Moving Manufacturing from China to Southeast Asia: An Introduction

Foreign companies have used low-cost country sourcing strategies for decades with a strong focus on China. In the past years, we’ve seen a new trend where increasingly more companies look for alternative sourcing markets in Asia.

 

Why are companies moving manufacturing from China?

Increasingly more companies have understood the importance of diversifying their supply chains from China, a trend that was accelerated during the pandemic.


The increasing labour costs are a major concern, which is around three times higher in China compared to Vietnam, and five times higher than Indonesia on average. Between 2009 and 2014, the Chinese minimum wage almost doubled, resulting in slimmer margins for foreign companies.


Another reason is the supply chain disruptions caused by the pandemic that sent shockwaves to global manufacturers, urging businesses to rethink their procurement strategies. Some companies have decided to move their production to other countries completely, while many adopt the so-called “China plus one” strategies. This means that production is kept in China, while parts of the production are allocated to other countries.


The increasing import duties due to the ongoing trade war have also aggravated the struggles of businesses that are manufacturing in China. As China faces these and many other problems, Southeast Asia simultaneously rises fast and gains attention as an alternative market to China.


Companies Moving Out of China

Let’s review some notable companies that have moved parts of or all of their production from China, and their future plans for the new manufacturing destinations.


Apple

Under the trade war pressure, Apple has been encouraging its suppliers to move production out of China. Parts of the iPhone’s production lines have been moved to India, some MacBooks are now assembled in the U.S, and Vietnam has been rising as an essential hub to produce Air Pods.


It plans to have 30% of its classic Air Pods produced in Vietnam instead of China. Foxconn for instance, the major supplier of Apple, invested 270 million USD in a plant to manufacture laptops and tablets in Vietnam in 2020. In fact, Apple tried to move more production to Vietnam in 2021, but the plan was postponed due to the pandemic, but the plan was resumed in 2022.


Samsung Electronics

Samsung stopped its smartphone manufacturing in China in 2019, and its TV and PC factory in 2020. Its global production is now based in Vietnam. The revenue of Samsung Vietnam is equivalent to roughly 20% – 25% of Vietnam’s total GDP in 2021 and the company is also the main contributor to FDI flows from South Korea.


Nike

Nike’s suppliers have been relocating production to Southeast Asia and Africa for a few years. The brand used to have much production in China with an estimation of 35% in 2006 but the brand has reduced its dependence on Chinese suppliers. In 2021, 51% of Nike’s shoes were made in Vietnam while only 21% were made in China.


Adidas

Nike is not the only apparel and footwear giant to shift its production location. About 25% of manufacturers for Adidas in China were shut down as foreign businesses stopped their partnerships with Chinese factories. The reason behind this was the penalty tariffs due to the trade war. Opportunities, therefore, open for counterparts in Vietnam, Thailand, Bangladesh, and Indonesia thanks to low-cost benefits.


HP

HP, Dell, and other tech firms planned to reallocate up to 30% of their notebook production out of China. HP has reportedly planned to shift 20%-30% of its Chinese production to Taiwan and Thailand to mitigate the risks of rising costs and disruptions, the US tariffs on tech products also reduced profits.


Considerations before moving manufacturing from China