Starting in the 1990s, America saw its first wave of outsourcing sweel. By manufacturing in Asia, business owners found that fat margins in lower cost of materials, faster turnaround times, and a looser regulatory environment than back home. China rode at the forefront of this wave, and now it is the first country that comes to mind when people think of outsourced manufacturing.
However, opportunities await the bold entrepreneur beyond China. After all, the Middle Kingdom has rapidly increasing labor costs that have forced other entrepreneurs to look elsewhere. While the world class infrastructure of China’s many ports lends it a distinct competitive advantage, there is an increasing number of manufacturing options through Asia. This article aims to explore some of them.
China has remained a smart choice for businesses to outsource their manufacturing due to its world-class shipping infrastructure and, perhaps surprising to some, its growing reputation for quality. In recent years, China has shifted its focus to restructuring toward a service-based economy, but manufacturing is the engine that will drive the economy for years to come.
In April, China saw a slow-down in the growth of their manufacturing sector, which many experts predicted. While the government attempts to slow down the overheated real estate sector without damaging the broader economy, growth in China ticked in at 6.9 percent for the first quarter of this year, with the manufacturing sector growing 7.4 percent.
But, this might not continue as the government switches its focus to other areas such as policymaker’s efforts to reduce financial risks in the economy. China’s manufacturing growth is expected to continue to slow as government officials begin a battle to cool the property sector and as the banking regulators and central bank take necessary steps to contain financial risks.
Manufacturing Beyond China
While China continues to stand out as one of the top locations for manufacturing, other countries in Asia are rising in the industry. Now known by the acronym MITI V (or The Mighty Five), Malaysia, India, Thailand, Indonesia, and Vietnam have a competitive advantage over China in the manufacturing industry – some of them doing better than others. These five countries are the most likely to join or are already among the top 15 most competitive countries in the world for manufacturing, according to Deloitte’s 2016 Global Manufacturing Competitiveness Index.
Below we further discuss a few of these countries that are showing a promising future in the manufacturing industry.
Meanwhile, in Malaysia, the manufacturing sector continues to grow. While Malaysia might not seem like a more cost-effective approach up front, when broken down, it could potentially be even cheaper than China. One main aspect of manufacturing in Malaysia that is cheaper than China is taxes. Unlike China, Malaysia does not have value-added taxes which can be at about 4 percent.
Another negative aspect of manufacturing that is seen more in China, but not in Malaysia, is a higher labor attrition rate. After the Lunar New Year, several Chinese manufacturing companies find some of their production workers not returning – they find a new job or become homesick and leave. However, in Malaysia migrant workers often came from much further away and would face a steeper adjustment if they were to just leave.
The manufacturing industry of Malaysia continues to be driven primarily by the production of electronic and electrical products. Other manufacturing sectors which continue to grow are chemical products, chemicals, petroleum products, wood, and wood products.
Manufacturing in India has now emerged as one of the high-growth sectors of the country. India’s manufacturing sector has the potential to touch US $1 trillion by 2025, according to the India Brand Equity Foundation. As of now, both the business sector and the manufacturing sector in India continue to remain positive.
The country has the potential to become the hub for hi-tech manufacturing as global giants like Boeing, HTC, and Toshiba have set up or are in the process of setting up manufacturing plants in the country. India is now one of the most attractive destinations for investments in the manufacturing sector. The country boasts recent major investments such as Apple’s plans to produce iPhone SE in India.
Several manufacturing sectors in Vietnam are experiencing exponential growth, with nearly a third of the country’s manufacturing and retail activity being concentrated in Ho Chi Minh City. The top manufacturing sectors in Vietnam are textiles, chemicals, electrical goods, food processing and cigarettes and tobacco.
Here is what Wunderlabel Clothing Labels CEO Philip Linde had to say about basing a company in Vietnam:
"Vietnam is a country with a well-educated population, and high literacy levels. The main reason for Wunderlabel’s choice to open it’s modern, state of the art woven label factory in Vietnam is the quality and diligence of the workforce.
We produce more than 70.000 unique orders per annum, and in order to produce and fulfill those orders in a timely manner, the efficiency of the Vietnamese workers is imperative to our success story.
Geographically, Vietnam is also ideally located to supply diverse markets such as North America, Japan, Europe, Australia and South Africa.”
Despite a recent global economic turndown, Vietnam continues to see an impressive export performance in the textile and garment exporting sectors. The country is a top 10 country in the garment and textile exports. Vietnam’s textile and garment sector has continued to see fast and sustainable growth over the past few years. In recent years, Vietnam’s textile and garment sector has ranked No. 2 in the country’s total export revenue.
With a population of almost 90 million people and competitively-priced labor, Vietnam presents a distinct cost advantage. Supportive government policies also make the country very attractive to foreign direct investment.
Michael Michelini is host of the GlobalFromAsia.com podcast, an online radio show to help business owners grow their companies in Asia and around the world.
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