Home | Chinese Law Blog | Relocation of production to Cambodia/Thailand/Vietnam/Malaysia/Taiwan/Mexico/Poland
Ever since the New York Times published an article about companies leaving China for Cambodia, “Beware of China, companies are heading to Cambodia”, there has been a lot of discussion in the media, dramas and real life about how “everyone” is leaving . China for places like Cambodia or Thailand or Vietnam or Mexico or Indonesia or Taiwan.
First, let’s look at a New York Times article that may lead some to believe that a mass exodus of Chinese is happening, including the following:
Only a few companies, mostly in low-tech industries such as clothing and footwear, are seeking to exit China entirely. More companies are building new factories in Southeast Asia to complement their operations in China. China’s fast-growing domestic market, large population and large industrial base remain attractive to many businesses, while labor productivity in China is rising almost as fast as wages in many industries.
“People are not looking for an exit strategy from China, but are looking to create parallel businesses to hedge their bets,” said another US lawyer.
The article points out that despite the rise in foreign investment in “Vietnam, Thailand, Myanmar and the Philippines”, doing business in these countries is generally not as easy as in China:
Tatiana Olchanecki, an industrial consultant for companies that produce bags and suitcases, analyzed the costs for her industry to move operations from China to the Philippines, Cambodia, Vietnam and Indonesia. She found that the cost savings were small because most of the fabrics, buckles, wheels and other materials needed for the luggage trade were made in China and would have to be shipped to other countries if final assembly were moved there.
But some factories have moved at the request of Western buyers who fear complete dependence on one country. Ms Olchaniecki said that while there was a risk in moving to a new country with untested supply chains, “there is also a risk in staying in China”.
This article does an excellent job of describing what my law firm sees among its clients, including the following:
I recently spoke with an international manufacturing consultant who was studying China’s future role as a manufacturer compared to Southeast Asia, and he gave me the following five “off-the-cuff predictions”:
I am equally optimistic about Thailand, Malaysia and Vietnam. But I also see China’s manufacturing industry continuing to modernize in the next decade. As consumer and product markets continue to grow, they will also influence manufacturing decisions in China. But on the other hand, when it comes to ASEAN, I am a raging bull. I’ve recently spent a lot of time in Thailand, Vietnam and Myanmar, and I believe that if these countries could improve their political problems a little, they would prosper. Below are some of my travel notes.
Bonus: Bangkok’s economy is booming and will continue to thrive if it can resolve its political problems and combat violent Muslim extremists in the south. ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) will become a common market and many multinational companies are already looking to take advantage of this opportunity. Singapore will be where the largest and richest multinationals will set up their ASEAN headquarters, but many smaller companies will choose Bangkok as it is a much more affordable city, but still quite affordable for foreigners. I have a friend who lives in a very nice 2 bedroom 2 bathroom apartment in one of the nicest areas of Bangkok for only $1200 a month. Bangkok even has excellent healthcare. The food is fantastic. The Bad: Thailand has a rightfully proud history of resistance to colonial rule, which means it often gets its way. In practice, this means that Bangkok’s street system is unique. Get used to the heat and humidity. Random: Bangkok seems to have more flights landing late at night than anywhere else. I was told not to complain about this as landing late at night is the best way to avoid traffic. As fewer and fewer people continue to believe that China’s economic growth line will always be upward and costs will remain the same, the concept of a China Plus One strategy will gain significant acceptance.
Good people. food. Attractions. new. temple. The Bad: Business environment. The Random: Surprisingly good local wine. The most (only) most patient taxi driver in the world. I got stuck in terrible traffic jams twice due to accidents/rain. If this had happened in Beijing, I would have been thrown out of the car in the middle of the highway in the pouring rain. On the contrary, the taxi driver was always very polite. Both times I paid them double the fare and both times the driver was extremely pleasant. I know it sounds like a redneck saying people are good, but damn, people are good.
Almost every day our clients show interest in Vietnam, Mexico or Thailand. Perhaps the best “leading” indicator of this interest is our trademark registrations in countries outside of China. This is a good leading indicator because companies often register their trademarks when they are serious about a particular country (but before they actually do business with that country). Last year, my law firm registered at least twice as many trademarks in Asian countries outside of China as the previous year, and the same happened in Mexico.
Dan Harris is a founding member of Harris Sliwoski International LLP, where he primarily represents companies doing business in emerging markets. He spends much of his time helping American and European companies do business abroad, working with his firm’s international lawyers on foreign company formation (wholly foreign-owned enterprises, subsidiaries, representative offices and joint ventures) and drafting international contracts, intellectual property protection property and support of mergers and acquisitions. In addition, Dan has written and lectured extensively on international law, with a particular focus on protecting foreign businesses operating abroad. He is also a prolific and widely known blogger and co-author of the award-winning Chinese Legal Blog.