Moving Manufacturing Out of China: Opportunities and Risks in 2024
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Moving Manufacturing Out of China: Opportunities and Risks in 2024

China has long been the world’s dominant manufacturing hub, but recent shifts in the global landscape have led companies to reassess their supply chain strategies. Rising labor costs, geopolitical tensions, and concerns over intellectual property protection are among the primary reasons businesses are exploring alternative production locations.

Main Takeaways

  1. Companies are diversifying their supply chains in response to rising labor costs, trade barriers, and intellectual property concerns in China.
  2. Vietnam, Mexico, and India are among the top emerging manufacturing hubs, offering competitive labor costs, strategic locations, and government incentives.
  3. The shift in manufacturing is significantly impacting the consumer electronics, automotive, and textile sectors, requiring companies to adapt their strategies and leverage technological advancements.

The Changing Face of Global Manufacturing

While China remains the world’s largest manufacturing nation, companies are increasingly recognizing the importance of evaluating other options. Geopolitical tensions and the potential for tariffs have prompted businesses to consider diversifying their supply chains to mitigate risks and ensure continuity. 

The ongoing trade disputes, such as those between the U.S. and China, have led to increased costs and uncertainties, making it imperative for companies to explore alternative manufacturing locations. Additionally, the COVID-19 pandemic has exposed vulnerabilities in relying heavily on a single country for production, further accelerating the shift towards supply chain diversification.

Why Companies are Leaving China’s Manufacturing Ecosystem

Rising Labor Costs

As wages in China continue to rise, companies are looking for more cost-effective alternatives. The increasing labor costs have led businesses to explore other countries with lower wage rates, allowing them to reduce their manufacturing expenses and remain competitive in the global market. 

This shift is particularly pronounced in labor-intensive industries (such as textiles and apparel, consumer electronics, toys and jewelry, furniture, and automotive), where the cost of human resources constitutes a significant portion of overall production costs.

Trade Barriers and Tariffs

Ongoing trade disputes and the imposition of tariffs have made manufacturing in China more expensive for many businesses. These additional costs have forced companies to reevaluate their supply chain strategies and consider alternative production locations that are less affected by trade tensions and tariffs.

Intellectual Property Concerns

Companies are increasingly worried about the protection of their intellectual property in China, with some citing risks of forced technology transfers. The lack of robust legal frameworks and enforcement mechanisms for intellectual property rights has led businesses to seek jurisdictions with stronger protections to safeguard their valuable trade secrets and proprietary technologies.

Promising Countries for Manufacturing Outside of China

As businesses seek alternatives to China, several countries are stepping up to offer attractive incentives and advantages for foreign manufacturers.


Vietnam has emerged as a leading alternative to China for manufacturing, offering lower labor costs (one-third to one-half of China’s), a strategic location for access to raw materials and equipment, and growing capabilities in electronics, textiles, and other key industries. 

Major players like Apple, Google, and Samsung have already set up production in Vietnam, attracted by the country’s competitive advantages and favorable business environment.

With an extensive network of 18 free trade agreements, a young, skilled, and adaptable workforce (70% of working age), and strong government support through tax incentives, infrastructure development, and business-friendly policies, Vietnam has positioned itself as a reliable manufacturing hub. 

Since its economic reforms in 1986, Vietnam has developed a robust export-oriented manufacturing sector, providing an opportunity for companies to diversify their supply chains, reduce reliance on China, and tap into Vietnam’s growing domestic market.


Mexico offers compelling advantages as a manufacturing alternative to China. Labor costs are approximately 19% lower than in China, with average hourly wages around $4-5 USD. Its proximity to the US enables faster supply chains, with products reaching US markets within days. 

The USMCA allows duty-free trade for qualifying goods, avoiding the 25% tariffs on many Chinese imports. Mexico’s skilled workforce includes over 110,000 engineering graduates annually, with extensive experience in automotive, aerospace, and electronics manufacturing.

Mexico provides stronger intellectual property protections compared to China, reducing technology theft risks. Energy costs are significantly lower than in China, while industrial real estate is about 15% less expensive. The well-developed manufacturing sector, especially along the US border, offers existing supplier networks and infrastructure. 

The Mexican peso’s favorable exchange rate with the US dollar benefits manufacturing investment. By operating in Mexico, companies can diversify supply chain risks and access the country’s growing domestic market, offering additional sales opportunities beyond US exports.


