If you’re wondering when global manufacturing is going to shift its center of gravity to someplace in the world besides Asia, don’t hold your breath. While manufacturing can and does take place in other parts of the world and there are constant shifts in the product focus of any given geography, Asia is still the world’s factory. And China remains the dominant force.
Costs Rise, Growth Slows
Since the 2007-2008 recession, growth in the region has slowed somewhat, but it is far from stagnant. Industry Week believes growth has slowed from 5 percent CAGR prior to the recession to 1.5 to 2 percent CAGR looking forward from now through 2017. A variety of factors are keeping the lid on growth, which include:
- Rising labor wages
- Government efforts to update infrastructure
- Expiration of certain tax benefits
- Efforts to impose stricter environmental regulations
What these all add up to are higher costs for OEMs and distributors. The dramatic increase in wages, coupled with rapid economic growth in coastal China, has pushed some manufacturers to look beyond the developed coastal regions around Shanghai. The increased cost of logistics for inland manufacturers is becoming more manageable as the infrastructure improves.
Asia as a Consumer
Ever since Asian countries became the world’s primary source of low cost manufacturing, we’ve seen images of poverty-stricken laborers in dangerous conditions working for peanuts. While this is often still the case in some industries of Southeast Asia, other industries (particularly the electronics manufacturing industry in China) have become the source of economic boom and a dramatic rise in the standard of living.
As a result, according to Industry Week, “Major markets such as China, Indonesia, Malaysia, Thailand and India are becoming significant consumers of industrial, commercial and consumer goods. Designing supply chains to consider both existing Western consumption and significant Asian consumption adds new dimensions of complexity to the decision-making process.” The flip side of which is opportunity.
Good News for SMBs
The industrialization and urbanization of the areas that surround the Asian manufacturing hubs has created an opportunity for Western companies to both manufacture and sell goods in Asia. Many OEMs have found that the barriers to smaller production – those generally under $5M – have been removed.
From a logistical perspective, the vast improvements in systems, processes, technology, and communications have made it much easier to do business in Asia. In addition, specialized brokers are helping smaller OEMs manage outsourced manufacturing and suppliers on the other side of the world.
Also, SMBs can now look at Asia as both a supplier and consumer, so it’s easier to justify a local presence that can both oversee manufacturing and sell into the local market at the same time. Eventually when local demand catches up with supply, the “world’s factory” may see some competition from countries that have been slower to modernize.
If you’re interested in learning more about manufacturing technology or market conditions, the Pacific Rim experts at Advance Micro Solutions are glad to speak with you. We can be reached here. (CTA)