China is losing its place as the center of the world’s supply chains. Here are 5 places supply chains are heading.

• China’s COVID policies are pushing companies to diversify supply chains outside of the country.

• They had already begun to move due to geopolitical tensions and Trump-era tariffs.

• India, Vietnam, Thailand, Malaysia and Bangladesh are stepping up to replace the world’s factory.

China has been the world’s factory for the past 4 decades. The pandemic triggered a reckoning for this state.

The global manufacturing powerhouse China’s rise as the world’s factory spanned more than four decades and ushered in an era of globalization and integrated supply chains.

But that façade began to crumble around 2018, after former President Donald Trump launched a trade war against the East Asian giant. This, in turn, has led investors to reassess their geopolitical risks.

While some investors moved parts of their manufacturing facilities out of China at the time, it was really the pandemic, and China’s zero COVID policy, that highlighted the importance of not being dependent on one country for manufacturing needs.

“Geopolitical tensions in and of themselves may not have resulted in this level of realignment of supply chains, but COVID certainly provided that extra insight, the extra fuel for the fire,” said Ashutosh Sharma, the firm’s research director. Forrester Market Research. Inside information in early December.

And the effects of the trade war continue. President Joe Biden has not rejected the high tariffs that Trump imposed on China; indeed, in October he imposed export controls on the shipment of equipment to Chinese-owned factories that make advanced logic chips. This further aggravated an already strained relationship.

To navigate this complicated web of US-China trade tensions, multinationals now more than ever are looking to hedge their business risks.

Here are five countries where China’s supply chains are moving.

India is trying to unseat China in high-end manufacturing, with iPhone maker Apple and chipmakers eyeing its vast lands and young population.

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With its vast lands and large young population, India is a natural alternative to China as the world’s factory.

Particularly as India’s population will surpass China’s to become the world’s most populous country by 2023, the UN Department of Economic and Social Affairs said in a July report.

Tech giant Apple, for its part, has already moved some of its iPhone production to the Indian states of Tamil Nadu and Karnataka, and is also exploring moving its iPad manufacturing to the South Asian nation. JP Morgan analysts expect Apple to move 5% of its iPhone 14 to India by the end of 2022, they wrote in a September note. They forecast that one in four iPhones will be manufactured in India by 2025.

India has a large workforce, a long history of manufacturing, and government support to boost industry and exports. Because of this, many are exploring whether Indian manufacturing is a viable alternative to China,” Julie Gerdeman, CEO of supply chain risk management platform Everstream, told Insider.

However, the move is easier said than done.

India’s Prime Minister Modi has been working to attract foreign direct investment, or FDI, since he took office in 2014, sending FDI to a record $83.6 billion in the last fiscal year, according to government data.

But there are still significant obstacles: Although the Indian government is increasing its attractiveness for foreign investment, it is still more difficult to do business in the country than in China, partly because of red tape, red tape and multiple stakeholders that prolong the takeover. of decisions.

Vietnam has been undergoing rapid economic reforms since 1986, which have produced significant benefits.

As a communist country, Vietnam, like China, has also been undergoing rapid economic reforms since 1986.

The reforms have paid off, propelling Vietnam from “one of the world’s poorest nations to a middle-income economy in a generation,” the World Bank said in a November 2022 publication.

In 2021, Vietnam attracted more than $31.15 billion in foreign direct investment commitments, more than 9% more than a year ago, according to the country’s Ministry of Planning and Investment. About 60% of the investments went to the manufacturing and processing sector.

Vietnam’s key strengths are in the manufacturing of clothing, footwear, and electronic and electrical appliances.

In addition to India, tech giant Apple has already moved some of its iPhone manufacturing to Vietnam and is also planning to move some of its MacBook production to the Southeast Asian nation.

Other companies that have moved some of their production lines out of China to Vietnam include Nike, Adidas and Samsung.

FDI from Thailand tripled between 2020 and 2021 as manufacturers move away from China.

As the second largest economy in Southeast Asia, Thailand has been moving up the value chain in manufacturing and is a production hub for auto parts, vehicles and electronics, with multinationals such as Sony and Sharp setting up shop here.

Sony said in 2019 that it would close its Beijing smartphone plant in 2019 to cut costs, and relocated some production to Thailand. Sharp said that same year it would move some of its printer production to Thailand because of the US-China trade war.

It’s not just international firms. Even China-based companies have moved parts of their supply chain to Thailand. Companies that produce solar panels like Shanghai-based JinkoSolar are moving production to a Southeast Asian nation to take advantage of lower costs and avoid geopolitical tensions, the South China Morning Post reported in July 2022.

“Setting up manufacturing plants abroad did not come from [the pursuit of] opportunities, it’s more of a strategy to deal with challenges to gain market access,” Zhuang Yan, president of Canadian Solar, said at an industry event in July, SCMP reported.

Foreign direct investment tripled to 455.3 billion Thai baht, or $13.1 million, between 2020 and 2021, Thailand’s Board of Investment announced in February this year.

Bangladesh is already benefiting from the supply chain shift away from China. Now he wants a bigger slice of the pie.

Even before the COVID-19 lockdowns crippled China’s manufacturing sector, Bangladesh has been a rising star in the garment manufacturing sector.

Bangladesh’s rise was mainly due to rising labor costs in China before the Trump presidency.

The cost difference is large: the average monthly wage for a worker in Bangladesh is $120, or less than one-fifth of the $670 a factory worker takes home in the Guangzhou manufacturing hub, in the South China, Mostafiz Uddin, owner of Bangladeshi garment manufacturer Denim Expert, told Insider.

“Also, rising material costs are pushing garment companies to look for alternative destinations like Bangladesh where production prices are comparatively low,” said Uddin.

Despite the collapse of a high-profile building that killed at least 1,132 people in April 2013 and dented Bangladesh’s reputation for job security, its garment manufacturing industry is a key pillar of the Bangladeshi economy and represents nearly 85% of shipments or more than $42 billion of the country’s exports in 2021. The country is also the world’s second-largest exporter of apparel, after China.

Bangladesh is now working to attract investment beyond the garment sector and is working to attract more investment in other sectors including pharmaceuticals and agricultural processing.

Malaysia has been eyeing the opportunities arising from companies moving away from China for years.

Malaysia has been looking for opportunities in manufacturing shift away from China for the past few years.

It has already made some headway with the efforts, having attracted at least 32 projects that have moved from China to Malaysia, the Investment Development Authority of Malaysia said in July 2020. The authority did not provide specific details of the projects or of the companies that moved.

However, even before the pandemic, technology investments in Malaysia had increased due to lower labor costs and US-China trade tensions. Major deals in recent years included an investment of 1.5 billion Malaysian ringgit, or $339 million, by American chip giant Micron over five years starting in 2018. Jabil, an American company that makes iPhone cases, it has also expanded its operations in Malaysia.

“We knew a good number of people who expressed their intention to change from China and we have engaged them. The only thing is time,” Azman Mahmud, then chief executive of the Malaysian Investment Development Authority, told the Malaysian news outlet. the Malaysia Reserve in 2020.

Malaysia’s FDI inflows reached a five-year high of $48.1 billion in 2021, with electronics and vehicle manufacturing the top contributor, according to official government data.

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