Commentary: Attractive incentives are leading firms to move factories out of China

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As China becomes less attractive a manufacturing hub, other countries in the region stand to gain, says economist Keun Lee.

SEOUL: COVID-19 has exposed the myriad weaknesses of cross-border value chains. Once the backbone of globalisation, now they are associated with vulnerability to disruption.

The departures include firms from a wide range of countries and industries. US toymaker Hasbro closed its Chinese factory in favour of facilities in Vietnam; Japanese electronics giant Sony has transferred operations to Thailand; and South Korea’s Cotton Club is relocating production to the Philippines, Cambodia, and Indonesia.

Given such trends, Samsung decided to relocate all of its manufacturing capacity for final consumer goods outside of China. In 2019, the country further modified its “U-turn act” to apply to a wider range of industries, including information- and knowledge-based companies. For example, the South Korean apparel firm G&G Enterprise built a new, fully automated smart factory in southwest Korea that enabled it to be price competitive and more flexible in product variety – even in the labour-intensive textile sector.

Hyundai Motors, for example, previously outsourced all of its production of wiring harnesses to suppliers in China, but COVID-19 shut down output of this simple but labour-intensive product.

 

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End day , go where labour is cheaper ....

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