By Stephen Shih
A quarter of company respondents in the 2016 China Business Climate Survey are either planning to move capacity outside of China or have already moved capacity outside of China in the past three years. The most commonly cited reason for moving capacity was rising labor costs.
As this infographic shows, companies are moving capacity to a diverse range of locations. Of the companies who have moved or plan to move capacity out of China, the most frequently cited destinations are developing Asia or North America. The patterns differ by industry, however. For example, developing Asia was the most commonly cited destination for capacity moves by industrial and resources companies (55 percent of responses) and consumer companies (41 percent). North America was the most commonly cited destination for technology and other R&D intensive companies (40 percent). The third destination overall, developed Asia, primarily drew service and consumer companies. The diverse choices reflect the complexity of global strategic options and capacity decisions.
While lower costs can be one key benefit of capacity decisions, capacity location decisions should also keep in mind factors such as better market access, improved innovation or higher agility in supply chains. These must also be balanced relative to an assessment of the business environment in potential markets, taking into account expectations for currency volatility, inflation, political stability and the like. Industry networks in each country are another important factor in capacity location decisions.
Stephen Shih is a Partner at Bain & Company, the co-authors of the 2016 China Business Climate Survey. This story is part of a series of spotlights on key findings in the survey.
