The next AirPods you buy for your iPhone won’t likely have the label ‘Made in China’ on the packaging. Ever since the trade war began, tariffs on various products like handbags and electronics have risen.
The rising costs for labor in China are influencing businesses to consider other alternatives, and this leads to companies moving into the Southeast Asian market. A lot of businesses are starting to look at countries like Cambodia and Vietnam for their manufacturing requirements, and manufacturers from this region are starting to accelerate their pace.
Why are companies making the move?
Traditionally, majority of electronics companies have been known to manufacture their products (or at least the parts) in China. However, as labor costs rise and as the trade war worsens, electronics factories in China are starting to close down. In the case of Taiwan, most of its companies have put their money into China because of its reasonable labor costs. Taiwan houses some of the largest contract manufacturers like Foxconn, a company that assembles iPhones.
However, as the trade war escalates and as wages increase, some are already considering relocating manufacturing to other Southeast Asian locations, such as Thailand, Malaysia and the Philippines. For instance, Data Electronics Inc. supplies Apple with power components, but is now considering buying an affiliate in Thailand to expand production while also lowering costs. Merry Electronics Co is also a Taiwanese company that manufactures headphones for companies such as Bose. They are also rumoured to be considering relocating their production to Thailand, depending on how the conflict on trade develops. The same situation applies to New Kinpo Group, a company that manufactures computer hardware.
Why is Southeast Asia better for manufacturing?
The lists of firms and companies which are moving away from China aren’t limited to electronics. Even toy companies and camera makers like Hasbro and Olympus are thinking of transferring.
In the case of fashion, popular brands like Steve Madden, Coach, and Deckers are also thinking of moving their production to Southeast Asia. So don’t be surprised if the next designer handbag you own has the label ‘Made in China’ missing from it as well. Fashion companies are now starting to look at nations such as Cambodia and Vietnam as more attractive because the Trump administration has allowed certain Cambodian products access to the US market.
Ever since the trade war began, fashion companies have expressed their interest in making significant production changes to their sourcing. The results of a recent study by the US Fashion Industry even showed that there is an expected reduction in the volume of Chinese production in the next two years.
China moves up the ladder, along with Southeast Asia
Many international manufacturing companies in China have closed down in the last year. Nonetheless, even as companies that are manufacturing in China blame the imposed tariffs for what is happening, its leaders may not be as concerned as what others might think. This is because China has already expressed their plan to move towards progressive or advanced manufacturing. This directive can be found in their Made in China 2025 strategy. In this plan, China has stated that they will be moving away from heavy or labor-intensive manufacturing and instead towards improved technology.
As China moves up the ladder into increasing their economy and turning out to be one of the most developed nations in the world, it will be producing more high-quality equipment, and more higher-priced and higher-value goods as its manpower develops greater technical skills. Manufacturing items or goods in China now only costs a few percent cheaper in comparison to the United States, because it has invested its money into moving to increasing their manufacturing value. However, the trade war and increased tariffs may have escalated the trend, and this may have some negative impacts on the Chinese economy.
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Giovanni’s passion and interest in global sourcing and trade gives him insight and understanding that most would miss. His love of research mixed with his background in business makes for an interesting read.