In less than 50 years, China has transitioned from a primarily agricultural economy to becoming the global leader in manufacturing, a title it proudly claimed from the US in 2013. Low labor costs and a large workforce led many companies to offshore in China. However, with rising costs and the ever-growing geopolitical tensions, companies are now reassessing their manufacturing needs and looking to other countries as viable options.
Labor and operational costs, which was the initial draw for many companies moving to China, are on the rise. Add in the increased regulatory pressures and environmental restrictions and it’s easy to see why companies are looking at alternatives. More recently the US-China trade war and corresponding fluctuating tariffs make it difficult for companies to accurately anticipate the final cost of manufacturing products in China that will be sold in the US. Trade wars also lead to massive supply chain disruptions, such as the delays caused by the elimination of the de minimis rule in early 2025.
Alternatives to China
As companies weigh the risks of staying in China, they are looking to other countries in Southeast Asia for opportunities. Each country has its advantages and limitations, ranging from lower labor costs to targeted government incentives, advanced manufacturing capabilities, and strategic geographic positioning. There is no one-size-fits-all for manufacturing. Evaluating these alternatives requires looking beyond cost alone to consider infrastructure, workforce skills, scalability, and politics.
Vietnam
Vietnam is emerging as an alternative to China, thanks to its lower labor costs and ongoing infrastructure improvements. The Vietnamese government has upgraded rural roads and invested in modernizing its ports.
Labor costs are also lower than in China, though wages are currently rising. However, as more companies shift their manufacturing locations, there is a risk that they may enter Vietnam at a faster rate than the country’s infrastructure and capacity improvements can support.
Malaysia
Malaysia is a viable alternative for companies seeking to establish a new manufacturing base. Malaysia industrialized its economy around the same time as China, and has good infrastructure and political stability under a unity government.
There are also government incentives for small and medium enterprises, though there is less support for large companies. Like other places, Malaysia is also experiencing rising prices, and the country has a smaller labor force than some other countries in the region.
Singapore
Though small in size, Singapore is a leader in precision manufacturing. The country’s infrastructure, Industry 4.0 initiatives, and skilled workforce make it an attractive option for companies that require complex components.
However, Singapore’s advanced capabilities come with a hefty price tag to match. The country has high manufacturing and labor costs compared to the rest of the region. Additionally, because of its focus on precision manufacturing, Singapore caters to small volume manufacturing and isn’t the best choice for high-volume production.
The Philippines
In an era where conversations often revolve around offshoring and reshoring, friend-shoring is another option for companies considering where to manufacture their products. Friend-shoring is the decision to manufacture internationally, but only in countries that are political allies of the company’s home country. In the US, one of these options is the Philippines.
A US ally since 1951, the Philippines offers competitive labor costs and one of the largest English-speaking populations in Asia. The Philippine government also established the Philippine Economic Zone Authority (PEZA), which created special economic zones wherein manufacturers are eligible for tax incentives and long-term land leases, among other things.
Considerations When Shifting Manufacturing
Cost is usually the most significant consideration when shifting manufacturing. Labor costs vary from one country to another. Material prices can also change based on how supply chains adjust to accommodate a new country. Be aware of how sourcing and shipping times are affected by relocating your manufacturing. Now more than ever, tariff scenarios should be monitored, as there could be tariffs at any point along the supply chain, not just from the point of manufacturing to the end country.
Another factor to consider is infrastructure. How easy is it to get parts to their destination? How are the roads? How are the ports? Is there a steady power grid? The supply and manufacturing process cannot be efficient when poor infrastructure is involved, especially when you factor in surprise delays due to bottlenecks or power outages.
Wherever you decide to manufacture, you should also think about the ease of doing business. The new country will most likely have different regulations, which may be stricter than those in your current manufacturing location. There may be a time change between your old and new manufacturing locations, though if you are moving out of China but staying in Asia, it’s unlikely to be more than an hour difference. You should also consider the language skills of the population in the country. Business can still be conducted in places with language barriers, however communication is smoother and more efficient when the people on both ends have a working knowledge of a common language.
Relying on China alone for manufacturing is no longer a sustainable strategy. The rising costs, shifting regulations, and ongoing geopolitical tensions have highlighted the fragility of a supply chain that relies too heavily on a single country. A successful business cannot afford to put all its eggs in one basket, especially when that basket is vulnerable to forces outside of its control. Diversifying resources creates flexibility and resilience. Each market comes with trade-offs, but spreading production reduces the risk of disruptions and positions companies to adapt more quickly to changes in global demand and policy. In today’s environment, diversification is a crucial step for businesses seeking to remain competitive and prepared for the future.
At Pivot International, we leverage our global design teams, supply chain expertise, and strategically located manufacturing facilities to tailor our solutions to meet your needs. From rapid prototyping in the United States, Europe, and the Philippines to full-scale manufacturing in the U.S., Mexico, Europe, China, and the Philippines, we offer unmatched flexibility for your product development needs. Contact our team to learn more about our capabilities.
