Tuesday, October 19, 2021

Commentary: Attractive incentives are leading firms to move factories out of China

SEOUL: COVID-19 has exposed the myriad weaknesses of cross-border value chains. Once the backbone of globalisation, now they are associated with vulnerability to disruption.

Thanks to the pandemic, value chains are being reconfigured with a focus on resilience. At the same time, China’s changing role in the global economy is forcing companies to reconsider it as a manufacturing hub.

The world’s factory has reinvented itself as the world’s investor. Increasing digitalisation of production and ongoing trade tensions with the United States have also contributed to an exodus of companies from China.

The departures include firms from a wide range of countries and industries. US toymaker Hasbro closed its Chinese factory in favour of facilities in Vietnam; Japanese electronics giant Sony has transferred operations to Thailand; and South Korea’s Cotton Club is relocating production to the Philippines, Cambodia, and Indonesia.

Even Chinese firms are leaving the country for less expensive destinations. Wage rates in China are more than double those in Vietnam and close to 70 per cent of those in South Korea. Labour shortages also have made it difficult to keep manufacturing costs down.

Moreover, fierce competition in the Chinese market from local manufacturers has made the country less attractive as a production centre. A decade ago, Samsung’s Galaxy phone held more than 20 per cent of the Chinese market; today, its market share is less than 0.5 per cent.

Given such trends, Samsung decided to relocate all of its manufacturing capacity for final consumer goods outside of China.

This article originally appeared on the CNA
Source link Author on date 2021-10-13 22:04:38

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