As China's population ages and wages rise, the cost of manufacturing goods in the "workshop of the world" has become more expensive. The Chinese government has targeted minimum annual wage growth of about 13 percent until 2015 in an attempt to boost consumption. But the cost is increasing manufacturing costs. This situation has brought to the forefront other countries in the region like Vietnam and Indonesia which boast younger and cheaper labor forces.
These countries have been able to attract investments in manufacturing at the cost of China. For example, Apple supplier Foxconn, in the news recently for labor unrest at its Chinese factories, announced in August that it would invest $10 billion in Indonesia to tap into one of the cheapest labor forces in Asia. Wage costs in Indonesia are estimated to be less than half China's. Meanwhile Vietnam has emerged as a major alternate destination over the past decade, manufacturing everything from footwear to computer parts. Some big firms that recently announced plans to set up factories in Vietnam include Finnish mobile phone maker Nokia and Japanese tire manufacturer Bridgestone.
A recent survey by the American Chamber of Commerce in Singapore of senior executives at American companies showed that more than 20 percent of them planned to reduce reliance on China by moving operations to Southeast Asia over the next two years. The Philippines and Malaysia ranked as the top choices for expansion, picked by 27 percent of the respondents, followed by Vietnam, Thailand and Indonesia.
Pictured left: Garment factory in Hanoi, Vietnam.