Globalization Takes A New Turn, Away From China
China is still a manufacturing juggernaut and a growing power, but companies are looking for alternatives as Chinese labor costs continue to rise — as do geopolitical tensions with Beijing.
PARIS — What were the representatives of dozens of large American companies doing in Vietnam these past few days?
A few days earlier, a delegation of foreign company chiefs currently based in China were being welcomed by business and government leaders in Mexico.
Then there was Foxconn, Apple's Taiwanese subcontractor, which signed an investment deal in the Indian state of Telangana, enabling the creation of 100,000 jobs. You read that right: 100,000 jobs.
What these three examples have in common is the frantic search for production sites — other than China!
For the past quarter century, China has borne the crown of the "world's factory," manufacturing the parts and products that the rest of the planet needs. Billionaire Jack Ma's Alibaba.com platform is based on this principle: if you are a manufacturer and you are looking for cheap ball bearings, or if you are looking for the cheapest way to produce socks or computers, Alibaba will provide you with a solution among the jungle of factories in Shenzhen or Dongguan, in southern China.
All of this is still not over, but the ebb is well underway.
China remains the world's factory in many areas: in 2021, it accounted for 31% of the world's industrial production, which is colossal. But another figure indicates a newer trend: last year, foreign investment in China fell by more than 40%. True, it was a year marked by COVID-19, but China will not see the investment flows of the past two decades return any time soon.
Rules of commerce
There are many reasons for this. Some are economic, others are geopolitical. The first being the rise in production costs. A recent study showed the evolution of labor costs in Asia: the hourly wage in China has soared, three to four times higher than in Vietnam, Malaysia, or India.
Since multinationals' default is to always go for the lowest bidder, China, in its frantic race for development, has lost the cost war.
The West is less careful with our allies than with our adversaries.
The other explanation is geopolitical. The Sino-American cold war is having an effect on companies, as is the hardening of Chinese domestic policy, the erratic nature of its governance seen in its zero-COVID policy, and the growing awareness of geopolitical risk after Russia's invasion of Ukraine.
This is a golden opportunity to seize for India, Vietnam, and the many other countries that are now offering themselves as alternatives. Not that Vietnam is any less communist or more respectful of freedom than Beijing, but it keeps a good distance from China and enjoys good relations with Washington.
As in the days of the first Cold War, the one with the USSR, the West is less careful with our allies than with our adversaries. Vietnamese communism, or the worrying Hindu nationalism of Narendra Modi in India, do not stand in the way of doing business with the blessing of Washington. It is cynical but hardly surprising.
Still, we are witnessing a major turning point in globalization right now, and we can count on it having a much different face than we'd gotten used to in the years to come.
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