Southeast Asia countries find it hard to replace China manufacturing

By Polly Chen

China’s manufacturing industry has been hit hard in the U.S.-China trade war. Production lines are gradually shifting to other manufacturing countries to avoid tariffs levied on Chinese-made goods. The world is waiting to see which Asian country can replace China and be the world’s next workshop.

But can any developing country in Asia take the job? The answer, at least for the moment, might be no. A recent Bloomberg report revealed that no nation is able to reproduce China’s success in manufacturing. However, those Asian countries are becoming “mini-Chinas”.

Those countries, like Vietnam, India, and Indonesia, are trying to leverage their advantages to develop quickly. But they’ve been trapped by structural problems like inadequate infrastructure or political instability.

Chang Shu and Justin Jimenez expressed their views in the Bloomberg report:

No single economy has the wherewithal to step into China’s shoes. Many have a low-cost advantage. With the exception of India, all lack China’s scale. And all face challenges on other aspects of competitiveness.

China's advantages in manufacturing are hard to beat

What has made China the world's largest and most successful workshop?

The first thing that determines China's position is its massive land area and huge population. China is the fourth biggest country in the world, with a total land mass of 9.597 million km². And China is the most populous, with a population of roughly 1.386 billion. As a result, China has an abundant labor force, which forms the basis of its massive manufacturing industry.

Moreover, China has an advanced infrastructure network. China ranked 26^th in the World Bank's 2018 Logistics Performance Index. China's figure is much higher than Southeast Asia manufacturing countries.

For importers, a reliable infrastructure network is very important as they have to ship goods out of factories and into the hands of customers everywhere. With an intricate network of factories, suppliers, logistics services and transportation, China can ship the goods with high efficiency and accuracy.

Southeast Asian countries can only be “mini-Chinas”

It seems like China has spoiled importers. The manufacturers who used to do all their production in China will find it hard to adapt to the manufacturers outside there. Many importers think their new manufacturing spots can only become “mini-Chinas” at best.

Some importers have discovered that the working culture outside China is very different. Take Vietnam as an example. Huang, a Chinese manufacturer, said Chinese workers are more skilled and are willing to work overtime to finish orders on schedule. But “in Vietnam, people won't do that”.

As for India, even with a huge population and lower labor costs, the country is far from taking China's role. Poor infrastructure, high transaction costs and old labor laws have stopped big industries from manufacturing in India.

The same thing has happened to Indonesia. Indonesian President Joko Widodo said his country has failed to lure factories from China because investors remain wary of cumbersome local rules.

What's more, new technologies are changing the nature of global production and supply. This makes “becoming China” even more difficult for developing countries in Asia. For example, China's biggest ecommerce platform Alibaba is now protecting brands' IPs by blockchain. This makes manufacturing in China safer than in other Southeast Asian countries.

The views, opinions and images in this article are purely the author's own. Global Sources does not own responsibility for what is presented in the article.

Polly Chen is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.