The Future of Manufacturing: Why It’s Shifting and Where It Will Go Next
Recently, something peculiar happened in the world of international manufacturing. Vinfast, the Vietnamese electric automaker, decided to open a factory in the USA.
But wait — wasn’t it just a few decades ago that retailers were forced to outsource manufacturing to east Asia just to remain competitive? How can it possibly make more sense for a Vietnamese company to manufacture in the United States?
The answer is that the supply chain game has changed. Outsourcing for cheap labor is no longer the only factor at play in manufacturing. New considerations are playing out before our eyes, including:
- Ability to proactively manage one’s supply chain
- Proximity to end customer
- Production facilities spread out across multiple regions to manage risk (or just supply chain resiliency)
The primary countries in manufacturing are still China and the US, and this ranking is not going to change overnight. But the global dynamic of who manufactures where — and why — is beginning to shift.
Let’s take a look at which new locations are poised to become new hubs in global manufacturing and why now is the time to diversify.
Manufacturing in Asia means much more than just China
China is still the top manufacturing nation and will likely maintain this position in the years to come; but many companies are now looking to insulate their supply chains. That means ensuring 100% of their production isn’t confined to a single nation.
Things have changed greatly in China over recent years. Subsequently, supply chains linked to China have been disrupted while costs and worker wages have both increased. This all comes on top of the recent roadblocks presented by COVID-19; in the spring of 2022 alone, lockdown measures in Shanghai left 90% of truck capacity out of service. It’s now clear that manufacturing in China is no longer as reliable or as cheap as it once was.
Many retailers are making moves to keep some production or distribution in China while setting up another outfit in a different region. And many countries in Southeast Asia — such as Vietnam, Thailand, and Malaysia — are implementing policies to attract those companies.
Southeast Asian countries have long been known for low-cost labor and cheap manufacturing. However, the region is now well-positioned to take advantage of a new trade pact, the Regional Comprehensive Economic Partnership (RCEP), as well as the following key trends:
- Increased FDI from trade partners like China, Japan, and South Korea
- Rising living standards in the region, creating an attractive new market for retailers
- Retail desire to bring smaller production units closer to end-users
- Mitigating risk by setting up production in South East Asian countries in addition to China
New markets, global trends, and favorable trade agreements can create the perfect environment for change. But there are still a few substantial barriers.
Recent research shows that the region will need to invest in new technologies to bring manufacturing into the future, and governments will need to implement policies favorable to trade. This is a pretty significant roadblock, as the region is behind when it comes to tech adoption in manufacturing processes.
And yet, the global supply chain is undergoing a paradigm shift. Investors are likely to soon be ready and willing to put new tech into practice to ensure future success. Countries in Southeast Asia have a tremendous opportunity now to develop strong multinational value chains — thus increasing investment and playing off of each other's strengths.
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Changes to the status quo in North America
Let’s not forget that the USA is still the number two manufacturing country in the world. And, like China, recent events have revealed weaknesses in supply chains regionally.
Companies that manufacture in the USA are similarly looking to find new bases for their manufacturing operations. After all, east Asia is a long way away if something goes awry, and trade terms between the USA and many Asian countries are still in flux.
However, the US does have favorable agreements and already-high trade volumes with many Latin American countries. And apart from the USA’s interest in the region as a “far-but-not-too-far-away” manufacturing hub, there is also a keen interest in taking advantage of the region’s key raw materials, such as lithium and copper.
Political instability presents another challenge in Latin America. Working around developing infrastructure and unpredictable governments is difficult for businesses abroad. But just like the ASEAN region, South and Central America stand to benefit greatly from foreign investment in manufacturing in the region.
Why the climate is perfect to diversify production bases
New technologies, new markets, and new supply chain strategies are creating a new set of possibilities for how you can run your supply chain.
Through the use of AI, robotics, and big data tools, factories are becoming more cost-efficient and releasing fewer emissions. In fact, energy efficiency and cost savings can go hand-in-hand; studies show that implementing a resilient strategy for sustainability can cut costs for manufacturers by nearly 60%. With greener factories, it will become more economical to have multiple production centers that are situated much closer to the end-user.
All of these tie in perfectly with the e-commerce desire to break into new markets, namely those populations in Asia that are experiencing wage growth and increased standards of living. Projections for economic growth in Latin America and Southeast Asia coupled with the desire to expand production in those regions mean there’s a big opportunity in the upcoming years.
Outsourcing production to the cheapest region possible is no longer the only strategy. Retailers are moving more toward building a supply chain strategy that can withstand crises — all while bringing new value wherever possible.
Stay in step with changes in manufacturing
If your business is considering how to create a manufacturing strategy that’s resilient and adaptable, you need a partner that knows the industry inside and out.
At CBIP, we’re constantly following the latest trends in manufacturing. Using our broad network of global partners, we work with you to assess sourcing, manufacturing, and the shipping reliability that today’s consumers demand. We fit your needs based on your customer, business size, goals, and more to give you what matters: options.
Talk to one of our experts today to learn how CBIP can assure your supply chain sees long-term success.