Why Choose Asian Manufacturing? Exploring the Pros and Cons

Finding the Top Asian Manufacturing Hub for Your Business

The world of global sourcing has seen significant changes over the years, especially in Asian manufacturing. Aside from Manufacturing in China, other parts of Asia have a growing potential. Nonetheless, the choice of sourcing country can greatly influence the quality of the products, their cost, and the efficiency of the supply chain.

This blog post focuses specifically on Asian manufacturing, a region that has a dominant role in global sourcing. The unique combination of skilled labor, cost-effective production, and sophisticated supply chain networks has made Asia an attractive destination for businesses seeking to source high-quality products at competitive prices.

Table of Contents

1. China
2. Bangladesh
3. India
4. Vietnam
5. Thailand
6. Indonesia
7. Philippines
8. Taiwan
9. South Korea

Asian Manufacturing Giants

China

Is China still the optimal choice for manufacturing in the face of diverse and evolving challenges? This question weighs heavily on businesses looking to leverage the longstanding manufacturing powerhouse of Asia.

With its vast 1.42 billion population, robust industrial infrastructure, and well-established supply chain, China continues to offer unparalleled economies of scale.

However, rising wages, international scrutiny of labor and environmental practices, quality concerns, and the shifting landscape of trade regulations are prompting businesses to reevaluate their stance. Consider the taxes and duties as well when importing from China.

Cities like Shenzhen have evolved into industry-specific hubs, fostering a business ecosystem that supports the entire supply chain, but debates over intellectual property protection and cultural barriers underscore the complexities of this decision.

Pros of Manufacturing in China

• Scale: China’s massive industrial infrastructure allows for economies of scale that few other countries can match.
• Skilled Labor: China has a large, skilled labor force adept at a wide range of manufacturing tasks.
• Efficient Supply Chain: China’s well-established supply chains facilitate efficient production and distribution.
• Government Support: The Chinese government actively promotes manufacturing and exports, providing various incentives to businesses.

Cons of Manufacturing in China

• Quality Concerns: Quality control can be inconsistent, leading to variability in product quality.
• Intellectual Property Concerns: China has been criticized for inadequate protection of intellectual property rights.
• Long Lead Times: The distance between China and Western markets can result in long lead times and high shipping costs.
• Language and Cultural Barriers: Communication can sometimes be challenging due to differences in language and business culture.
• Regulatory Changes and Trade Tensions: Businesses may face uncertainty due to changes in regulations, tariffs, and other trade barriers.

Looking at these aspects, China’s appeal as a manufacturing hub is based on more than just low labor costs. It offers a comprehensive business ecosystem that supports large-scale production.

But companies must also navigate potential challenges to leverage the opportunities that manufacturing in China presents. So managing supply chain risks is crucial for your business success.

If ever you decide to source and manufacture in this country, we compiled the top 7 things to consider when manufacturing in China.

Bangladesh

Bangladesh is a major player in the textile industry in Asian manufacturing landscape, offering some of the lowest labor costs globally. In 2021, Bangladesh, the world’s second-largest clothing exporter after China, had its biggest jump in 25 years with a 30.4% increase in exports, reaching $35.8 billion. Despite a skills shortage, its workforce is more skilled than India’s. Their expertise lies in handling large orders swiftly, attracting fast-fashion giants like Zara.

While Bangladesh has a local cotton supply and produces its own yarns and fabrics, it often falls short of industry demands. Consequently, significant cotton and fabric imports are necessary, thinning profit margins for producers. Challenges such as poor infrastructure, inefficient logistics, and inconsistent energy supply also hinder the supply chain.

Pros of Manufacturing in Bangladesh

• Labor Cost: Bangladesh has very low labor costs, making it attractive for labor-intensive industries such as textiles.
• Production Capacity: The country has a substantial production capacity, especially in ready-made garment manufacturing.
• Quality: Quality in the textile sector has improved significantly over the years.
• Infrastructure: Despite challenges, infrastructure development, particularly in export processing zones, is a priority.
• Government Policies, Tax Incentives: The government offers various incentives for industries like textiles and leather goods.
• Availability of Raw Materials: Bangladesh is rich in natural resources like jute and has a growing cotton industry.
• Technology and Innovation: Technology adoption is increasing in sectors like textiles and pharmaceuticals.

