China, once a global hub that attracted many tech companies are slowly losing its shine. The dragon mainland had attracted many top-notch companies to their country by offering economic reform in the late 1970s and introducing the concept of a free market. Their labor cost was cheap and China then had the world’s largest workforce population too. All these pros attracted companies where many even choose to overlook drawbacks like shipping timelines, communication barriers, and annual production delays during the Lunar New year.
The country was blooming for the last 40 years to an extent that cities like Shenzhen were primarily constructed for enabling faster manufacturing of electronic gadgets. When Samsung put its plant in Guangdong Province’s Huizhou, 60 percent of its supporting business was dependent on the expansion of the company. Small restaurants, a residential building for laborers, and small factories built by Chinese suppliers in the neighboring town of Changan in Dongguan were all built for Samsung business. But once they shut shop, all the businesses came to a standstill.
What is causing the closure?
Post the Covid 19 emergence, China has started to see major companies rolling out operations from their land. Companies in China started facing issues like high tariffs, increased geopolitical tension (between China and US) or aggression with neighbors like India and increased losses during the lockdown situation during the pandemic. Even president Xi Jinping’s dual circulation plans of making the country self-sufficient and reducing foreign dependency has backfired for the country. More so China forced ethnic minority labor and misused rules of the World Trade Organization are all coming back to them like a storm.
Which Companies are exiting?
- Yahoo: In a statement said, that with increasingly challenging business and difficult legal environment, they will discontinue Yahoo suites of services in the country.
- Microsoft: They said that it will close down the Chinese version of LinkedIn and replace it with a jobs board and no social activity.
- Epic Games: The very famous Fortnite game maker, has decided to pull the game out of the Chinese market.
- Apple: Even though bulk manufacturing of Apple products will happen in China. They are looking to gradually shift business to other places like Vietnam, Thailand, India, and Indonesia. They are also planning to produce 30 percent of its AirPods and a significant amount of IPads to be produced in Vietnam.
- Zoom: US teleconferencing platform Zoom which gained popularity during the pandemic has announced that it will stop directly selling to customers in the Chinese mainland. Its video conferencing services are still available via third-party partners.
- LG: Following in the footsteps of fellow Korean company Samsung, LG too has decided to relocate some of its manufacturing from the country.
- Hyundai Motors/ Kia motors: Both the parent and sister companies have decided to shut down plants in the country. While also the production is dropped, the companies plan to boost manufacturing in India.
Where is the business going?
As per a survey conducted, Southeast Asia remains a lucrative opportunity for a brand looking to outsource its manufacturing. Vietnam has become one of the favorites as Nike and Adidas have relocated a major chunk of manufacturing here.
Thailand too has seen an increase in US exports and is giving good competition to China in electronics.
Indonesia too has jumped the bandwagon when President Joko Widodo introduced close to $1 billion in federal investments through the creation of an industrial park in Java, Indonesia.
India too seems like an assured prospect as it already food, auto, and apparel manufacturing base. Apple recently has shown interest to put up a plant in Chennai and is in talks of the assembly of an iPhone SE 2020 at a Wistron plant near Bangalore.
Mexico and Brazil too are a part of the race and have gained the spotlight. They have gained huge manufacturing market shares in the automotive space.