India also stands out as an enticing option for companies seeking supply chain alternatives to China. It offers a vast domestic population of over 1.4 billion people and a rapidly expanding middle class. The Indian government’s “Make in India” and Production Linked Incentive (PLI) schemes provide financial incentives for setting up manufacturing operations. 

With competitive labor costs, a large English-speaking workforce, and strategic location for accessing Asian, African, and Middle Eastern markets, India presents attractive opportunities for foreign investors.

Despite infrastructure challenges, India is investing heavily in improving its logistics capabilities. The country’s strong IT sector supports advanced manufacturing development, while diversifying to India can mitigate risks associated with US-China tensions. 

Although complex regulations persist, India has significantly improved its ease of doing business in recent years, offering potential for early mover advantages in this growing market.

Other Countries to Consider

Several other countries in South America and Southeast Asia are also emerging as viable options for businesses seeking to spread their manufacturing presence. These include:

  • Argentina
  • Bolivia
  • Brazil
  • Indonesia
  • Malaysia
  • Thailand
  • Philippines
  • Bangladesh
  • Colombia
  • Ecuador
  • Guyana
  • Paraguay
  • Peru
  • Taiwan
  • Uruguay
  • Venezuela

Each of these countries offers unique advantages, such as cost-competitive labor, strategic locations, and government incentives, making them important players in the evolving global manufacturing landscape.

Benefits and Challenges of Relocating Production

Relocating production offers several benefits, including lower costs and a more diversified supply chain. However, setting up operations in new countries also presents challenges, such as navigating unfamiliar regulations and establishing reliable logistics networks. Companies must carefully weigh these factors when considering a move.

Cost Advantage

One of the primary benefits of relocating manufacturing operations is the potential for significant cost savings. By moving production to countries with lower labor costs, businesses can reduce their expenses and improve their bottom line. 

However, it is essential to consider the full scope of costs associated with setting up and operating in a new location, including infrastructure, transportation, and regulatory compliance.

Supply Chain Diversification

Diversifying production across multiple countries can help businesses mitigate the risks associated with relying on a single manufacturing hub. By spreading their operations, companies can better protect themselves from disruptions caused by geopolitical events, natural disasters, or market fluctuations. 

A diversified supply chain can also provide greater flexibility and agility in responding to changing customer demands and market conditions.

Infrastructure and Logistics

Relocating production to a new country requires businesses to adapt to different infrastructure and logistics frameworks. This can involve substantial investments in transportation networks, warehousing facilities, and customs procedures. Companies must carefully evaluate the existing infrastructure and logistics capabilities of potential manufacturing locations to ensure a smooth and efficient transition.

Industry Impact: Which Sectors are Most Affected?

The manufacturing shift is having a significant impact on several sectors, particularly consumer electronics, automotive, and textiles. These industries are increasingly looking to diversify their manufacturing bases to ensure continuity and resilience in their operations.

Consumer Electronics

The consumer electronics industry is rapidly shifting production out of China due to geopolitical tensions, rising costs, and supply chain vulnerabilities exposed by COVID-19. Trade barriers have increased manufacturing costs for tech giants, prompting them to seek alternative locations for producing smartphones, laptops, and smart devices that offer both cost efficiency and reduced risk.

Intellectual property concerns, proximity to key markets for faster product launches, and favorable trade agreements are driving electronics manufacturers to new hubs. Countries like Vietnam and Mexico are becoming attractive for producing wearables and home appliances, offering expertise in electronics assembly and trade benefits. Companies are also considering advanced manufacturing capabilities and environmental standards in their relocation decisions.


The global automotive sector is undergoing a similar transformation, with major players reassessing their reliance on China for vehicle production. This shift is driven by a confluence of factors, including geopolitical tensions, supply chain vulnerabilities, and rising labor costs. 

Major automakers are exploring alternative manufacturing hubs like Vietnam, India, and Mexico for vehicle assembly and parts production, addressing concerns over tariffs, semiconductor shortages, and regulatory issues such as forced labor in the supply chain.

The transition to electric vehicles (EVs) is accelerating this shift, with carmakers localizing EV and battery production to reduce costs and meet regional requirements. Intense competition from Chinese automakers in the EV market is further driving this change. By diversifying, global automotive players aim to mitigate risks, ensure stable component supply, comply with emissions regulations, and maintain competitiveness in the evolving automotive landscape.

