Geography, labour force, and a steadily growing skills base are some of the reasons why manufacturers are shifting operations from an ever more costly China toward her South East Asian neighbours.
China’s remarkable growth in recent years has not escaped the attention of many. From 1979 to 2010, China averaged annual GDP growth rates of 9.9%, transforming itself into the world’s manufacturing and industrial powerhouse, and bringing tens of millions of its citizens into the consumer middle classes. This demographic shift is forecast to rapidly increase in the near future; current estimates suggesting that by 2020 the Chinese middle class may number as many as 500–600 million.
Low cost manufacturing based on vast supplies of cheap labour has contributed greatly to China’s recent economic successes. It is these very successes however, along with a continued shift toward a more services-driven economy, that have seen wages rise ever higher – with increases greater than 10% p.a. over the last 3 years. As industry forecasts and government policy both point to this trend’s continuance, manufacturers and foreign direct investment (FDI) have begun the shift to the lower costs available in neighbouring ASEAN countries.
ASEAN nations now comprise the world’s fourth largest exporting region. OECD projections predict robust growth through 2018 in Indonesia, Philippines, Cambodia, Lao, and Myanmar (averaging 6.6% across these countries). Recent third quarter (2014) figures in Vietnam show better than expected growth (GDP rising 6.19% over previous year), and solid gains in manufacturing(8.6%), industry and construction(6.4%). Despite the challenges present throughout much of the ASEAN region, FDI is increasing, and manufacturers wish to capitalise on the region’s advantages. These include large pools of low-cost, skilled workforce, and the region’s proximity to a rapidly changing and modernising China.
Some of the greatest challenges in South East Asia are supply-chain and logistics related. Increased demands in the flow of goods is currently presenting Indonesia with urgent need to update and modernise ports and port infrastructure. As textile exports grow rapidly in Cambodia and Vietnam, roads, rail, ports and heavy civil works are required to ensure transportation and delivery keeps the Asian Factory experiencing growth and success. While some regulatory obstacles still need tackling, foreign investment is persistent and challenges such as these are now beginning to be met.
What This Means for Dragon
Dragon Industries Asia (DIA) sees this shift toward South East Asia as extremely exciting and rife with opportunity. The outlook for its manufacture and construction divisions is very positive; marine engineering, energy & resources and business divisions are currently engaged in activities in the Philippines, Indonesia, Vietnam, and Australia. New opportunities in ASEAN nations as well as in the wider Asia-Pacific are enabling Dragon Industries’ growth, and are allowing DIA to contribute to crucial development projects right through the region.
As fabrication and industrial construction specialists, Dragon Industries Asia is leveraging the cost savings in South East Asian manufacturing to its customer’s advantage. Excellent relationships through the raw materials supply chain, integrated logistics operations, the ability to mobilise a large and skilled labour force, and technical expertise across the engineering, design, procurement and management areas of business, combine to ensure DIA remains attractive to its customers through the Asia Pacific and further afield.
With China continuing its move to higher wages and a massive, rapidly emerging middle-class of consumers, South East Asian economies are emerging as the low cost manufacturing alternative to Chinese industry. Development of infrastructure requirements along with regional solutions to supply chain problems are materialising in ASEAN countries, and will only develop further as FDI from China and elsewhere continues to increase. It’s this economic and development climate that is so exciting to Dragon Industries Asia. Dragon’s traditional operations to Australasian industry continues to be served by favourable manufacturing and cost conditions in South East Asia, while demand for experienced construction and business services within the region looks certain to grow for some time. Dragon Industries Asia is set to bring the advantages of the region to its customers and partners outside, and is excited to offer its capabilities to the development needs within.
Read the full article Economic Outlook for Southeast Asia, China and India 2014 – Beyond the Middle-Income Trap published by Organisation for Economic Co-operation and Development.