Recent US electoral decisions will result in more companies re-assessing their positions in China.
As China’s economy faces ongoing re-balancing, the rise of trade barriers, operational costs, and systemic risks, will drive more multinational corporations to reconsider their reliance on the country as a manufacturing base. Labour-intensive industries, in particular, will seek more cost-effective and strategically advantageous locations. Concerns around the loss of intellectual property (IP), unfair trade practices, and government interference will make others consider leaving too.
This article notes the drivers behind many international companies' exit from China’s manufacturing ecosystem. It then evaluates what the promising alternative countries may be and the benefits and challenges of shifting operations.
The list of companies who have left China is growing
The number of international companies making the decision to leave China is growing. The following list is a snapshot of some of the diverse companies leaving China and their stated reasons for leaving:
Dell - In response to trade tensions, Dell began moving production out of China, with plans to phase out China-made components in favour of other regions.
Qantas - The national airline of Australia pulled out of mainland China in May 2024 due to low demand and intense competition from local carriers.
Oxford Instruments (OXIG) decided to move its “sensitive products”, including quantum technologies, out of China due to geopolitical worries.
Blizzard Entertainment - This major gaming company exited China in January 2023 after its long-standing partnership with NetEase ended.
GoPro - Shifted US-bound manufacturing from China to Mexico in anticipation of worsening trade tensions.
BlackRock - Delayed its ETF launch in China due to political risks and opted to invest in more profitable US assets.
Intel - Diversified by reallocating some manufacturing to Vietnam and investing in new facilities in the US and Europe.
Nike - Moved parts of its supply chain to southeast Asia and Africa following Xinjiang-related controversies and consumer boycotts.
Samsung - Shut down several Chinese factories, including smartphone and PC plants, concentrating on production in South Korea, Vietnam, and the US.
Old Navy/Gap - Closed all stores in China, joining other foreign retailers in scaling back operations.
HP - Relocated 30% of production from China and sold its laser printer unit to Foxconn, exploring further production adjustments.
Puma - Reduced reliance on Chinese production, shifting manufacturing to other countries in Asia following a backlash from Chinese consumers.
Under Armour - Lowered its China-based production, opting for other Asian countries to avoid tariffs.
Volex (VLX) has noted supply chain disruptions have “reshaped procurement and sourcing strategies” and plans to increase presence in Mexico, Turkey, India, Indonesia and Poland.
Hasbro - Cut back on Chinese manufacturing, moving most production to Vietnam and India.
The New York Times - Moved part of its Hong Kong operations to South Korea due to China’s stringent security law.
Stanley Black & Decker - Closed its Shenzhen factory in 2021, citing high costs and competition, and refocused on US operations.
Nintendo - Relocated some Switch console production to Vietnam to diversify manufacturing locations.
Airbnb - Suspended its Chinese listings due to COVID-19 impacts but maintains a presence to assist Chinese tourists travelling abroad.
Space NK - Withdrew from China, closing its stores by 2020 after a short-lived expansion.
Sony - Ended smartphone manufacturing in China, transferring production to Thailand due to high costs and low sales.
Superdry - Left the Chinese market, attributing the exit to weak sales, and increased imports from India.
Sharp - Leveraged Japanese government incentives to shift production out of China to Japan and southeast Asia.
Dentons - Split from its Chinese branch, rebranding it as an independent entity in response to regulatory and data privacy pressures.
Google/Alphabet - Moved hardware production of Pixel phones and other devices to Vietnam, Thailand, and other locations.
Quanta Computer - Taiwan-based manufacturer relocated some production from China to Taiwan as part of regional diversification.
Naver - Moved data operations from Hong Kong to Singapore to address privacy concerns.
Steve Madden - Transitioned production from China to countries like Cambodia and Brazil, aiming to avoid tariffs and maintain pricing.
LG Electronics - Shifted US-bound refrigerator production from China to South Korea to sidestep US tariffs.
Why companies are leaving China - key themes
The decision to relocate production outside of China is frequently influenced by several key factors, including rising labour costs, trade barriers, and IP concerns.
Rising labour costs. Labour costs in China have been steadily increasing, especially within labour-intensive sectors like textiles, consumer electronics, and automotive manufacturing. This has led companies to seek regions where wage rates are lower, enabling them to maintain competitive manufacturing costs. This shift is particularly significant for industries where labour represents a large portion of production expenses.
Trade barriers and tariffs. Ongoing trade disputes and tariffs have escalated manufacturing costs for many companies in China. The imposition of duties on exports has driven companies to reassess supply chain strategies, considering regions with fewer trade restrictions. The US-China trade war, along with EU tariffs on specific Chinese goods, add complexity, motivating companies to seek markets less impacted by these economic tensions.
