Are you considering establishing a production base in countries other than China?

Selecting a production site can be a complex decision that requires a thorough analysis of multiple factors, especially given recent shifts in global supply chains and geopolitical tensions that have many companies reconsidering their reliance on China as a manufacturing hub.

While there is no one-size-fits-all answer to this question, there are several key factors that companies need to consider when choosing a country for manufacturing operations. These factors include the country’s regulatory environment, labor costs, infrastructure, political stability, intellectual property protection, environmental regulations, and local talent and expertise. In this article, we will explore each of these factors in detail to help companies choose the right manufacturing base outside of China.

The country's regulatory environment

A country’s regulatory environment is one of the most important factors to consider when establishing a manufacturing base outside of China. The regulatory environment refers to the laws, regulations, and policies that govern business operations, including taxes, labor laws, trade regulations, and environmental standards.

A good regulatory environment can help businesses reduce costs, improve efficiency and ensure compliance with local laws, while a poor or unpredictable regulatory environment can pose significant risks to a company's operations and profitability.

For example, a recent World Bank study found that countries with high-quality regulation tend to have higher economic growth and lower levels of corruption. In addition, countries with a good regulatory environment tend to attract more foreign investment, which in turn promotes economic development.

Why choose Southeast Asian countries?

While countries like Singapore, Denmark, and New Zealand offer a favorable regulatory environment for manufacturing, Southeast Asian countries like Cambodia are also worth keeping a close eye on. With a rapidly growing economy and a business-friendly regulatory environment, Cambodia has become an attractive destination for foreign investors. In fact, the country has seen a sharp increase in foreign direct investment in recent years, with manufacturing accounting for a significant portion of that growth.

Other Southeast Asian countries, such as Vietnam and Thailand, are also making progress in improving their regulatory environment and infrastructure, making them increasingly competitive in manufacturing. By considering the regulatory environment and taking Southeast Asian countries such as Cambodia into account, companies can make informed decisions about establishing a manufacturing base outside of China.

Labor Cost

Another key factor to consider when establishing a manufacturing base outside of China is labor costs, which have risen sharply in recent years, making it less attractive for companies looking to reduce production costs.

According to China's National Bureau of Statistics, the average hourly wage of Chinese manufacturing workers more than doubled between 2010 and 2020. In contrast, many Southeast Asian countries have lower labor costs, making them increasingly competitive in manufacturing.

• For example, Cambodia’s minimum wage is currently $192 per month, which is significantly lower than China’s minimum wage, which ranges from $320 to $430 per month, depending on the region.
• Labor costs in Vietnam and Thailand are also competitive, with minimum wages ranging from $190 to $210 and $290 to $301 per month, respectively.

By carefully considering labor costs in different countries, companies can optimize production costs and increase their competitiveness in the global market.

Infrastructure

Infrastructure is crucial for setting up a factory outside China as it determines the ease and efficiency of conducting business operations. Proper infrastructure such as transportation, power, water, communication, and waste management systems are necessary for the smooth functioning of a factory. Here are some of the reasons why infrastructure is crucial for setting up a factory outside China:

1. Transportation: Efficient transportation infrastructure is critical to the factory supply chain. A well-developed transportation network, including roads, railways, airports, and seaports, enables raw materials to be easily transported to factories and finished products to markets. Inadequate transportation infrastructure can lead to increased logistics costs and delays, which can negatively affect the profitability of factories.
2. Power: Reliable and affordable electricity is a prerequisite for factory operations. Power outages and voltage fluctuations can damage expensive machinery and disrupt production schedules. A stable and efficient power supply ensures continuous factory operations, thereby improving productivity and cost-effectiveness.
3. Water: Water is a vital resource required for most industrial processes. A reliable and adequate water supply is essential for cooling systems, steam generation and cleaning. Water shortages can lead to production schedules being disrupted, as well as additional costs for water storage and transportation.
4. Communications: An effective communications system is critical to factory operations, including internet connections, phone lines, and other communications technologies. A reliable communications infrastructure helps factories stay connected with suppliers, customers, and other stakeholders.
5. Waste Management: Efficient handling of waste generated by the facility is essential to avoid environmental pollution and meet regulatory requirements. Adequate waste management infrastructure, including recycling and treatment facilities, is necessary to ensure that waste is handled properly and responsibly.

In conclusion, adequate infrastructure is crucial to the success of factories outside China. Well-developed infrastructure ensures that factories can operate efficiently and related costs are minimized, thereby achieving better profitability.