China has been the factory for the world for the past two to three decades but President Xi has made China too risky for business. There is potential for societal unrest in China with mass protests over Covid Zero and other policies. If you are maintaining a factory in China, you would want that factory to service the local China market. You would factories in other places to service other markets.
It no longer makes sense to save on costs with China is the only location for global factories. Apple has nearly all of its iPhone and other products made in China and exported globally. The China export hub strategy is too risky.
Business risk mitigation means that companies like Apple are making other factories in Vietnam and other locations outside of China.
National interests like military and security concerns means governments are requiring critical parts of the supply chain to be localized inside the country or spread out in multiple locations where a national crisis would not cripple key capabilities. This was the case where the USA required Taiwan Semiconductor to make new semiconductor chip factories in Arizona. The US also made massive investments in Intel to get Intel back into the semiconductor game.
What will happen to the future factories and Where Will the Factories Go?
There will be more highly automated factories to reduce the impact of higher labor costs.
The factories would need to be placed where there is the demand. If 50% of the purchasers are in the US then the factories need to be in the US and Cananda. Some of the factories for that demand could be in Mexico but Mexico’s drug cartel problem is not risk-free.
There could be some exporting from factories Vietnam, India and other parts of Southeast Asia. However, there could only be some production in those locations for lower labor cost and exports.
European locations have issues as well because of the Russia-Ukraine war. The war causes regional logistical issues and energy supply and energy cost issues.
After the Transition
This will mean the GDP of the ASEAN countries will rise. Factories will spread back to the United States and to many non-China countries. The countries outside of China and the USA that are most viable are Vietnam, Indonesia, Mexico, Phillippines, Malaysia, Thailand and India. There wil be some going to other countries as well which could have economic benefits for those countries. However, there will be one country. The strategy of reducing risks means many countries will get factories that move or expand from current China centric operations.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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