Great article in the Economist:

In the calculus of costs, risks, customers and logistics that goes into building global operations, an increasing number of firms are coming to the conclusion that China is not necessarily the best place to make things…

China is the emerging giant, but the investments that are being diverted away from the Middle Kingdom present the rest of Asia with a huge opportunity to become manufacturing hubs in their own right…

So far, most industrial development in China has taken place in the country’s eastern coastal regions, particularly around Shanghai and the Pearl River Delta near Hong Kong. But costs in these centres are now rising sharply. Office rents are soaring, industrial land is in short supply and utility costs are climbing. Most significant of all are rocketing wages. In spite of the mass migration of workers from China’s vast interior to the coast, pay for factory workers has been rising at double-digit rates for several years. For managers, the situation is worse still…

Equally important are concerns about growing protectionism. The United States and the European Union are becoming more assertive in holding China to account over its World Trade Organisation obligations. Companies worry that this could lead to sudden interruptions to trade…

South-East Asia has been the chief beneficiary of companies’ decisions to diversify out of China. The problem is that the ten ASEAN nations have yet to form a single market. Although the region offers plenty of opportunity for export-based manufacturing, as a single market it remains highly fragmented. Companies want to be able to set up one factory to serve the whole region, but numerous barriers prevent them from doing so.

Read the full piece.