Intellectual property concerns. Concerns over the security of IP have also influenced companies' decisions to relocate. Issues such as forced technology transfers and insufficient legal protections in China have raised risks for businesses, particularly those with valuable proprietary technologies. In response, many firms are moving to jurisdictions with more robust IP enforcement to safeguard their intellectual assets.
Where could manufacturing shift outside China?
A range of countries are emerging as attractive alternatives to China’s manufacturing ecosystem, each offering unique advantages, from cost savings to strategic geographic positioning.
Vietnam. Vietnam has become a prominent option for manufacturers looking to reduce production costs while maintaining quality. Labour costs in Vietnam are estimated to be between one-third to one-half of those in China, making it highly competitive for industries like electronics and textiles. With 18 free trade agreements, a young workforce, and government support through tax incentives, Vietnam provides a favourable business environment. Major global players such as Apple and Samsung have already established production bases here, benefiting from a skilled workforce and efficient logistics infrastructure.
Mexico. Mexico presents a strong case for manufacturers, especially those targeting the North American market. Labour costs in Mexico are roughly 19% lower than in China, and its proximity to the US enables rapid delivery times, with goods reaching American markets within days. The United States-Mexico-Canada Agreement (USMCA) allows duty-free trade for many products, avoiding tariffs that impact Chinese imports. Furthermore, Mexico offers better IP protections and lower energy and real estate costs, supporting cost-effective and secure manufacturing options for US-based companies (see Why Mexico is the next big thing).
India. India’s “Make in India” initiative and Production Linked Incentive (PLI) schemes have incentivised foreign investments in manufacturing. With a large, English-speaking workforce and a rapidly expanding middle class, India provides both manufacturing capacity and access to a burgeoning domestic market. India’s strong IT sector and investment in logistics infrastructure add to its appeal, despite regulatory and infrastructure challenges. The country’s strategic location near Asian, African, and Middle Eastern markets also enhances its attractiveness for diversified supply chains.
Other countries. In addition to the primary options of Vietnam, Mexico, and India, several other countries in South America and Southeast Asia are emerging as viable alternatives. Countries such as Brazil, Indonesia, Malaysia, and Thailand offer competitive labour costs, strategic locations, and government incentives. For instance, Brazil provides substantial resources and a large consumer market, while Indonesia and Thailand are increasing their manufacturing capacities, especially in the automotive and electronics sectors. Each country brings unique advantages that can fit various manufacturing needs.
Benefits and challenges of relocating production
While relocating manufacturing operations offers multiple benefits, such as cost savings and supply chain diversification, it also presents certain challenges.
Cost advantage. Relocating to regions with lower labour costs can lead to significant savings, which is especially beneficial for businesses in high-cost sectors. However, companies must consider the full range of expenses involved, such as infrastructure, logistics, and compliance costs, which can vary greatly by location. Comprehensive cost-benefit analyses are necessary to ensure that initial cost savings are sustained over time.
Supply chain diversification. Diversifying production across multiple regions allows businesses to minimise risks associated with over-reliance on a single manufacturing hub. This distribution enables companies to better withstand disruptions, such as political unrest, natural disasters, or market changes. Additionally, a diversified supply chain provides more agility in responding to shifting consumer demands and economic conditions.
Infrastructure and logistics. Moving production to new countries involves adjusting to different logistics and infrastructure frameworks. Some regions may require substantial investment in transportation and warehousing facilities to ensure efficient operations. Evaluating the infrastructure and logistics capabilities of prospective countries is essential for a smooth transition and for maintaining timely production and delivery schedules.
Conclusion
The evolving economic and geopolitical landscape in China and internationally is prompting multinational companies to reconsider their dependence on China’s manufacturing ecosystem. Recent US electoral results may expedite this exodus. Companies cite rising labour costs, trade barriers, and intellectual property concerns are key drivers in this shift, with companies seeking alternatives in countries like Vietnam, Mexico, and India. These countries offer advantages, from lower costs and strategic trade agreements to better IP protections and skilled labour. However, relocating production requires careful planning, particularly in terms of infrastructure, logistics, and regulatory compliance.
Ultimately, companies that embrace a diversified, flexible supply chain model will be better equipped to handle global uncertainties and maintain resilience. In an increasingly complex global market, the strategic decision to relocate and diversify will not only help firms mitigate risk but position them for sustainable growth and competitive advantage in the years to come.
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