Cons of Manufacturing in Bangladesh

• Labor Regulations: Bangladesh’s labor laws require improvements to ensure better working conditions and workers’ rights.
• Environmental Impacts: Industrial pollution, particularly from the textile industry, is a major concern.
• Political Stability: Political stability can be volatile, posing potential challenges to businesses.
• Logistics and Supply Chain Challenges: Infrastructure and bureaucratic issues often create logistical and supply chain inefficiencies.
• Trade Barriers: Certain industries are protected by the government, posing potential barriers to foreign investment.
• Intellectual Property Issues: Protection of intellectual property rights is still a work in progress in Bangladesh.

India

India, an emerging global manufacturing powerhouse, has been actively pursuing the vision of ‘Make in India‘ to bolster its industrial sector.

Famed for its rich artisanal heritage and skilled workforce, India boasts a diverse Asian manufacturing landscape that ranges from textiles and garments to advanced software solutions, automotive parts, and intricate jewelry. It’s also one of the top toy manufacturing countries.

The nation’s strategic location provides a gateway to the vast Asian market, and its emphasis on IT and engineering education equips it with a sizable talent pool to cater to modern manufacturing demands.

Pros of Manufacturing in India:

• Lower Costs: Manufacturing in India is generally cost-effective, with lower wages and operational expenses compared to many Western countries.
• English Proficiency: With English being an official language, communication barriers are minimal, especially in business environments.
• Speed to Market: Indian manufacturers often offer quick production timelines, understanding the essence of timely deliveries in business.
• Diverse Manufacturing Options: From artisanal products to high-tech electronics, the manufacturing spectrum in India is vast.
• Scalability: Indian manufacturing units, especially SMEs, offer flexibility in scaling up or down based on demand.
• Specializations: India is renowned for certain product categories like textiles, leather goods, jewelry, and software, which are also among its top product exports.
• Handmade and Artisan Products: India’s rich cultural heritage provides a unique opportunity for brands focusing on artisan and handmade products.
• Skilled Workforce: The availability of engineers, software developers, and skilled labor makes it an attractive manufacturing destination.
• Infrastructure Development: The government has been investing in improving transportation and logistical infrastructure.
• Positive Work Environment: Initiatives by unions and the government aim to provide a safer and more balanced work environment.

Cons of Manufacturing in India:

• Bureaucratic Red Tape: India is often criticized for its cumbersome bureaucratic processes which can sometimes delay projects.
• Inconsistent Quality: Depending on the manufacturer, there can be variations in quality.
• Logistical Challenges: While infrastructure is improving, road conditions and transportation can still pose challenges in certain regions.
• Electricity Concerns: In some regions, electricity supply can be inconsistent, affecting production schedules.
• Limited Scale in Some Sectors: Traditionally, some sectors in India are more fragmented, focusing on smaller-scale operations.
• Cultural Differences: Understanding and navigating the Indian business culture can be a learning curve for foreign businesses.
• Competitiveness in Pricing: While India offers competitive prices, in some sectors, other countries might still offer more competitive rates.
• Regional Variations: The Asian manufacturing capabilities and infrastructure can vary significantly from one state to another.

Vietnam

Vietnam’s manufacturing sector has experienced rapid growth in recent years, positioning the country as a significant player in the global manufacturing landscape, especially its footwear and furniture manufacturing. Located strategically between major markets such as China, Japan, Korea, and other Southeast Asian nations, Vietnam is uniquely positioned to serve as a production hub.

This, combined with governmental support for foreign investments, an emerging industrial base, and an overall cost-effective labor market, has led to a surge in manufacturers relocating to Vietnam, spanning industries like electronics, textiles, footwear, and furniture.

Pros of Manufacturing in Vietnam:

• Favorable Geographical Location: Situated amidst key Asian markets, it offers convenient access and shipping routes to China, Japan, Korea, and the Southeast Asian region.
• Low Labor Costs: Vietnamese labor is more affordable compared to many regional counterparts. For instance, the country has an approximately 733 USD average monthly salary wage, which is significantly lower than countries like Singapore and Thailand.
• Young Workforce: The demographic profile of Vietnam is skewed towards the youth, providing a robust and energetic labor force.
• Government Support: The Vietnamese government has actively courted foreign investment through tax incentives, favorable policies, and investment support mechanisms.
• Increasingly Diverse Manufacturing Base: From textiles and footwear to electronics and machinery, Vietnam’s manufacturing capabilities are expanding.

