in coastal China, leading many companies to move inland or to begin the search for the "Next China." However, the Great Recession forced many suppliers into survival mode and enabled buyers to get low prices for a little while longer. But this was a temporary state of affairs.

As the global economy begins to recover, wages are again increasing. And China's recent decision to move to a more flexible currency -- while good for China and the global economy in the long run -- only compounds the effect of wage increases. There is now little doubt of what the future holds: prices of products made in China will rise. And so companies are again asking, "Where's the Next China?"

Step 1: Recognize That There Isn't a "Next China"

Unfortunately for sourcing executives, there isn't a "Next China." Why not? Because in no other country is it possible to find the three keys to China's success: pro-trade government policy, solid infrastructure, and a huge, underemployed labor pool. Only India comes close on size of underemployed labor pool, but India lacks pro-trade government policy and solid infrastructure -- and shows no signs of remedying things in the near future.

Of course, there are low-cost alternatives to China. Many companies have found success by sourcing from places like Vietnam, Bangladesh, Thailand and Indonesia. However, none of these countries has a large enough underemployed population to keep wages low if companies pour in for as long, and in such numbers, as they did in China. Therefore, any gains from moving to new geographies are likely to be short-lived.

Does this mean that we're entering an era of rising manufacturing costs? In all likelihood, yes. Truly nimble organizations -- the ones that can stomach shifting geographies and suppliers on a regular basis -- will be able to stay a step ahead of wage increases. And organizations that invest in improving their processes will be able to blunt the impact of rising wage rates. However, all other organizations will be stuck with rising manufacturing costs.

Step 2: Spread the Word

If there isn't a "Next China," what should sourcing executives do? First, spread the word. For a long time, sourcing organizations have been known for being able to reliably deliver low manufacturing costs. This is about to change. Telling your colleagues this will take courage, but it's essential. What's worse than rising costs? Being surprised by rising costs. At least if your colleagues know that rising costs are on the horizon, they can plan accordingly.

Step 3: Prepare Your Sourcing Team

Some sourcing executives will hope that they can pass along cost increases to consumers in the form of higher prices. Others will hope that a Next China will emerge, enabling the era of reliably low costs to continue. If hope is not an acceptable strategy in your organization, it's time to prepare your sourcing team to become more nimble and more efficiency-oriented. Here's a quick quiz to assess whether your team is prepared:

1) Can my sourcing organization regularly evaluate different regions and countries to evaluate whether they are suitable sourcing destinations?

2) Can my sourcing organization create short-lists of potential suppliers in any region or country?

3) Can my sourcing organization work with suppliers to drive process improvements that reduce the amount of labor required for each item we manufacture?

4) Can my sourcing organization do all these things -- as well as all the traditional sourcing activities -- with fewer people than ever before?
If the answer to any of these questions is no, you have work to do. In truth, just about every sourcing organization that aims to be an asset, rather than a liability, needs to invest in information or people or both. Information can help your team efficiently evaluate countries and suppliers on a continuous basis. Your people should be able to drive process improvements, both externally and internally. If they can't, you need to upgrade your team's skills, either through training or hiring.

These investments will require both time and money, which is why it's essential that you get the ball rolling by telling your colleagues there isn't a "Next China." Alternatively, you can choose to hope that there is a "Next China" or that consumers will protect your margins by accepting higher prices. Choose wisely.

Josh Green is CEO of Panjiva, an intelligence service for sourcing executives.

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