The global pandemic forced a major reset in thinking by manufacturers, as for the first time since the second world war, supply chains were stretched and transportation systems were temporarily dislocated due to lockdowns, shortage of staff and port closures.

This new uncertainty, exacerbated by the continuing geopolitical conflict, has spurred many countries to accelerate development of their own domestic manufacturing capabilities.

The new hot spots include Vietnam, Malaysia, Mexico, Egypt and India with the Middle East and West Africa laying the foundations for future development.

China has been the global manufacturing hub for many industries with advantages of cheap land and labour, as well as a complete infrastructure network.

The country had been a major manufacturing base for many foreign brands in the past four decades and has successfully developed complex industrial supplier clusters for industrial sites, such as automotive, electronic chip sets, solar panels and pharmaceuticals.

But the trend has been reversing amid rising labour costs and geopolitical tensions between the US and China and was further worsened by the supply chain disruptions during the three years of zero-COVID policy in the mainland. Many multinationals have accelerated the diversification of their investments to other regions, including Southeast Asia.

In the aftermath of the global pandemic, there has been a shift to relocate some manufacturing in certain sectors away from China to Vietnam, Malaysia, India and Mexico. Kris Kosmala, a supply chain analyst and investor explained the rationale behind this shift.

He highlighted several reasons why some manufacturers moved production out of China. One of the main reasons being the tariffs applied to products manufactured in China by the US administration and the reciprocal tariffs imposed on the US by China.

Then, hidden in the shadow of the tariffs is the increasing cost of production in China influenced by increased wages and energy costs. Producers searching for the lowest unit costs looked at countries which offered better cost structures, even if the experience of the local workforce was not a match for the experience of Chinese workers with years of training and continuous improvement to streamline the manufacturing process.

Followed by the difficulties experienced by shippers and carriers in transporting the cargo between China and the US. High shipping rates made some companies realise the importance of being closer to their prime markets. As shipping difficulties related to COVID restrictions relaxed and the freight costs rapidly decreased from their pandemic-period heights, supply chains are operating at pre-COVID levels.


China has for many years been the manufacturing hub for multiple industries and complex industrial supplier clusters have been established for the automotive, mobile phone and other industries.

How long will it take other countries to replicate those clusters, or will a new cross border supply chain develop to integrate component suppliers with manufacturers?

‘It is very difficult to replicate complete supply chains, especially when Tier 1, 2 and 3 suppliers are located to achieve just-in-time efficiency, but the tariffs play an important role in deciding where to perform the final stages of manufacturing,’ said Kosmala.

‘Most manufacturers will consider the trade-offs between placing their chains in tariff-advantageous economies versus leaving them where they are and charging more for their products as a result of higher tariffs.’

‘Considering the current status of many manufacturers with production facilities and the majority of the supply chains are located in China, it is difficult to relocate those supply chains as they are today. The cost of labour and energy in China continued to climb and some of the low-end manufacturing will gradually migrate to other Southeast Asian countries’ added Kosmala.

Recently, there are significant investments being made in the Middle East and West Africa to diversify away from exporting commodities to developing infrastructure to process and manufacture products for exports. What needs to happen before these regions can develop their own manufacturing sectors and compete with other regions?

Many countries across the Middle East have been engaged in a long-term plan to develop ports and logistics zones across the region to boost trade activities which enable the development of manufacturing and processing zones to add growth to their transhipment volumes.

Africa in the short to medium term is likely to be focused on its commodity exports including bauxite, iron ore, forestry products and commoditised food products such as coffee and cashew nuts.


So how important is the availability of low-cost energy to the aspiring manufacturing regions of the world? What sources of renewable energy are available such as solar and wind farms to provide the power required to develop new industrial sites?

Kosmala said that besides labour; energy is the key cost driver in any type of complex manufacturing. While Southeast Asia and the Middle East can provide inexpensive energy with high reliability, Africa’s challenges around political stability and an efficient energy delivery infrastructure shows that much more needs to be done.

While simple manufacturing can be run with less stability in terms of delivery network and use of generators, the complex manufacturing process cannot develop based on networks impacted by overloads, blackouts and uncertainty.

The availability of stable water supplies in Africa and the Middle East to sustain many industrial processes is also a major factor in deciding the location of manufacturing zones. Desalination plants have been built across the Middle East as they have sufficient energy resources to fuel the facilities. In Africa, using wind and solar may be an option to provide energy for both manufacturing zones and desalination plants in coastal areas but the intermittent nature of these alternative energy sources may mean using fossil fuels in the medium term.

In the longer term, the growing investment in Small Modular Reactors (SMR) may provide a solution for developing countries to harness nuclear energy to power industrial development.