Cons of Manufacturing in Vietnam:

• Lengthy Legal Procedures: Navigating Vietnam’s regulatory environment can be time-consuming, involving various production, tax, customs, and investment-related rules and procedures.
• Workforce Capacity: While labor is affordable, there’s a perception that the skill and capacity of Vietnamese workers may not always meet the high production demands of some industries, potentially affecting product quality and timelines.
• Intense Regional Competition: The Vietnamese market is fiercely competitive, especially when juxtaposed with other Southeast Asian nations. Companies need to strategize effectively to maintain and grow their market share.
• Infrastructure Limitations: Despite improvements over the years, aspects of Vietnam’s infrastructure, like transportation, electricity supply, water accessibility, and internet connectivity, still lag behind some of its regional peers, which can impact production processes.

Emerging Asian Manufacturing Countries

Thailand

Thailand, often recognized as another vital Asian manufacturing hub, boasts a rich history in the industry dating back to the 1980s. Diverse sectors like textiles, food, and Japanese cars are some of its manufacturing prowess. International players have marked their presence, leveraging the nation’s robust infrastructure and a business ecosystem that rivals many of its Asian counterparts.

While Bangkok remains the nucleus for manufacturing, regions like the Eastern Seaboard and Samut Prakan further amplify the nation’s production capacities.

Pros of Manufacturing in Thailand:

• Established Manufacturing Sector: Thailand’s sector is mature, especially in areas like electronics, automotive, and petrochemicals. The presence of foreign multinationals since the 1980s gives the nation an edge over other Asian countries.
• Robust Infrastructure: The nation has developed a commendable manufacturing infrastructure, making relocations less enticing for companies relying heavily on local networks and suppliers.
• Low Labor Costs: Despite not being the cheapest in Southeast Asia, Thailand’s labor costs are significantly lower than China’s, placing it in the low-cost bracket for manufacturing.
• Ease of Doing Business: The nation scores impressively on the World Bank’s Ease of Doing Business ranking, underlined by its streamlined processes for business setups, tax payments, and customs declarations.

Cons of Manufacturing in Thailand:

• Political Instability: Thailand’s history of multiple military coups, the latest being in 2014, poses concerns for potential investors. The uncertainty following these coups can deter long-term investment.
• Slow Economic Growth: While the nation experienced phenomenal growth in the 80s and 90s, the pace has slowed in recent years. Neighboring countries like Vietnam and the Philippines are showing higher growth rates, making them attractive alternatives.
• Aging Population: Thailand’s population growth is slated to plateau by 2028, and with a median age of 40.1 years in 2022, it has an aging demographic compared to other Southeast Asian nations. This could lead to potential labor shortages and increased labor costs in the future.

Indonesia

Indonesia, with a population of 277 million, is Southeast Asia’s most populous country and a rising manufacturing giant. According to Statista, the nation’s manufacturing sector contributes to over 18.34 % of its GDP, positioning Indonesia alongside global powerhouses like China, South Korea, Japan, and Germany.

Indonesia’s manufacturing industries are diverse, encompassing textiles, electronics, automotive, and more. With a rapid urbanization rate and a young median age of 29.7, the country is poised to further establish itself as a significant Asian manufacturing hub.

Pros of Manufacturing in Indonesia:

• Young and Expanding Workforce: With a median age of 29.7 years, Indonesia has a young population that is expected to rise, making it the fifth-largest global population by 2030.
• Low Labor Costs: Indonesia boasts the lowest labor costs in Southeast Asia, offering labor expenses approximately 1/5 of China’s.
• Growing Domestic Market: The expanding middle class in Indonesia, predicted to grow by 75 million people from 2020 to 2030, presents a lucrative market. Sectors like e-commerce and digital banking are especially promising.
• Strong Manufacturing Sector: Manufacturing in Indonesia currently surpasses that of the United Kingdom, Russia, and Mexico, with its contribution to the nation’s GDP being significant.
• Special Economic Zones (SEZ): Indonesia’s SEZ system offers administrative benefits such as simpler licensing processes, tax concessions, and improved infrastructure, fostering the establishment of businesses.
• Government Ambitions: The government aims to place Indonesia among the top ten global economies by 2030, with manufacturing at its core.

