A huge number of companies have stopped their manufacturing and sourcing operations in China and opened new plants/facilities in other regions of Asia. It is expected that many more businesses are going to leave the markets of China, in the coming few years. Here, it will be appropriate to go into more detail.
- A recent survey points out that nearly half of all the non- Chinese companies currently having plants in China are planning to relocate to other countries. In this connection, it is interesting to note that almost all these businesses intend to shift both sourcing and also manufacturing activities out of China.
- What does this mean for the worldwide manufacturing sector? Numerous regions are going to develop and emerge as important economic centers of the globe. Additionally, there shall be a positive change in the way wealth is distributed. The wealth would be allocated equitably to make sure that the growth is spread over several regions. Development shouldn’t be confined to just one or two countries.
- Post lockdown, the environment in China is not conducive even for businesses that are already operating in the country for a long time. Disruptions in things like manufacturing, supply chains, and cash/liquidity have turned out to be major obstacles, in this regard. Therefore, winding up the activities in China and relocating elsewhere has become the only viable option for the major chunk of factories/companies.
- The Coronavirus pandemic is the primary reason for that trend. The continuously escalating costs resulting from the trade war between the US and China is a contributory factor, as well. Apart from that, the fact that the UK has come out of the European Union has also played its part in this development.
- As it is, there have been lots of disturbances in the worldwide supply chains, for the past 3-4 years. The COVID crisis has just worsened things, in this context.
EPN (Economic Prosperity Network)
Driven by the objective of moving the manufacturing and supply chains out of China, the USA is striving in the direction of forming an EPN (economic prosperity network). Along with the US, the EPN is likely to include countries such as South Korea, New Zealand, Vietnam, Japan, and India.
The network is not looking at the possibility of making the businesses come into the USA. Companies are encouraged to shift their base to any of the countries that are part of the EPN.
Will Mexico be the new economic hub?
It needs to be understood that it’s highly probable that not many manufacturers moving out of China would want to set up plants in the USA. The cost of production in the US is extremely high. But, experts believe that many companies could commence operations in Mexico, as all the corresponding costs are lower than that of the USA.
Also, the government of Mexico provides many benefits for manufacturers in the form of policies like reduced tariffs and the absence of duty fees. Moreover, the perception is that workers of Mexico are a better choice when compared to their counterparts in the US. Even if the majority of companies choose Mexico, it would still be rather beneficial for the USA. This is because of the simple reason that for the US; accessing the Mexican market means just crossing the border.