Moving out of China, Is it happening?
Some interesting new data, only 4 – 11% of Western companies in China are considering to move.
In many countries, labor is cheaper, but when everything is accounted for, the unit cost in the new country often ends up being 30%-40% higher.
That’s a lot.
Perhaps then a China+1 strategy, diverting say 20% of your quantity to another country, to have a safety net could work?
Finding & qualifying one new factory, let alone a whole new supply chain, requires a LOT of time and investment. You will have to open extra sets of molds/dies etc.
“So we need to INVEST HOW MUCH to achieve a 30% INCREASE in cost?”
Only multinationals with massive volumes can afford those Just-In-Case investments, and they have pressure from the stock market to raise, rather than lower, margins.
Considering moving is very different from actually moving.
The fact is that China has by far the biggest concentration of factories for any kind of electronics
Hyper-intense competition keeps value for money and speed at an unparalleled level.
For each and every part of the supply chain.
So if companies do move, it will be only assembly, screwing together a kit of components that all still come from China.
If firms move at all, most stay in Asia due to logistics.
All these statements are supported by two different research.
The European Union Chamber of Commerce in China, “Business Confidence Survey 2020,” shows that only 11% of European companies are considering moving out of China; the amount is even less than the previous year.
The places where most of them are considering to move is mostly Asia. This has to do with the unparalleled components supply chain China has built over the years, which is especially critical for Electronics.
Different research made by the American Chamber of Commerce in China shows that the departure of American Companies from China- that Mr. Trump would be so happy to see – is far from happening.
An incredibly 83% of companies – when asked if they were considering moving operations out of China, replied: No, we’re not considering relocating manufacturing or sourcing outside of China
The message from the business sector is clear: “We’re not leaving China” at least not anytime soon.
Moving operations to a different country needs lots of investment, for many companies – even with the piling number of tariffs – it doesn’t make economic sense, and what if the tariffs eventually go away?
Let’s also not forget that the covid19 pandemic has had a hard impact on the bottom lines of many companies, making new investments riskier and mobilization more complicated than ever before.
Governments around the world are clear on the tricky situations many companies find themselves in their relationship with China manufacturing, some understand that tariffs won’t be enough to get companies to move operations outside China.
Rich governments such as the Japanese one has designated $2.2 billion of its economic stimulus package to help Japanese manufacturers relocate from China.
In Taiwan, 189 companies have applied for government incentives to move operations back home.
Over the next 2-3 years, we can certainly expect to see governments from rich nations making a big effort to bring back home the manufacturing of vital medical equipment and any other item they consider to be strategically important, as Covid19 has shown that during a pandemic it’s suddenly every country for itself.
But, for consumer electronics (IoT especially), manufacturing will take place in China.
The concentration of inputs suppliers cannot be replicated anywhere else’s in the world for AT LEAST the next 5 years.
For on the ground experts’ opinions on this topic, you can take a look at the discussion I had with my LI network Linked In – US and European Companies are not leaving China.
FAQ – Moving Manufacturing out of China
Are Manufacturing Companies leaving China?
Only 4 – 11% of Western companies in China are considering to move. This is because of the cost of moving operations to another country, for many companies, costs are too high, and they will most likely end up with a higher unit price.
What Companies have moved out of China?
These Taiwanese companies have already set in motion major investment plans to move part of their operations back home
- Quanta Computer
- Unimicron Technology
- AU Optronics
Why American companies choose China over everyone else?
These are the reason why American companies choose China over other countries
- World-Class Logistics
- A highly experienced and educated workforce
- Stable political environment
- Abundant labor
- Unparalleled supply chain for components of all kinds
- Low crime and corruption rates