Exploring the Next Frontiers of Manufacturing: Diversifying Beyond China

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Rising labor and fuel costs, as well as economic and political pressures, has affected China’s position as the world’s largest manufacturer, but there’s no doubt that China will remain a manufacturing powerhouse. Still, the region continues to face challenges due to its previous zero-COVID policy. As global pressures, regional politics, and complex business environments make the country a less appealing manufacturing location, companies are keen to increase their supply chain resilience through agility and diversification.

This is a trend that developed in 2022, as uncertainty surrounding overseas logistics surfaced as a concern for companies, according to Fictiv’s 2022 State of Manufacturing Report. That’s why 65% of companies planned to increase U.S. manufacturing last year, and alternative regions for production have opened in India and Mexico. The report also shows that over half of respondent companies are seeking increased diversity in their global manufacturing operations, with onshoring representing just one piece of the puzzle. Generally, businesses are looking to reduce their dependence on a single dominant player (e.g. China), leading to a shift in the global manufacturing landscape.

So what options are companies exploring? India, for one, has several advantages that make it an ideal manufacturing region, including a large workforce with diverse skills (especially in manufacturing talent), a growing market with increasing domestic consumption, favorable government policies, and cost competitiveness derived from low labor costs and a favorable exchange rate. India has a thriving engineering, manufacturing, and IT talent pool, and manufacturers with a stable presence in India’s booming start-up economy will help fuel the momentum to diversify production options for companies.

Apple has long been a trendsetter when it comes to manufacturing, and it sets the tone for industry innovation. There are many benefits to diversifying production — reduced risk and dependence on a single market, improved financial stability and an ability to weather market changes, and increased competitiveness and flexibility in adapting to market demands. Production diversification also unlocks an expanded customer base and access to new markets, improved resource utilization and reduced costs, increased innovation, improved product quality and supply chain management, and reduced supply chain risk, along with improved reputation and brand image. If Apple’s move to India is successful and provides just some of the expected benefits, we can expect other companies to follow its lead.

Aside from India, production in Mexico has always been an asset for U.S. companies. And with the growing trend of re-shoring manufacturing in North America, Mexico is now seen as a preferred low-cost alternative to China. Mexico offers lower labor costs, a highly-educated workforce, proximity to the U.S. and tariff-free logistics. Mexico also offers better opportunities, better margins and a more agile manufacturing relationship with shorter supply chains and closer connections between manufacturing facilities and end markets.

As companies seek to streamline operations, eliminate barriers to innovation, and increase outsourcing, new locations in Asia and North America will be prized manufacturing destinations — geographic diversity is the key to building agile supply chains that fuel innovation, after all.