Many companies are slowly putting a stop to their manufacturing operations in China and setting up plants in other regions of the globe. This is because there has been a substantial rise in the cost of production in China, in the past two decades. And, there are several countries where the costs are much lesser; these zones have become the preferred destinations for many organizations.
Background
Taking the supply chains away from China was first talked about in 2008, during the economic recession. It’s not a new development. The year 2018 saw the intensification of the trade war between the US and China. It was from then that there has been a great surge in the number of businesses/organizations looking to depart from China.
Key Points
These are some key points worthy of special mention:
- It is seen that the manufacturing of cameras and toys is changing its base to Mexico, while Taiwan is steadily becoming the hub for making personal computers. Likewise, the units engaged in the manufacture of the automobile are establishing their factories in places such as India and Thailand.
- China has significantly increased its investments in the likes of robotics, blockchain, and artificial intelligence. Yet, businesses are choosing to exit the Chinese markets.
- Even before the Covid-19 pandemic, companies started to think in lines of moving out of China, as there was an alarming rise in overhead costs. The prevalent scenario of lockdowns and restrictions on transport just hastened the inevitable. Now, there is a consistent increase in the number of manufacturers who are on the lookout for zones other than China, to establish their plants.
- Most of the companies that have shifted their units from China are disinclined to begin their commercial activities in the US. Instead, they have preferred to open plants/facilities in zones where the cost of labor is low. This is not possible in the markets of the USA.
- If it is not China, then what is the alternative? There is no single, uniform answer to this question, as it depends on what exactly is the company intending to manufacture. For instance, when we speak of ceramics, jewelry, and handicrafts, India has to be the ideal choice. Similarly, Vietnam will be the right zone for plants involved in the manufacture of wooden goods, footwear, and textiles & garments.
- The decentralization of worldwide supply chains is anticipated to enhance the connectivity between different economic zones.
Drawbacks
The matter of relocating the manufacturing plants out of China is not as simple as it appears. The issue is not without some shortcomings.
- The major drawback is that the sources of raw materials are not so extensive, in other zones. Along with that, the infrastructure available in many other countries is not up to the mark. The logical conclusion then is that; if factories leave China there are going to be abnormal delays in production.
- Even if numerous businesses firmly decide to move out of China, this is something that cannot happen in a short span. It is a slow process that would take a fair bit of time to get completed.
- As things stand right now, the countries of the region of Southeast Asia lag behind China, in a big way. They don’t have the supply chains and the technology to support the large-scale manufacturing activities of so many companies.