Association for Free Research and International Cooperation

Changing manufacturing landscape in Asia

Article from AFRIC Editorial
Although China continues to be the leading player in offshore manufacturing; several factors are causing firms that are highly cost-sensitive to consider alternative locations for the production of their goods in the future. It has been a trend now that businesses looking for low-cost export platforms in Asia are increasingly considering countries such as Malaysia, India, Thailand, Indonesia and Vietnam.

These countries are expected to inherit China’s crown for manufacturing hub in the next five to 10 years due to its low-cost manufacturing and labour productivity. IQI Global Chief Economist Shan Saeed this is because, China no longer getting cheaper as it is rapidly moving into medium to high-tech-manufacturing as its labour costs have risen. “China is not getting cheaper… China is getting expensive because labour productivity is very high. And labour productivity comes when your labour has got a very high skill set,” he told to AFRIC member in Malaysia.

China, the United States, and Germany are currently among the most 15 globally competitive manufacturing countries in the world. As Chinese manufacturing becomes more high value, and workers’ wages are rising, low-cost manufacturing is moving out. Shan said this has been happening for a number of years – it’s nothing new. He however thinks, ASEAN countries, Vietnam in particular will be the next top hub for low-cost manufacturing. Because of low wages, a skilled workforce, lax regulations, and strategic location, Vietnam has become Asia’s best country for manufacturing, Shan added. According to data by the International Trade Centre, Vietnam’s revenue from electronics exports amounted to US$38 billion. This might seem like a low number compared to China’s US$560 billion, but it helped Vietnam climb the ranks into the top 12 electronic producers and exporters.

Despite a prediction by market analysts that China will keep its position as the world’s largest exporter of electronics for at least several decades, many global manufacturing firms have decided to base their new plants in Vietnam. Citing an Economist Intelligence Unit report released in November 2018, Shan said apparel and readymade garments are already moving out to Vietnam, India and even Bangladesh. Many foreign businesses also plan to open new manufacturing plants and offices in Thailand, Myanmar and Vietnam by 2050. Meanwhile, China will continue seeing less interest, as 71 percent of the poll’s respondents plan to build a new factory or office in China in the next five years, but only 23 percent do in ten years. “This record showed that the Chinese companies are slowing in other parts of the world. For them (foreign businesses) the close proximity is ASEAN,” he said. Shan said ASEAN comprising Malaysia, Indonesia and Vietnam would become the manufacturing hub going forward.

Article from AFRIC Editorial

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