By Matt Rusling
A number of experts, consultants and media are expecting Southeast Asia to overtake China as the world’s leading manufacturing hub, with some saying the shift could happen in the next decade to 15 years. Still, many manufacturers may stay in China but diversify to Southeast Asian nations.
Bloomberg recently argued that the “cheap, young labor and strategic location of Myanmar, Cambodia and Laos are set to draw increasing numbers of manufacturers to Southeast Asia, which will eventually displace China for the title of the world’s factory.”
Anthony Nelson, director at the US-ASEAN Business Council, told Borderless that while ASEAN nations could well become the center of the world’s manufacturing in 10 to 15 years, many foreign investors will remain in China.
While some countries may pack their bags and head to Southeast Asia, others may pack a just a few bags, just to diversify, and remain invested in China.
“Even companies that are very happy with what they have in China, they want to have a plus one, they want to have a plus two, just so they’re shielded” from any future disruptions. “When you’ve got a lot of countries that you’re working with, you’re in a much better position to deal with (problems) than if your whole business model relies on making stuff in China.”
“You’ll see increasing diversification of manufacturing bases,” he said. “Before, what you would see is people would start to say ‘we’re going to have a China plus one strategy, so we’re going to start to do some stuff in Thailand.’ And now we’re seeing people say ‘well, the stuff in Thailand is working well, let’s have a Thailand plus one strategy, so let’s look at Laos, let’s look at Cambodia, let’s look at some of these newer markets where we can do things that we couldn’t do ten years ago.”
Still, the region has a long way to go, and infrastructure is a major limiting factor in such countries such as Cambodia, where once one drives several miles outside Phnom Penh, the roads get worse and worse, becoming narrow dirt roads in some of the most rural areas. But policy makers in the region are well aware of those problems, and the Chinese have plans to build roads in parts of the region.
All this comes as 2015 is expected to usher in the ASEAN Economic Community (AEC), which could become an attractive export destination for foreign companies. Indeed, four ASEAN nations – Indonesia, the Philippines, Thailand and Vietnam – rank among the world’s top ten countries for consumer confidence, according to Nielsen. If all goes smoothly, U.S. and other foreign companies will no longer have to wade though customs regulations that vary from country to country and will be able to deal with one uniform system. That will make it easier for investors to look at ASEAN as one single market, rather than several small markets.
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