China earned the title ‘the world’s factory’ for a reason as it accounted for nearly 30 percent of the world’s manufacturing production in 2018, according to data from the United Nations.

This rank was attained by China in a short span of time. The Economist claims that in 1990, China contributed less than three percent of the world’s manufacturing output. In 2010, it first surpassed the US, which had previously been the world’s manufacturing powerhouse.

The US-China trade conflict has added pressure to many companies to re-evaluate their global supply chains. In the next five years, with a study by the McKinsey Worldwide Institute, businesses may move up to 25 percent of their production to new countries.

In addition, threats from climate change, cyberattacks and the fallout from the pandemic, trigger many countries to see this as an opportunistic time to develop and explore their own manufacturing platforms with an eye of lucrative exports.


So which countries are in the frame to attract global manufacturers?


Vietnam has so far been one of the biggest gainers of the US-China trade conflict, however many of the components needed by companies manufacturing in the country are still imported from China.

Vietnam boasts progressively liberalised trade and investment rules that make it an attractive location for firms wishing to diversify, in addition to having affordable labour costs and stable politics.

The country has successfully attracted major mobile phone manufacturers to set up manufacturing facilities for some of their phones. Although many components are still exported to Vietnam from China, providing new business opportunities and markets for Tier 2 and 3 suppliers based in China.


Mexico is another country on the rise as a manufacturing centre, as US businesses adopt ‘nearshoring.’

The country’s new free trade agreement with the US and its extensive cross border transportation links represents a significant benefit to future investment in the sector.

This year Mexico’s economy is expected to achieve moderate levels of growth and beyond, driven by strong export demand as global trade recovers after the pandemic.

The US is Mexico’s second largest trading partner and the two-way trade in terms of goods and services totalled US$725.7 billion in 2021, according to statistics published by the US government International Trade Administration.

As a major logistics hub in Latin America, Mexico is one of the most important trading partners in the region. It has built several logistics hubs which link North America with Central and South America, strategically located between these large trading regions, the country has invested in its infrastructure to become both a conduit for trade, but also to a thriving domestic manufacturing sector.

The Mexican logistics network is made up of 117 seaports, over 390,000 kilometres of highways, 27,000 kilometres of rail lines, 76 airports, 46 customs points and 66 intermodal terminals, according to TECMA, a leading Mexico-based supply chain company.

During the last two decades, Mexico has signed twelve Free Trade Agreements with 46 different countries, and as a result, the number of logistics hubs has expanded to many states.

The states that are benefiting from industrial and manufacturing growth are Tijuana, Baja California, Ciudad Juárez, Chihuahua as the states of Guanajuato and Monterrey have established themselves as the most prominent cities that attract the attention of foreign investors.

To encourage businesses to relocate production facilities from Asia to the US, Latin America and the Caribbean, the US administration is proposing financial incentives to attract new investments to the region.


India has significantly increased its efforts in recent years to attract manufacturing investments into the country. The ‘Make in India’ project of PM Narendra Modi aims to assist India in attracting multinational brands to set up manufacturing sites in the world’s most populous country.

The country has emerged as the second largest manufacturer of mobile handsets in the world in volume terms. More than 200 factories are manufacturing cellular mobile phones, compared to only two in 2014.

India is forecast to export mobile phones worth US$9 billion in the 2023 financial year, this will be a marked increase from US$5.8 billion in 2022, according to a report in India’s Economic Times.

According to data from the industry body India Cellular and Electronics Association (ICEA), total electronics manufacturing in India is expected to rise to US$300 billion by 2026, this is an increase from US$87 billion in 2022.

Today, Samsung and Apple are the largest investors in India’s phone manufacturing sector, both companies combined, account for half of the phones made in India.


Despite a slowdown in growth, Malaysia’s manufacturing sector continues to attract investments in the electronics sector totaling approximately US$12 billion, including transport equipment, petroleum products, non-metallic minerals, machinery and equipment, scientific and measuring equipment, food manufacturing and rubber products. These industries made up nearly 85 percent of total investments in this sector.

Malaysia, however, has been impacted by China’s loss of trade. Up to 60 percent of the materials and components used by Penang’s tech companies are imported from China.


As we enter a new phase of development in global manufacturing it is apparent that the supply chain will become more complex than ever before, with production and manufacturing spread across the globe.

Many experts expect the new manufacturing zones will evolve over years or decades, given the investment needed in complex infrastructure, transport logistics, energy and training of personnel.

The knowledge and expertise needed in each vertical industry varies enormously, as are the clusters of suppliers needed to operate large manufacturing facilities. Among the aspiring countries and regions looking to attract manufacturers to their countries, there lies ahead a challenging period but for those that succeed the rewards are significant.