US companies tend to seek overseas manufacturing. This move is, in part, because it can be expensive to manufacture products in the US. China is a popular alternative to US manufacturing. This is because the material and labor costs are low, but also because China has the infrastructure setup to meet supply chain demands of businesses.
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In recent years, companies have begun to search for manufacturing alternatives to China. China lacks intellectual property (IP) protection, suffers from quality control shortcomings, and production costs in China have climbed tremendously since labor costs have increased. In addition, the trade war with the United States and China’s mishandling of the coronavirus has prompted many companies to look for alternatives.
In this article, we will rank the top seven manufacturing alternatives of China. We will start at seven and work our way down. For each alternative, we will discuss the pros and cons. Then we will explain why an alternative is a viable option.
Disadvantages of Manufacturing in China
The lack of IP protection and the generally low quality of the products are two immediate disadvantages of manufacturing in China. But the economic benefits of manufacturing in China are also dwindling due to higher labor costs. Manufacturing in China used to be 20 percent cheaper than manufacturing in the United States. That percentage is now only 5 by most estimates.
The ongoing trade war between the United States and China is also another reason that businesses are looking for another place to manufacture their goods.This trade war will only increase as a result of the coronavirus. In addition, many other countries (such as Japan) are incentivizing their businesses to move operations outside of China.
All this makes China a less-than-ideal place to manufacture goods.
Seven Factors to Look for in a Manufacturing Location
There are seven main factors that contribute to selecting the best manufacturing alternatives. These factors were a consideration during the curating of our alternatives to China to manufacture your product.
- The nation’s IP protection plays a large role in determining whether the nation is an ideal location to manufacture your product. Selecting a manufacturer should be taken as a business investment. The goal is to make money, not lose it because the manufacturer is able to sell counterfeits of your product.
- Another important consideration is product quality. This pertains to the actual quality of the product and the perceived quality of the product. Even if a product is high-quality, the public’s perception could be low-quality because of the manufacturer’s reputation.
- Government regulations are an additional consideration. It’s important to look at a combination of things. Research the economic and trade policies, tax breaks, and tariffs before selecting a manufacturer.
- If your goal is to create a high-quality product, then manufacturing services and expertise are key considerations too. Some countries specialize in certain manufacturing services.
- The material cost, sourcing cost, average minimum wage, and shipping costs about the nation manufacturing your product are relevant. You are searching for a manufacturer for a product you wish to sell. The goal is to make money, so the costs can’t be too high or the product will not be profitable.
- The costs work with turn-around time and output. Together, they gauge the manufacturer’s production. The skill, education, and size of your workforce combine with the manufacturer to create productivity.
- Infrastructure is a key player in determining the manufacturer of your product. This includes both the factory’s infrastructure and the shipping infrastructure. The shipping infrastructure works alongside the ease of business entry. Together these two things determine whether the manufacturer is an acceptable alternative.
Comparison Tables of the Manufacturing Alternatives
Now, we will take a look at two comparison tables. These tables could help you decide between these seven manufacturing alternatives to China.
Table 1. Logistic Performance Index 2018 Scores
| Customs | Infrastructure | Timeliness | Average | |
|---|---|---|---|---|
|
Vietnam |
2.95 |
3.01 |
3.67 |
3.21 |
|
Thailand |
3.14 |
3.14 |
3.81 |
3.36 |
|
Malaysia |
2.9 |
3.15 |
3.46 |
3.17 |
|
Indonesia |
2.67 |
2.89 |
3.67 |
3.08 |
|
India |
2.96 |
2.91 |
3.5 |
3.12 |
|
United States |
3.78 |
4.05 |
4.08 |
3.97 |
|
Mexico |
2.77 |
2.85 |
3.53 |
3.05 |
Table 1, Logistic Performance Index 2018 Scores compares the scores of the top seven manufacturing alternatives. The scoring system ranges from one to five. The highest possible score would be a five.
The logistics performance index, or LPI, score ranks certain qualities. These qualities are customs efficiency, timeliness, and quality of infrastructure. To aid in your decision we’ve provided you with the alternative’s average of the three scores.
The United States has the highest average score of 3.97. They received a customs score of 3,78. The timeliness score is 4.08 and the infrastructure score was 4.05.
The lowest average score was 3.05 in Mexico. Their ratings are as follows; customs, 2.77, infrastructure, 2.85, and timeliness, 3.53.
The United States held the highest scores in all three categories.
Table 2. Ease of Doing Business (EDB), Minimum Wage and Labor Force Data
| EDB Score | Minimum Wage per Hour (USD) | Labor Force (Million) | |
|---|---|---|---|
|
Vietnam |
69.8 |
0.73 |
57.36 |
|
Thailand |
80.1 |
1.22 |
38.99 |
|
Malaysia |
81.5 |
1.03 |
15.67 |
|
Indonesia |
69.6 |
0.63 |
134.78 |
|
India |
71 |
0.31 |
494.26 |
|
United States |
84 |
7.25 |
166.08 |
|
Mexico |
72.4 |
0.95 |
57.14 |
When we examine Table 2, Ease of Doing Business (EDB), Minimum Wage, and Labor Force Data, we see that the United States also has the highest EDB score.
The EDB scoring model ranges from zero to one-hundred. One-hundred would be a perfect score. Table 2 includes these scores along with the average minimum wage and size of each nation’s labor force.
