Where Companies Are Going After They Leave China

Following economic reforms that provided tax breaks, subsidies, and other incentives and thereby opened China's proverbial doors to foreign investment, China swiftly became the world's most popular manufacturing hub. Low labor costs and a robust infrastructure, including roads, ports, and airports that make it easy to transport goods in and out of China, and a strong technology sector that placed Chinese companies at the forefront of developing new manufacturing technologies have since helped China maintain its first-place ranking.

China is, indeed, a mighty competitor. However, escalating trade tensions, geopolitical uncertainty, and rising labor and production costs have been the impetus for change, forcing companies to mitigate their risks by diversifying their supply chains, and the trend is gaining momentum. 

Citing Beijing's National Bureau of Statistics, Forbes states that foreign companies pulled $160 billion of earnings out of China during the 18 months through September 2023 (the most recent month for which data was available). Dell, for one, has announced that it will be moving some manufacturing away from China to Mexico and Vietnam.

So where else are these companies going and why? Let's take a look.

India

Make in India: it’s a simple, catchy slogan with a thorough plan to incentivize investment in the country, improve logistics, streamline processes, and generally make it easier for companies to do as the slogan asks.

The Indian government's efforts and a vast domestic market that attracts investment have led to rapid economic expansion over the last several years. In 2022, India's GDP grew by 8.7%, the fastest pace of growth in any major economy, and it is currently the fifth-largest economy on the world GDP rankings list.

Supported by a large skilled workforce, the Indian Semiconductor Market, which was estimated at just $27 Billion in 2022, is expected to hit approximately $100.2 Billion by 2032. The growth will be driven by consumer electronics, automotive, and wireless communications. 

In May 2022, the International semiconductor consortium ISMC announced plans to invest $3 billion in India's southern Karnataka state to set up a chip-making plant. However, it's Apple that's really taking a bite out of China's economy, leading the charge in the move out of China in favor of India. In 2022, the company tripled its iPhone production in the country, now assembling about 1 in 7 (or 14%) of its iPhones in India and producing $14 billion worth over the last fiscal year. According to Apple, by 2025, India may be manufacturing as much as a quarter of the world's iPhones.

Malaysia

Once known mainly for its oil and palm oil production, Malaysia's position as a global manufacturing hub continues to grow. 

Today, the export of semiconductors and electronic components and equipment contributes significantly to Malaysia's GDP. Recently named as a potential hub for artificial intelligence "manufacturing" by the CEO of technology giant Nvidia, the country currently stands as the world's sixth-largest exporter of semiconductors, contributing an estimated 25 percent to the country's GDP.

Electronics is not new to the country, however. Companies such as Infineon, Intel, and Texas Instruments have operated in the country since the 1970s. Starting in 2018, Micron committed to investing $339 million over five years.

More recently, the country has attracted further investment from Dell, Flex Ltd., Texas Instruments ($3.1 billion) and, perhaps most notably, Intel, whose $7 billion expansion plans include the construction of an advanced 3D chip packaging facility—Intel’s first overseas facility for 3D chip packaging.

Jabil also has plans to expand operations in Malaysia.

Mexico

Mexico's comparatively low labor costs and geographical proximity to the U.S., combined with the USMCA trade agreement (which brought in billions in investments from manufacturing companies), make it an attractive "Plus One" for many industries, including American automotive.

However, in electronics, the country has become a hotbed for hardware manufacturing in the realm of AI, quickly and perhaps quietly becoming a global AI-hardware manufacturing hub.

According to the Wall Street Journal, to help support American clients' nearshoring efforts, Taiwan-based companies are ramping up production in Mexico. While Mexican labor costs aren't the cheapest in the world, the combination of skilled workers, labor costs, climate, regulatory environment and proximity to the U.S. make it an attractive, viable alternative for hardware manufacturing.

A key supplier to Apple and the world's largest electronics manufacturer, Foxconn has invested $690 million dollars over the past four years in Mexico, where the company holds facilities that develop AI servers for major tech players such as Microsoft, Google, Amazon, and Nvidia.

Other Taiwan-based manufacturing companies that have expanded to Mexico include Compal, Inventec, Pegatron, Wistron, and Quanta Computer.

Thailand

Thailand has shifted its focus to high-tech, moving up the manufacturing value chain, honing in on semiconductor manufacturing (specifically finished wafer chips and testing), electronic products for computing, and automotive. 

Having ranked the second largest Hard Disk Drive (HDD) producer in the world, companies with hard drive and data storage manufacturing facilities in the country include Ford, General Electric, and Western Digital.

According to the Thailand Board of Investment, when asked to choose Thailand's top 5 attractiveness indicators for the IMD's World Competitiveness Executive Opinion Survey, Thailand's business-friendly environment was consistently given as the first and most important factor. Other factors listed as the most favorable included a dynamic economy, open and positive attitudes, a reliable infrastructure, and competitive costs.

In 2019, Sony closed the doors on its Beijing smartphone plant and opted to move production to Thailand in an effort to cut costs. Within the same year, it announced that, prompted by the US-China trade war, it would also be moving some of its printer production to the country.

According to Prime Minister Srettha Thavisin, Microsoft, Google, and Amazon Web Services have each committed to investing in Thailand, with total funds amounting to nearly $8.5 billion. The Prime Minister also cites Tesla, HP, and Meta as companies showing interest in expanding operations in the Kingdom.

Vietnam

One of the five ‘Tiger Cub economies’, Vietnam's skilled labor force is but one of the things helping to attract significant investment from companies such as Intel, Samsung, Google, and Apple, contributing to its success in telecommunications and helping the country hold onto its title as the world's second-largest smartphone exporter.

According to the General Department of Customs, in January, Vietnam's export value of all types of phones and components reached more than $5.5 billion, an increase of more than 50.4% compared to December 2023 and an increase of 11.4% year on year.

Intel, one of the earlier entrants to Vietnam, has been operating in the country for 17 years. In 2006, Intel opened a $1 billion semiconductor assembly and testing facility in Ho Chi Minh City. Fast forward to 2024, and the company now employs over 2,700 people in Vietnam.

South Korea's Samsung is another early technology company to invest in Vietnam. In 2008, the company built a $670 million manufacturing plant in the northern Vietnamese province of Bac Ninh and has since increased its investment in Vietnam to $17.3 billion.

Since the COVID-19 pandemic, Vietnam has continued to attract further investment from technology manufacturing companies in various nations, with China-based Xiaomi and Japan-based Panasonic moving their smartphone and appliance production, respectively, in the past three years. 

In June 2022, Apple moved its iPad production from China to Vietnam, and in December of that same year, Samsung Electronics finished building its R&D center in Hanoi. Coming in at a total cost of $220 million, the center is expected to employ 2,200 staff to develop mobile software, terminals, and networks.

Outside of mobile phones, companies that operate in Vietnam include:

• Acer
• Canon
• Intel
• LG
• Siemens
• Panasonic
• Foxconn
• TCL
• Hitachi

So why are so many big players focusing on Vietnam?

With a geographical location that boasts a 3260 km (2025 mile) long coastline situated within major global shipping lanes, Vietnam holds a prime position to import and export goods.

Low labor costs (estimated at about half as much as China's), expertise in electronics manufacturing, and 18 active and planned bilateral and multilateral Free Trade Agreements that offer direct potential trade advantages all further boost Vietnam's competitiveness, making it easier and more beneficial for foreign investors to do business there.