Will contract manufacturing in China be replaced by other south Asian countires?

In recent years, many contract manufacturing companies in China began to move their factories from China mainland to other Asian countries, like India, Vietnam, and Cambodia. Those manufacturers include some big contract manufacturers as Foxcomnn, Compal, Flextronics, Brother, and so on.

But, how well do those factories stay in those Asia countries? Can they really replace the world-leading manufacturing role as China? The answer could be negative certainly. Why? Let’s get this query analyzed below:

  1. All of cost and expense are increasing dramatically

It’s reported that there were 34 newly-opened factories in Cambodia in 2016, but 70 factories had closed their business because those factories got no profit even through there is a small labor cost saving. But this cost gap is gradually disappearing, as the workers are not well-educated with less industry background, which result in a lower manufacturing efficiency. One of factory owner in oversea told the manufacturing efficiency in China is 2.5 times of other oversea factories have, which makes oversea factory lost the labor advantage completely.  If you want to manage it well, you must invest more on employee training and facility management

Under the background of employee salary increasing, and poor manufacturing efficiency, many factories in South Asia feel a bigpressure. This is why you might see some factories move back to China again.

2. Poor infrastructure and insufficient supply chain in South Asia

As we know, infrastructure and supply chain are the most important two factors while setting up a manufacturing factory. The better of them you have, the better manufacturing resource you will get.  

Compared to China, other Asia countries have much poor infrastructure on water, electricity, and transportation. Meanwhile, the supply chain in South Asia countries is relatively insufficient, it’s hard to source raw material, components, spare parts, or sub-supplier.  

The statistics of Cambodia government shows that the first quarter of clothing and shoes export reach $13.5 million, but they cost $7.54 million to import raw material from other countries.

3. Frequent worker strike affects production

In South Asian countries, workers have a high awareness of rights protection, and strikes have occurred very frequently.

Last year, Cambodian workers continued to demand salary increases, and there were a series of large-scale protests and demonstrations. These phenomena made major brands not dare to place orders easily. Due to the decline in orders, many local factories were forced to stop production or even closed down.

At that time, half of the 247 member companies of the Cambodian Garment Manufacturers Association could not get enough orders. In the next few months, they will face under-production and production equipment will be idle.

Therefore you can see, China still the best contract manufacturing region for many products. Other Asia countries can not replace the world-leading manufacturing factory of Chinese manufacturers.