The 5 countries that will become the next global manufacturing center
China's weakened global position could be the boon countries need to boost investment and grow their manufacturing sectors
There is a reason China has been named "the world's factory." According to data released by the United Nations Statistics Division, China accounted for nearly 30 percent of global manufacturing output in 2018.
China obtained this status in a relatively short period of time. According to The Economist, in 1990, China produced less than 3 percent of world manufacturing output. It first surpassed the US, formerly the world's manufacturing superpower, in 2010.
But the trade war between the United States and China has prompted many companies to reexamine global supply chains. A recent study by the McKinsey Global Institute estimates that companies could move a quarter of their global product supply to new countries in the next five years. Climate risks, cyberattacks and the ongoing pandemic are only accelerating this trend. In this uncertain business environment, a growing number of countries are hopeful that they can replace China as the world's next great manufacturing center.
Until now, Vietnam has been one of the main beneficiaries of the US-China trade war, absorbing much of the manufacturing capacity that China lost. In addition to cheap labor and stable policies, the country has increasingly liberalized trade and investment policies that make it an attractive location for companies looking to diversify outside of China.
Some of the biggest names in technology have moved some of their operations to Vietnam since tensions between the two powers have soured. In early May 2020, Apple announced that it would produce roughly 30 percent of its AirPods for the second quarter in Vietnam instead of China.
A lesser-known beneficiary of the trade war is Mexico. In a report, investment bank Nomura noted that Mexico could become a top destination for US companies, as the country installed six new factories in a variety of sectors between April 2018 and August 2019. Additionally, manufacturers with Taiwan-based Foxconn and Pegatron, known as Apple contractors, are among several companies currently considering relocating their operations to Mexico.
Mexico's proximity to the US presents a major advantage as US companies embrace near-shoring. The Trump administration is exploring financial incentives to encourage companies to move their production facilities from Asia to the United States, Latin America and the Caribbean.
In recent years, India has significantly stepped up its efforts to attract manufacturing investment to the country. Prime Minister Narendra Modi's "Made in India" initiative is designed to help the country replace China as a global manufacturing hub. A cornerstone of this plan is to encourage the world's largest smartphone brands to manufacture their products in India. In June this year, the country launched a $ 6.6 billion incentive program to boost the country's electronics manufacturing output.
However, so far, the country has only seen modest gains from the trade war. Analysts Blame India's Tight Regulatory Environment; In the Organization for Economic Development's FDI Regulatory Restriction Index, India ranks 62nd out of 70 countries.
Between 2018 and 2019, the Malaysian island of Penang experienced an increase in foreign investment. Much of this came from the US, which spent $ 5.9 billion in Malaysia in the first nine months of 2019, up from $ 889 million the year before, according to the Malaysian Investment Development Authority. US chipmaker Micron Technology announced that it would spend RM1.5bn ($ 364.5 million) over five years on a new drive assembly and test facility.
However, the loss of trade from China has hit Malaysia hard. Many technology companies in Penang depend on China for up to 60 percent of their components and materials.
Singapore's manufacturing capacity has shrunk somewhat in recent years. While manufacturing contributes about 30 percent of Taiwan's and South Korea's GDP, it accounts for only 19 percent of Singapore's.
However, the trade war and the coronavirus pandemic could change this. As a trade center with liberal trade and investment policies and a track record of stable economic growth, Singapore is well positioned to boost its manufacturing capabilities and seize this opportunity.
However, like Malaysia, Singapore is also struggling with the side effects of declining demand from China. The export-dependent country has seen its manufacturing output fall as a result of the trade war, a sign that the country could benefit from greater independence from China.
Source: World Finance