Cons of Manufacturing in Indonesia:

• Infrastructure Issues: Despite ambitious goals to improve infrastructure, the country still lags behind global standards in this area.
• Bureaucracy and Red Tape: Indonesia’s infamous bureaucracy has deterred investors. Challenges like these have hindered the nation’s progress in the World Bank’s ease of doing business rankings.
• Limited Export Focus: Despite its robust manufacturing sector, the country still has relatively low exports of goods and services as a proportion of GDP.
• Productivity Concerns: The low-tech contribution of manufactured products for export means that Indonesia’s productivity is lower than other ASEAN countries.
• Challenges in Fossil Fuel Dependency: The nation’s reliance on fossil fuels poses a potential risk for foreign investments if government targets for renewable energy aren’t met.
• Regulatory Clarity and Transparency: The frequently changing and often unclear regulations can be a barrier for foreign investors.
• Restrictions on Importing Finished Products: Like other Asian manufacturing companies face limitations in importing finished products for direct sale in the country.

Philippines

The Philippines, a bustling archipelago with a population of about 117.5 million, has emerged as a formidable contender in Southeast Asia’s manufacturing race alongside Indonesia and Vietnam. Its overseas manufacturing sector has evolved over the years, transitioning from primary industries like agriculture and textiles to more high-tech sectors, especially electronics.

The following are the prominent advantages and challenges of choosing the Philippines for manufacturing:

Pros of Manufacturing in the Philippines

• Labor Cost: The Philippines offers a competitive edge with low labor costs comparable to Vietnam and significantly lower than manufacturing in China.
• Production Capacity: According to the 2020 data from the Philippine Statistics Authority (PSA), a massive and youthful labor pool of about 43.7 million is set to grow further, driven by the nation’s median age of 25.3 years.
• Quality: The shift from traditional to high-tech manufacturing signifies a commitment to quality and modernization.
• Infrastructure: Despite existing limitations, the government’s commitment to infrastructure development, with investments surging to over 6% of the GDP, is promising.
• Government Policies, Tax Incentives: The Philippines’ booming pharmaceutical industry, for instance, has been bolstered by tax incentives and local availability of medicinal ingredients.
• Availability of Raw Materials: Rich in minerals, the Philippines has vast reserves of gold, nickel ore, and copper waiting to be tapped.
• Technology and Innovation: The country’s emphasis on electronics and semiconductor industries showcases its lean towards technological advancements.

Cons of Manufacturing in the Philippines

• Labor Regulations: Operating in emerging markets presents unique challenges shaped by cultural nuances and local regulations.
• Environmental Impacts: The Philippines grapples with frequent natural disasters like cyclones, floods, and earthquakes, impacting business continuity.
• Political Stability: Like many emerging markets, political landscapes can shift, influencing the business environment.
• Logistics and Supply Chain Challenges: Infrastructure inefficiencies, while being addressed, are still a significant hurdle.
• Trade Barriers: While the Philippines boasts of several trade agreements, the absence of an EU agreement, unlike Vietnam, limits its reach.
• Intellectual Property Issues: Operating in a new market can always bring forward intellectual property challenges, especially in sectors like electronics and technology.

Overall, each of these countries provides unique opportunities and challenges in the global and even Asian manufacturing and sourcing landscape. Businesses need to consider the pros and cons carefully to optimize their supply chain and manufacturing operations. The diverse Asian market presents many choices, and finding the right fit can be a significant factor in a business’s success.

Asian Manufacturing Leaders In Electronics & Technology

Taiwan

Taiwan is another Asian manufacturing powerhouse known for its robust manufacturing sector, particularly in electronics and semiconductor production. Recent data from the Taiwan Institute of Economic Research (TIER) indicates that the local manufacturing sector has experienced a contraction for four consecutive months as of June due to weakening global demand.

Influential companies like Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, are projecting a decrease in sales. A color-coded system by TIER reveals that a majority of local manufacturing businesses signaled contraction or sluggish growth, with particular industries such as electronics components and base metals flashing a ‘blue’ light of contraction.

