New | Manufacturers step up search for low cost alternative to China
Higher mainland wages have forced labour-intensive industries such as apparel to find cheaper locations, with Vietnam one of the beneficiaries
The exodus of factories moving out of China in search of lower-cost options in southeast and central Asia is accelerating, as manufacturers face increased pressure to reduce unit costs.
Few industries have been spared amid the search for cheaper manufacturing alternatives, with rising Chinese labour rates cited as a major concern affecting industries as diverse as apparel and high-technology.
Japanese electronics giant Panasonic Corp announced in August that it would close its lithium-ion battery factory in Beijing and cut 1,300 jobs. Taiwan's Foxconn, a handset manufacturer for brands such as Apple and one of the biggest exporters out of China, also announced in August that it would invest US$5 billion in India to build assembly plants. Meanwhile, South Korean tech giant Samsung Electronics will invest an additional US$3 billion in Vietnam to ramp up its existing facilities.
In a survey conducted by the US Fashion Industry Association, China scored the lowest among 27 destinations in terms of the tendency of US fashion brands to increase sourcing in the next two years, whereas Vietnam and India scored the highest.
"The change is significant in the past two years, the cost of labour in China has become very high, growing at least 10 per cent every year," said Peter Hopper, Partner at Strategic Decisions Group (SDG), a management consulting firm specialising in strategic decision-making.
Hopper said one of his firm's clients, a luxury handbag brand, trimmed its sourcing from China to 5 per cent from 80 per cent over the past two years to cut costs.