Heidrick & Struggles: Industry Outlook 2016 - Supply Chain Asia

‘Factory Asia’ is the catchy name given to the concentrated manufacturing and supply chain hub in the Asia Pacific region. For years, China had the undisputed monopoly of Asia’s manufacturing sector, literally putting its ‘Made in China’ stamp on a vast array of products. However, other players in Southeast Asia, including Vietnam, Thailand, India, Malaysia and Indonesia, are stepping up their game to become attractive alternative manufacturing centers.

Due to its low-cost labor, efficient supply chains and relatively lenient regulatory system, China earned itself the title of ‘the world’s factory’. However, the global financial crisis, rising labor costs and environmental concerns, have all contributed to slowing manufacturing growth in the country, with year-onyear growth of 12.1% in 2010 dropping to about 6.0% in 2015. With labor and production costs on the rise, many businesses have moved their manufacturing bases out of China to Southeast Asia. Vietnam has become a favored supply chain hub due to lower labor costs and attractive tax incentives, including numerous free-trade agreements.

Although electronics have been its main export since 2013, it has been reported that over 5,000 businesses previously based in Guangdong Province have made the move to Vietnam since 2011.

In this challenging business environment, there are greater demands on supply chain professionals and also increased competition for supply chain talent. The challenge is finding talent with the ability to work seamlessly across multiple geographies, as they need to have the relevant knowledge, language skills and overseas experience. Another challenge is retaining staff, as the shortage of qualified candidates can result in star players being presented with numerous attractive offers. In five major Asia Pacific hubs, talent shortages/ costs were considered the second most important reason a company might choose to relocate.

Over the past three decades, company supply chains in China have evolved – from sourcing in China; to making in China; to making and selling in China; to making, selling and designing in China; to designing and developing products for the local market; to ultimately establishing global centers of excellence for innovation and advanced research and development (R&D). In addition, China has registered an increasing number of patents in recent years.

For other industries, such as electronics, multinational corporations (MNCs) may seek to diversify and add capacity in lower cost locations in inland China or elsewhere in Southeast Asia such as the Philippines, Vietnam or Thailand. However, companies may find that “there is no other China out there”. The combination of China’s big domestic market and large, developed supply base make it hard to replicate or replace.

Read the full report by Heidrick & Struggles here.