Pros Of Manufacturing In Taiwan:

• Advanced Technology: Taiwan is home to leading tech companies, particularly in the semiconductor industry, with firms like TSMC being global leaders. Taiwan’s chip industry is one of its advantages.
• Skilled Workforce: The country boasts a well-educated and technically skilled workforce suitable for high-tech manufacturing.
• Strategic Location: Its location in Asia provides easy access to major markets such as China, Japan, and Southeast Asia.
• Established Supply Chains: Taiwan has a well-established supply chain for electronics, enhancing efficiency and reducing lead times.
• Innovative R&D: The nation continually invests in research and development, ensuring that its manufacturing processes and products are at the cutting edge.

Cons Of Manufacturing In Taiwan:

• Dependency on Global Demand: A drop in global demand significantly impacts the Taiwanese manufacturing sector.
• Competitive Pressure: Regional competition, especially from countries like China and South Korea, poses a continuous threat.
• Vulnerable to Global Economic Shifts: Adjustments in global economic strategies, like inventory changes, can have a significant negative effect on Taiwanese industries.
• Potential Over-reliance on Specific Sectors: The dominance of the semiconductor and electronics sectors could make the economy vulnerable to industry-specific downturns.
• Rising Costs: As with many developed economies, the cost of manufacturing, including wages and property prices, is gradually increasing, potentially reducing its competitive edge.

South Korea

South Korea is another Asian manufacturing country that has made significant strides in the global economic scene, evolving rapidly from its earlier emphasis on simple industries like textiles and plastics to being a powerhouse in heavy industries such as shipbuilding, steel, automobiles, and major home appliances.

By the 1980s, the nation was fully industrialized, with its firms emerging as global leaders in a myriad of products. This economic trajectory was accompanied by the rise of chaebols, a unique Korean business structure where large conglomerates, often family-owned and intertwined, dominate the business landscape.

Notable chaebols like Samsung, Hyundai, LG Group, Daewoo, and Sunkyong collectively contribute significantly to the country’s GNP.

Pros Of Manufacturing In South Korea:

• Astounding Infrastructure: South Korea boasts a modern infrastructure, facilitating efficient logistics. Its internet speeds are among the world’s fastest, enhancing communications.
• Efficiency: Koreans are known for their determination and efficiency, often executing plans with precision and speed.
• Educated Market: With one of the world’s highest literacy and secondary education rates, Korea presents an educated workforce.
• Industry Diversity: South Korea is home to the world’s largest shipbuilding industries and advanced solar energy technology.
• IP Protection: The country adheres to international trademarks and patents, updating laws to protect emerging sectors.
• Quick Market Adoption: Koreans are keen on overseas products, with trends rapidly gaining traction.
• Loyalty Programs: Koreans show an affinity for loyalty and rewards programs, a trend businesses can leverage.
• Urban Density and Strategic Location: With multiple densely populated cities and its location between Japan and China, Korea offers vast market access and a strategic Asian hub.

Cons Of Manufacturing In South Korea:

• Cultural Nuances: A deep-rooted business culture influenced by Confucianism and military hierarchy necessitates adjustments for foreign investors.
• Chaebol Dominance: The significant influence of chaebols means new entrants may face challenges unless aligned with these conglomerates.
• Distinct Consumption Patterns: Koreans exhibit unique spending habits that may require market research to understand fully.
• Rising Rent Costs: Popular commercial areas can see sudden rent hikes, emphasizing the importance of solid lease contracts.
• Bureaucracy and Protectionism: The South Korean business environment demands alignment with government procedures, which can be paperwork-heavy and intricate.
• Rapid Benchmarking: Success in the Korean market might lead to immediate competition, necessitating continuous innovation.
• Demographic Challenge: A declining birth rate against an aging population may present future market challenges.

Overall, each of these countries provides unique opportunities and challenges in the global and even Asian manufacturing and sourcing landscape. Businesses need to consider the pros and cons carefully to optimize their supply chain and manufacturing operations. The diverse Asian market presents many choices, and finding the right fit can be a significant factor in a business’s success.

Your Asian Manufacturing Partner

Looking to navigate the intricate world of Asian manufacturing? With Sphere Resources, anchored by our strategic base in China, we empower businesses to seamlessly source and establish relationships with top-tier manufacturers across Asia, ensuring we find the perfect manufacturing partner for your business, wherever they might be.

Partner with us to experience the Sphere Resources difference. Expand beyond borders with us and leverage the best of Asian manufacturing without the usual hurdles. Contact us today to get started.