Recent events have shone a light on the perils of relying on a single country for most of our finished product, capital goods & equipment requirements, and the shocks to global supply chains that such reliance can cause.
It’s not just western countries but most of South East Asia, India, Africa, countries in the MENA like UAE, Saudi Arabia, Bahrain, and even smaller countries like Israel have been heavily reliant on all types of electronics, machinery, components, fixtures, furniture & equipment from China since the 2000s.
While both private companies & even state-owned enterprises have benefitted from working with manufacturing superpowers like China, companies are facing rising pressures to hedge their risks by geographically diversifying their supply base. There is plenty of debate surrounding the extent of this sentiment, with many sceptics dismissing recent reports outlining this trend as being exaggerated but it remains a fact that companies & governments across the world are weighing the pros and cons of adopting the “China + 1” strategy.
This trend pre-dates the Coronavirus pandemic, trade wars, and even border clashes and had emerged on account of disappearing tax incentives, rising per-unit labour costs, which have more than doubled since 2010, and uncertainty concerning trade partnerships. This has incentivized companies to look towards other countries for their off-shore manufacturing provided that quality standards and ability to contain the production at a similar scale remains intact.
The MITI–V
Enter, the MITI-V, a term coined by economists and policymakers to refer to a group of countries that could (individually or collectively) become the next factory of the world, each representing different strongholds.
For commercial & industry buyers, a preliminary study of these countries for their strengths would help make informed purchase decisions.
MALAYSIA
Like Taiwan, Malaysia is known for its electronic equipment industry. Loudspeakers, industrial-scale heaters, commercial TV sets & filtration units are made at a low-cost relative to quality and are ideal imports to consider for commercial projects.
Malaysia is already inching closer towards becoming a developed economy, more so than any other country on the list, which is also why low-cost and mass-manufactured products like wooden derivatives, wooden flooring, metal fixtures that are labour-intensive are best sourced from the other members of the MITI-V.
INDONESIA
Close to 6.6% of Indonesia’s exports comprise iron & steel, which is heavily used for construction and real-estate, fixtures, movables, and commercial architectural projects like hotels, restaurants, airports, residential complexes & shopping malls.
The country has historically been known for its thriving wooden furniture industry. Premium quality hardwood for movables, flooring & furniture in luxury homes, hotels, restaurants, upscale shopping complexes and a number of architecture and interior designing applications are best sourced from Indonesia. While being the largest manufacturer of teakwood, Indonesia also manages to produce the commodity relatively inexpensively. So much so, that India, a country that also produces teakwood domestically, is one of its largest importers.
In May of 2020, LG had committed to move 2 of its manufacturing units, including its commercial electronics production lines to Cibitung, Indonesia.
INDIA
The second-largest manufacturer of steel, India, has an enormous domestic demand for materials required for large-scale projects, a healthy portion of which can be catered to by sourcing locally.
The eastern belt of India is known for its heritage handicrafts, wooden furniture & fittings & metalworking industry that is increasingly adopting the use of modern materials. Engineered wood, steel, both mild and stainless steel are more economical & more reliable when sourced locally and exports to several countries in the West, Middle East, Europe, Africa & even other members of the MITI-V remain competitive and reliable.
But, the country still has miles to go before evolving into a nation capable of manufacturing high-tech equipment & fittings, medium-tech fittings & furniture for offices, industrial-scale white goods & IoT systems which are now heavily used in commercial businesses, office spaces and retail outlets.
Source: furnitureroots
VIETNAM
Being located close to China, seamless trade partnerships with most affluent countries, low labour prices and a logistically conducive maritime border has boosted Vietnam’s exports in the last few years.
Vietnam has been the biggest beneficiary of the recent trend of companies shifting base. Liberal trade policies, lower wage rates than most of the competing nations in the MITI-V, and a stable government have resulted in a conducive business environment. Commercial grade LED lighting, projectors, large TV screens, signages, miscellaneous electrical appliances like amplifiers are all exported to western countries, Africa & middle eastern countries like the United Arab Emirates, Qatar & Saudi Arabia.
Vietnam’s wooden furniture industry is a force to be reckoned with. While it has been around for decades, it has grown to become the 5th largest exporter of wood and wooden furniture in the last decade and is the top choice for countries without a domestic wooden furniture Industry.
In February 2020, US-based furniture manufacturer Lovesac moved its manufacturing facilities to Ho Chi Minh city from China to avoid tariffs issued on Chinese imports.
THAILAND
Primarily known for its thriving automobile industry, high-tech electronics, and ancillary industry, Thailand also checks all boxes required for reaping the benefits of a global shift in supply chains.
It is even making its mark in the manufacturing of niche equipment such as air filtration units, commercial coolers & electrical equipment that rely heavily on sensors and optical technology. Thailand is quite price-competitive in its offering and even projects within India stand to benefit by sourcing from Thailand.
It seems that in the coming years, all eyes will closely be observing the MITI-V. While it is unlikely that any one country will occupy the status of being the world’s factory, but each of them will specialize in their respective niches. With the world getting closer by way of hassle-free trade & liberal trade policies, the consumer stands to benefit, provided the research, due diligence & understanding of markets for one’s sourcing requirements are thorough.