Textiles and Apparel

The textile and apparel industry is shifting from China to countries like Vietnam, Bangladesh, and India due to rising labor costs, geopolitical tensions, and supply chain resilience needs. This move is influenced by sustainability concerns, trade policies, and government incentives, as clothing manufacturers seek to meet demands for ethically produced fashion.

However, China’s mature ecosystem ensures competitive pricing and quality for mass-produced garments, posing challenges for relocation. Fashion brands must balance the benefits of moving against the costs of new factories and potential wage increases elsewhere. This shift reflects the industry’s struggle to mitigate risks while maintaining efficiency in the global marketplace.

Strategic Considerations for Businesses

As businesses contemplate moving their manufacturing operations, they must carefully evaluate several strategic factors.

  1. Evaluating Vendor Shifts: When vendors move out of China, businesses must decide whether to follow suit or find new partners. This requires a thorough assessment of potential vendors’ capabilities and reliability.
  2. Revisiting Supply Chains: Building a resilient supply chain involves more than just reacting to current trends; it requires proactively designing a system that can withstand disruptions and deliver consistent value.
  3. Long-term Planning: Planning for the long term involves looking beyond the immediate benefits of relocation and conducting a comprehensive risk assessment to ensure vendors are prepared for potential disruptions.

Government Policies and Incentives

Governments around the world are actively seeking to attract foreign investment through various policies and incentives.

Tax Breaks and Subsidies

These financial incentives can significantly reduce the cost of setting up new operations and help companies gain a competitive advantage. Many countries offer tax holidays, reduced corporate tax rates, and direct subsidies to encourage foreign investment in their manufacturing sectors. Companies should carefully evaluate the available incentives and their long-term implications when considering potential manufacturing locations.

Trade Agreements

Trade agreements can open doors to new markets and reduce operational complexities for companies moving their production. These agreements can provide preferential access to key markets, reduce tariffs and non-tariff barriers, and streamline customs procedures. Businesses should assess the existing trade agreements and their potential benefits when evaluating alternative manufacturing destinations.

Success Stories: Companies Leading the Way

Several companies have successfully navigated the manufacturing shift, providing valuable insights for others considering a similar move.

  • Nike: Nike’s successful shift to Vietnam leverages the country’s skilled labor and favorable investment climate to create a robust manufacturing base.
  • Intel: Intel’s diversified manufacturing footprint, with facilities in Vietnam, Malaysia, and Ireland, has enhanced its supply chain resilience and reduced its dependence on any single country.
  • Dell: By diversifying production to countries like India and Vietnam, Dell has lowered its risk profile and positioned itself to respond nimbly to market and geopolitical changes.

Navigating the Evolving Manufacturing Landscape

As the global manufacturing landscape continues to evolve, companies must remain agile and proactive in their approach. By carefully evaluating their options, leveraging emerging opportunities, and building resilient supply chains, businesses can thrive in the face of changing market dynamics.

Frequently Asked Questions

Why are companies moving their manufacturing operations out of China? 

Companies are moving their manufacturing operations out of China due to rising labor costs, increased trade barriers, tariffs, and concerns over intellectual property protection.

What are some of the emerging manufacturing hubs outside of China? 

Vietnam, Mexico, and India are among the top emerging manufacturing hubs, offering competitive costs, large labor pools, and growing industrial capabilities. Other countries like Indonesia, Malaysia, Thailand, and the Philippines are also making strides.

What are the key benefits and challenges of relocating production? 

Relocating production can lead to reduced manufacturing costs and supply chain diversification, but it can also bring challenges like finding reliable factories and adapting to new regulations and logistics.

Which sectors are most impacted by the shift in manufacturing locations? 

The consumer electronics, automotive, and textiles and apparel sectors are most impacted by the shift in manufacturing locations, facing unique challenges and opportunities as they transition to new bases.

Explore New Manufacturing Horizons

Moving manufacturing out of China can be complex, but partnering with a trusted firm like Gembah can help ensure a successful transition. With their expertise in global supply chain management and deep understanding of emerging manufacturing hubs, Gembah can guide companies through the opportunities and risks of relocating production.

By working closely with businesses to evaluate vendor shifts, revisit supply chain strategies, and develop long-term plans tailored to their specific industry needs, Gembah helps companies leverage government incentives, navigate trade agreements, and establish a diversified manufacturing footprint that enhances resilience and competitiveness.

As this new manufacturing era unfolds, partnering with Gembah can be a crucial step towards building a more agile, adaptive, and prosperous future for businesses navigating this evolving landscape.