The Economist reported that in 1990 China produced less than 3% of global manufacturing output. China now produces almost half of the world’s goods. The low cost of manufacturing in China played a huge role in making it the second largest economy in the world by 2010, compared to its place as ninth largest in 1980. Now China is rapidly moving into medium to high-tech manufacturing as its labor costs have risen. An increase in manufacturing costs are causing industry leaders to ask which country will take China’s place as the next world factory.
Low manufacturing costs help reduce operational expenses and increases profits. Many factors go into finding the best country for mass manufacturing. Countries with relatively stable political and economic environments, modern infrastructure, and a compatible legal system are ideal for sourcing. Economists and product companies are buzzing about the labor costs, capital costs, and productivity and efficiency of manufacturing in the following countries:
Economic stability, comparatively well-developed infrastructure and competitive investment incentives have attracted a steady flow of financing to Thailand’s manufacturing sector. Thailand has more of a focus on high and medium-tech manufacturing over low-cost manufacturing. Thailand currently has strong automotive, electronics, food, and chemicals industries. Although Thailand has political conflict and natural disasters (like flooding), the country continues to economically improve. The Oxford Business Group reports that the manufacturing sector employs 16% of the workforce in Thailand, which amounted to 9.3 million jobs for the workforce in 2016.
Vietnam wages are half of that in China. Vietnam also has the advantage of being geographically close to China. TradeReady reported that merchandise exports have increased by nearly 20% per year from 2005-2013, the fastest growth rate in the region. However, Vietnam will need to improve several sectors of public life to keep up with the economic development, especially within education, job skills improvement, and further infrastructure development. Vietnam’s stable political environment and infrastructure is advantageous for manufacturing.
According to ManufacturingIndonisia.com, the country’s manufacturing industry accounts for almost a quarter of their GDP. Indonesia’s economy has been relatively stable compared to other countries in the region. Their manufacturing industry grew 5.04% in 2015, higher than the national economic growth rate of 4.79%. The country offers a vast market due to the population of 240 million, which makes it the third largest market in Asia outside of China and India. The laws and regulations are unclear and subject to interpretation from authorities, which poses risk. The government is decentralized, so authority is dispersed and many affect businesses. Indonesia also has infrastructure issues. Despite economical challenges, manufacturing in Indonesia continues to rise.
Manufacturing in India has emerged as one of the high growth sectors within the country. The Prime Minister of India launched the ‘Make in India’ program to place the country on the world map as a manufacturing hub and give global recognition to the Indian economy. The India Brand Equality Foundation reports that India is expected to become the fifth largest manufacturing country in the world by the end of year 2020. The market size for manufacturing also continues to grow on an average of 8% year-to-year. Several mobile phone, luxury and automobile brands, among others, have already established their manufacturing bases in the country. India’s manufacturing industry is still growing, but training will need to be reactive to ensure that the skills taught will be relevant for the future needs of the market.
Who will it be?
The manufacturing sector has changed, bringing new opportunities and challenges to business leaders. All of the possible manufacturing countries have pros and cons in terms of their abilities to take on global manufacturing. Although it is unclear what country will dominate the global manufacturing market, the industry is moving out of China. After three decades of dramatic growth, China’s manufacturing engine has largely stalled. With rising salaries, labor turbulence, environmental devastation and business issues, China is no longer an attractive place for US and European companies to move their manufacturing. A tepid global economy and trade growth leaves vast opportunity for developing countries to prosper in manufacturing.