Surge in Asia Pacific’s largest manufacturing centres driven by global demand

China strengthens its leading position as the most attractive manufacturing hub globally; Thailand sees improvement in cost profile.

Asia Pacific’s largest manufacturing centres have rebounded strongly as economies across the globe have reopened and driven demand for key products, according to Cushman & Wakefield’s 2021 Global Manufacturing Risk Index, which assesses the most advantageous locations for global manufacturing among 47 countries in Europe, the Americas and Asia Pacific.

 

Dr. Dominic Brown, Head of Insight & Analysis, Asia Pacific at Cushman & Wakefield, said, “As the virus is brought under control, manufacturing centres have surged. China has been able to fill the void left by US and European manufacturers, who were enduring their own lockdowns, to capture a larger share of global exports, from approximately 13% in 2019 to 15% in 2020. Furthermore, exports from China in Q1 2021 were about 27% higher than Q2 2019, or the equivalent of US$150 billion.”

“Other markets also capitalized on heightened demand for key products such as micro-processors, computer chips and pharmaceuticals. South Korea has benefited from the soaring value of semiconductors, stemming from strong demand and a global shortage of product with Information and Communication Technology (ICT) manufacturing up 16.8% year over year in January 2021. However, apparel producers around the region continue to struggle with low levels of demand impacting markets such as India and Indonesia, which have also been managing significant second and third waves of the virus,” noted Dr. Brown. 

Within mainland China, two clear trends have been underway: (i) manufacturers moving up the value chain following large-scale investment into robotics, artificial intelligence and blockchain; and (ii) manufacturing of lower order goods moving outside of the country, predominantly into Southeast Asia. There has been a 5% increase in Jakarta’s industrial stock in the last year alone. There has also been increasing interest in India, especially given the country’s proven success in meeting outsourcing requirements.

Furthermore, Vietnam has become an increasing focus for manufacturers due to its regional centrality, sublime market integration, and favourable production costs – with Samsung, Apple, Nintendo, LG, Panasonic and Intel all locating in the country. Vietnam is also moving up the value chain, positioning itself as very attractive for mid-tech with its electronics sector. 

 

On this year’s baseline rankings, Thailand rates favourably on cost competitiveness. The country’s cost profile improved, moving Thailand to fifth place from the eighth and ahead of Malaysia, which has seen ongoing wage increases, the report noted. 

Gareth Michael Powell, Senior Director at Cushman & Wakefield, Thailand, said, “The Thai manufacturing sector has expanded in 2021 on improved domestic demand, a rapidly growing e-commerce sector, recovery of world trade volumes, and government-driven growth from budget disbursements and economic stimulus measures. We are optimistic about Thailand’s industrial property market outlook, given the upturn in external goods demand and exports remaining a key pillar of economic strength.” 

2021 Manufacturing Risk Index Rankings – Key takeaways 

Cushman & Wakefield’s annual Global Manufacturing Risk Index (MRI) scores each country against 20 variables that make up the three final weighted rankings which cover conditions, cost, and risk. The data underpinning the MRI comes from a variety of reliable sources, including the World Bank, United Nations, World Economic Forum and Moody’s Analytics. 

Based on the analysis, China took the number one spot across all the four rankings, strengthening its leading position as the most attractive manufacturing hub globally. 

• Bounce Back Rating: China and Singapore placed first and sixth respectively on The Bounce Back rating, which measures a country’s ability to restart its manufacturing sector. As business conditions continue to improve and with vaccinations underway, economic growth forecasts are generally being revised upwards. 
• Baseline Scenario: China retained the top position on the baseline scenario ranking as it continues to diversify its manufacturing base, moving up the value chain in order to focus on telecom, high-tech (40% of robots produced globally are made in China), and computers. Key manufacturing regions in China include Guangdong and Jiangsu, which focus on electronic components and automotive, while Zhejiang and Liaoning focus on chemicals and natural resources.
• Cost Scenario: While China also retains its lead position in this scenario, Vietnam and India were overtaken by Indonesia which moved up to second from fifth place, not least in part due to Jakarta’s declining rents seen over the past year. India also swapped places with Vietnam to rank third and fourth respectively. While wage costs in Vietnam remain cheaper than China, it is facing increasing competition from lower cost locations and will need to demonstrate its strengths in other areas of the manufacturing process, such as its geographical connectivity. Like Indonesia, Thailand’s cost profile improved this year, helping it move to fifth place and ahead of Malaysia, which has seen ongoing wage increases. 
• Risk Scenario: Early and effective lockdowns to control the first wave of the pandemic helped China’s manufacturing sector rebound after Q1 2020. Strong performance of its manufacturing sector during the rest of 2020 contributed to a “better-than-expected” first place ranking on the risk scenario. The US and Canada were pushed back to second and third place respectively while China jumped up from fifth place last year.

“The current pandemic has accelerated the growth of e-commerce while also exposing vulnerabilities in global supply chains. It is imperative for manufacturing companies to reassess current supply chain strategy and infrastructure to improve their resilience and stay competitive.” noted Tim Foster, Head of Supply Chain & Logistics Advisory, APAC, Cushman & Wakefield.

“A post-Covid-19 future is likely to see a heavier reliance on sophisticated technologies and tools that facilitate Industry 4.0, as companies seek to stay resilient, ensuring a wider diversification with smaller, geographically distributed manufacturing plants that are more resistant to disruption. With these advances, property developers are challenged to stay ahead, reshaping how facilities are designed and operated as they cater to the expansion of e-commerce as well as adopting a more holistic approach towards ESG considerations to address the growing group of environmentally conscious real estate users,” added Dennis Yeo, Head of Investor Services, APAC, Cushman & Wakefield. 

Looking ahead, ESG due diligence for suppliers has become an increasingly important part of a manufacturers’ risk management. In addition to protecting manufacturers from any losses incurred due to natural disasters, growing consumer consciousness about the impact of certain sourcing practices on the environment is feeding into decision making. In Europe, green consumerism is growing fast with nearly 800,000 products now displaying the EU’s Ecolabel logo. For this reason, Asia Pacific will need to follow Europe’s lead to help maintain the attractiveness of the region and help counter potential decision making to reshore or nearshore manufacturing out of the region.

Appendix

Table 1: Bounce Back Rating

Table 2: Baseline Scenario

Table 3: Cost Scenario

Table 4: Risk Scenario

Click here to download the Cushman & Wakefield’s 2021 Global Manufacturing Risk Index. 

About Cushman & Wakefield: Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 50,000 employees in over 400 offices and 60 countries. In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.