China Is Out! So Who’s the Next Manufacturing Powerhouse?

By Ron Steblea, EVP, e-Commerce

In just two decades, China has quickly become the world’s top producer of manufactured goods. A long-standing powerhouse of high-tech manufacturing, China is also a primary manufacturer of many low-cost items that the rest of the world has come to rely on.

 

The problem is, as business magazine Quartz reports, China doesn’t want to stay this way. According to Harvard University, China plans to move almost entirely towards high-tech manufacturing by 2025 and grow its supply chains to become more self-sufficient.

 

So, where does this leave businesses that have become so reliant on Chinese production?

 

Which Countries Might Be the Next Main Manufacturer of Goods?

As China moves on from low-end goods manufacturing, businesses should begin looking towards up-and-coming countries like Vietnam, Bangladesh, and Mexico to become their primary manufacturers.

 

Vietnam

 

Vietnam has quickly become a favorite location for manufacturers due to low labor costs and relatively liberal trade laws, especially compared to China. Electronics industry association SEMI observed that high-tech production hubs are gaining traction in the country, with major electronics manufacturers like LG and Pegatron establishing production facilities in recent years. Oxford Economics even went so far as to predict that by 2025, manufacturing in Vietnam will account for 4% of global electronics exports, with the country’s growth in recent years incredibly promising.

 

Bangladesh

 

Due to low costs, Bangladesh is the world’s second-largest clothing exporter after China, and that industry accounts for 80% of the country’s export earnings, according to World Bank data. As McKinsey & Company explains, the country has focused on becoming a leader in transparency in workplace safety and value-chain responsibility over the past decade while diversifying its customers and products.

 

Mexico

 

Mexico is a promising up-and-comer to take China’s place in the mass manufacturing world. With its proximity to the US and the rapidly growing Borderplex region, Mexico may be ideal for businesses to base manufacturing operations. According to Reuters, major contractors for Apple currently based in Taiwan are considering a move to Mexico.

Can the US Compete?

While moving goods manufacturing back to the US is a major topic of discussion, it’s easier said than done. As discussed in a Harvard Business Review article, long gone are the days of simple products where all parts were created in one factory. Instead, as products become more specialized with increasingly intricate parts, companies need to outsource to factories with specialized equipment to make these parts. From there, they all need to be brought together, and the final product needs to be assembled in a different place with specialized tools and machinery. As the Washington Post reports, because the US has consistently moved away from manufacturing jobs due to cheap labor overseas, it is now unable to compete.

 

This doesn’t even begin to touch on the issue of supply chains, which is another reason that the US would struggle to bring the manufacturing of goods back into the country, according to a report from The Guardian. From sourcing and processing raw goods, finding specialists, setting up factories, sending the final product to the consumers, and everything in between, the US does not currently have the infrastructure to compete with China or other up-and-coming manufacturing giants like Vietnam and Mexico.

 

Product Sourcing Is Evolving

Brands that sell consumer goods are constantly looking for new ways to manufacture or purchase products in cost-effective ways. China has been the go-to source for manufactured goods in recent years, but other countries — like Vietnam, Bangladesh, Mexico, and others — are poised to grow.

 

Where does that leave the US? Although sourcing goods exclusively from the US is a noble goal, it’s not likely to be economically viable. As an article in The Atlantic notes, funding for manufacturing has lagged, so the US cannot take over anytime soon.

 

That said, innovative companies need to look toward diversifying their product sourcing options. Instead of relying solely on China, brands should keep an eye on other countries that may deliver quality products for a reasonable cost.