The United States may have the highest EDB score, but it also has the highest minimum wage. This is the largest deterrent for business considering the US for a manufacturer. The United States also has the second-largest working force.
India offers the lowest average minimum wage and the second-largest working force. The nation’s EDB score is 71.
There are a few things that stand out about this table. First, the US”s average minimum wage is five times higher than it’s runner up.
The second thing is that there seems to be no correlation between the size of the workforce and its average minimum wage. This implies that the manufacturer’s from the US support the workforce in a way most of the other alternatives do not.
Ranking the Top 7 Manufacturing Alternatives
These rankings were decided by accounting for all of the criteria mentioned throughout the article. Each nation’s strengths and weaknesses played a role in the criteria as well.
7. Mexico
Mexico specializes in automotive products, industrial machinery, and electronics. Mexico is a viable alternative to China to manufacture your product.
Mexico manufacturing offers your company an assortment of benefits. The location is ideal for logistics, turnaround times, and shipment costs.
Manufacturing in Mexico has a few similarities to US manufacturing. The time zones are the same as the US. This promotes easier communication. The nation also has similar intellectual property laws to the US.
A major downside to manufacturing in Mexico is the high levels of crime and corruption. The nation’s regulations are not nearly as good as the US regulations either. Tax rates and regulations do not work to your advantage and the labor laws are much worse than a few of the other alternatives.
6. United States
The US’s manufacturing is focused on machinery and equipment, industrial supplies, consumer goods, and pharmaceuticals. The U.S. ranked the best in the categories on the two tables we talked about above.
Manufacturing in the US comes with many other benefits as well. The labor force is highly skilled and educated.
The US offers intellectual property protection through an assortment of intellectual property laws. There are many government policies that favor manufacturing and the regulations and oversight ensure a great manufacturing environment.
The United States also offers an advanced infrastructure that is organized and developed.
Of course, the disadvantages to manufacturing in the United States is the high labor costs. Thus, the United States is not a viable candidate for manufacturing if you want to stay competitive with companies that manufacture overseas. With that said, there is a big movement in the United States to buy American-made products. Of course buying American-made products comes at a huge price premium. It will remain to be seen whether consumers are willing to pay for the big price premium in the long run.
5. India
India specializes in many sought after products. These products include pharmaceuticals, computers, machinery, textiles and garments, and mineral and chemical products.
India features a huge workforce with low labor costs. Its location is near China and other trade partners. This is convenient in obtaining the raw materials necessary for the products. India is unique in that there are both high skill and low skill labor forces.
With its list of pros, India hosts many cons, The first of which is that India has a low level of productivity. The nation also falls behind China in infrastructure and timeliness rankings. The nation’s firm registration is also twice as long as China’s.
The cost upfront is more expensive due to fees and dependant on the professional services required. Plus it would take longer to get the product’s shipped due to India’s low road capacity.
4. Indonesia
Indonesia is the fourth alternative to China to manufacture your product. The nation has the fourth largest workforce in Asia and the cost of labor is low.
Another benefit Indonesia offers your business is its exchange rate. This nation’s government is focused on upgrading its infrastructure. These upgrades would seem perfect for a company searching for a long term manufacturing partner.
The problem is that Indonesia has an unstable government and an inefficient government bureaucracy. The nation’s location could make coordination very difficult.
3. Malaysia
Malaysia manufactures auto parts, electrical components, and consumer electronic sectors.
Malaysia offers the benefit of convenience. The nation’s ease of doing business score is very high. It is second only to the United States The nation also owns the second and third busiest ports in Southeast Asia.
The workforce in Malaysia is very small and the average minimum wage is one of the highest in Asia.
2. Thailand
Thailand’s manufacturing works in the following sectors, computer components, automobile components, and machinery equipment.
The workforce in Thailand is able to take on high and medium skill level tech manufacturing. Thailand offers an abundance of natural resources but is pretty far from China for trade purposes.
The government is investing a lot in the nation’s infrastructure. The nation is improving its ports and railways, as well as creating new railways and conducting airway projects.
Thailand’s average minimum wage is slightly higher than the majority of other Asian countries, including Vietnam.
1. Vietnam
Vietnam specializes in electronics, garments, furniture, and footwear. The nation has experience dealing with large brands. Nike, Samsung, Microsoft, and Intel are just four of the well-known brands that have manufactured in Vietnam.
Vietnam also has close proximity to China. This proximity is beneficial in gaining materials.
This nation is a great option for those searching for a long-term manufacturing relationship. The nation has a stable government and offers intellectual property protection.
The workforce is not necessarily big. It is comparable to most other countries. The nation is also somewhat dependent on the trade laws of other nations, especially China. Productivity can be low at times due to strikes that cause factory shutdowns.
Conclusion
Vietnam is the number one ranked country. This means that it is the best possible alternative for China to manufacture your product. Apple has stated that they are moving some of their manufacturing to Vietnam.
Vietnam earns the top spot for a few reasons. First, it can work closely with China to obtain the materials it needs. The nation permits long-term work because the government is stable and works hard to protect your product.
Another winning feature Vietnam holds is experience. The country’s top manufacturers have professional experience working with large brands.
Regardless of the manufacturing nation, you select, it is vital to have an inspection, or audit, completed before doing any paperwork. Setting up a regular inspection cycle can assist in setting your product’s standards and avoiding defective products.
