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Major brands and manufacturers are laying the groundwork for shifting operations out of China in favor of several other low-cost countries — and maybe even the U.S., says Juan Riboldi, principal and president of Ascent Advisor.
The migration of manufacturing out of China is real, says Riboldi, noting that the development is part of a long-term pattern that extends well before the coronavirus pandemic spread around the world. It dates back to growing geopolitical tensions between the U.S. and China, as well as the latter’s rising labor rates. “Companies large and small are noticing an increased amount of risk, and decreased advantage in low-cost labor” stemming from continued production in China, he says.
Where else can companies go that could offer a similar mix of cheap wages, manufacturing expertise and the ability to scale operations as that provided by China for so many years? Riboldi cites Mexico and India as possibilities. The former, he says, is a “natural manufacturing partner” of the U.S., and its cost of labor has become roughly competitive with that of China. It also offers the advantages of more harmonious trade relations, geographic proximity and a skilled labor force.
India boasts a huge, well-educated population, many of whom speak English, although it has less experience than some other countries in wide-scale manufacturing. It also differs from China in that it’s a democracy, although that positive trait can also lead to greater bureaucracy and slower approach to getting things done.
Wherever they choose to site manufacturing, companies in future will pursue greater diversification of sourcing, so as to mitigate the impact of a disaster taking down a particular country or region, Riboldi predicts. While such a strategy might once have resulted in unacceptably higher costs, today it has become “economically necessary,” given the need to avoid serious supply-chain disruptions.
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