Asia Supply Chains: If not China, where? | Analyst Picks | RiskMap 2020
Asian Supply Chains
If not China, where?
Media headlines implying rising political risks in the region are leading to an exodus of manufacturing from China are misleading. However, important supply chain shifts are taking place, and companies need to understand the drivers behind these shifts to secure their supply chains and remain competitive in the year ahead.
Select relocation from China has been taking place for some time in certain manufacturing industries, for varying reasons:
1. The biggest long-term driver of this phenomenon is rising cost, and above all labour costs. More recently, costs related to US-China trade tariffs have contributed to those considerations for companies producing for export.
2. China is upgrading its manufacturing, which is displacing lower-tech, or more emissions-intensive industries.
3. Disproportionate attention has been paid to political risks, which to date have only led to limited supply chain shifts, but remain a key risk for technology companies in 2020 amid the decoupling between the US and China.
Simultaneously, there are many reasons for companies to keep their manufacturing base in China, particularly to produce for the large China market.
Benchmarking manufacturing conditions against other Asia-Pacific alternatives – notably Vietnam, Thailand, Malaysia, India and Indonesia – presents a wider range of risks and opportunities that companies need to better understand to identify appropriate locations.
Vietnam has low labour costs and a pro-trade government, but has insufficient skilled labour, energy and infrastructure.
Thailand has a well-established manufacturing capacity but the competitiveness of its exports is undermined by the US’s recent suspension of trade preferences over labour rights abuses.
Similarly, Malaysia has a strong skilled labour and manufacturing base that are challenged by capacity constraints and reputational risks from allegations of labour exploitation.
India has low wages and a large potential market but stalled regional integration will hinder its potential role in global supply chains.
Indonesia offers strong investment incentives and a large potential market; however, these benefits are offset by requirements for local partnerships and often present political, integrity and corruption risks.
Companies cannot afford to ignore the opportunities presented by these markets but must also benchmark each market’s risks as supply chains in the region see increasing push and pull in 2020.