Executive Briefings

China Loses Its Luster as Top Site for Low-Cost Production

China's status as the world's center for low-cost production is waning, as manufacturers increasingly seek alternatives elsewhere.

While China's industrial base is expected to continue expanding in the near term, growth is slowing. The more tempered pace is also in stark contrast to the phenomenal growth China saw during the past few decades, which helped to catapult the country past Japan to become the world's second-largest economy.

Firms are increasingly shifting production outside of China for a "number of reasons," Lian Hoon Lim, managing director of AlixPartners, said. The main impetus is increasing production costs. The need for manufacturers to reduce their dependence on China's production base and companies seeking more localized production play a role as well.

Recent high-profile moves among manufacturers opting to shift production beyond China's borders include:

Japanese electronics OEM Panasonic said earlier this year it is shutting down production of lithium-ion batteries at its plant near Beijing, laying off 1,300 workers.

Taiwan-based Foxconn, a major Apple and Samsung Electronics suppler is investing $5 billion to build a plant in the Indian state of Maharashtra.

A Samsung Electronics division is investing $3 billion to boost production at its display component site in Vietnam.

Outside of the tech sector, China is also seen as a less favorable manufacturer location for garment manufacturing. According to a U.S. Fashion Industry Association study, for example, China is now deemed the least desirable location for U.S brands to source manufacturing among 27 countries. 

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While China's industrial base is expected to continue expanding in the near term, growth is slowing. The more tempered pace is also in stark contrast to the phenomenal growth China saw during the past few decades, which helped to catapult the country past Japan to become the world's second-largest economy.

Firms are increasingly shifting production outside of China for a "number of reasons," Lian Hoon Lim, managing director of AlixPartners, said. The main impetus is increasing production costs. The need for manufacturers to reduce their dependence on China's production base and companies seeking more localized production play a role as well.

Recent high-profile moves among manufacturers opting to shift production beyond China's borders include:

Japanese electronics OEM Panasonic said earlier this year it is shutting down production of lithium-ion batteries at its plant near Beijing, laying off 1,300 workers.

Taiwan-based Foxconn, a major Apple and Samsung Electronics suppler is investing $5 billion to build a plant in the Indian state of Maharashtra.

A Samsung Electronics division is investing $3 billion to boost production at its display component site in Vietnam.

Outside of the tech sector, China is also seen as a less favorable manufacturer location for garment manufacturing. According to a U.S. Fashion Industry Association study, for example, China is now deemed the least desirable location for U.S brands to source manufacturing among 27 countries. 

Read Full Article