Replacing Chinese Manufacturing

Replacing Chinese manufacturing is a hot topic in the manufacturing industry especially now that it is affected by the recent US and Chinese trade war. Certain companies are moving their production lines to other manufacturing countries to avoid tariffs on Chinese-made goods. Everyone is waiting to see if another country can replace Chinese manufacturing and be the world’s next manufacturing hub. 

Can any country take on this endeavor? The answer for now is no. A Bloomberg report argued that no country will be able to reproduce China’s success in manufacturing. There are specific factories and industries that are outliers, but this blog examines the infrastructure and capabilities that other countries posses that make them weaker than China.

Countries like Vietnam, India, and Indonesia are trying to leverage their advantages to grow their infrastructure and develop quickly. Unfortunately, they are held back by inadequate infrastructure and political instability.

Chang Shu and Justin Jimenez states in the Bloomberg report:
“No single economy has the wherewithal to step into China’s shoes. Many have a low-cost advantage. With the exception of India, all lack China’s scale. And all face challenges on other aspects of competitiveness.”

China’s Advantages in Manufacturing

Why is China the world’s #1 manufacturing destination?

The first advantage that China possesses is its massive geographic area and large population. It is the fourth biggest country in the world, with a land mass of 9.597 million km². It boasts a population of roughly 1.386 billion. Last, they have a massive labor force, forming the basis for its manufacturing industry advantage.

China also has an advanced infrastructure network. China owns an impressive ranking of 26th in the World Bank’s 2018 Logistics Performance Index. The other Southeast Asian countries vying to compete with China rank significantly lower on the index.

For importing companies, a reliable infrastructure network is a necessity because they need reliable shipping in order to get their goods to their customers on time. China has the ability to ship the goods with high efficiency because they possess an intricate network of factories, suppliers, logistics services and transportation.

Southeast Asian Countries’ Limitations

Manufacturing in China has left established importers expecting higher standards. Experienced manufacturers who did all their manufacturing in China will find it hard to move their manufacturing to a new country. Through experience many importers have found out that their new manufacturing locations can only become second tier to China at best.

Additionally, many companies discovered that the culture outside of China is very different. For example, Chinese workers are more skilled and are willing to work overtime to finish orders on schedule, while this is not part of the work culture in a company like Vietnam.

Even though India possesses a huge population and lower labor costs, the country is far from being superior to China. Poor infrastructure, high transaction costs and outdated labor laws have stopped big industries from manufacturing in India.

Similarly in Indonesia, Indonesian President Joko Widodo said his country has failed to lure factories from China because investors remain wary of cumbersome local rules.

Now more than ever, new technologies are changing the nature of global production and supply. This makes it more difficult for developing countries in Asia to compete with China. For example, China is introducing new technology to further protect company IP which makes manufacturing in China safer than in other Southeast Asian countries. 

If you have questions about where you should manufacture please do not hesitate to contact us.

Asian Nations Struggle to Capitalize on China-U.S. Trade War – Jiyeun Lee, Miao Han and Carolynn Look, Bloomberg