The term ‘Made in China’ is synonymous with the manufacturing industry, and for decades the nation has been known as ‘the world’s factory’. But, due to a confluence of factors, many businesses today are starting to signal a move away from Chinese manufacturing.

Navigating Geopolitical Uncertainty

Geopolitical tensions in particular are directly impacting trade relationships, and in 2020, the US government even spearheaded a ‘Clean Network’ initiative, in response to growing security concerns about Chinese technology.  

The controversial policy rapidly gained the endorsement of democratic governments across the world and by December 2020, more than 60 nations had publicly committed to the principles of the Clean Network. These included countries such as the UK, Greece, Singapore, Australia and Taiwan.

While the legislature was effectively abandoned as the Biden administration came into power, its legacy stuck. Suspicion of Chinese-owned and manufactured technology is proving difficult to shake for governments, even within parts of the EU and in the UK.

In 2023, one country after another banned the popular Chinese-owned social media app TikTok from devices used by government staff and elected officials. Citing “national security risks”, the European Commission, European Parliament, and EU Council all banned TikTok from being used on official devices of parliamentarians and their staff. 

There are similar challenges in the private sector, especially for businesses that face stringent compliance measures and handle sensitive information. Thus, the need for them to know what’s in their network and have full confidence in the security of their supply chain, is critical.

A notable example is Apple, which moved part of its iPhone 14 and 15 production to India, and has also indicated plans to move iPad manufacturing there. Other companies that have committed to moving away from Chinese manufacturing include TSMC, the world’s largest semiconductor maker, which mainly operates now in Taiwan, but also have made new commitments to the US manufacturing sector. Similarly, car manufacturer Mazda shifted production of parts back to Japan, and Samsung moved its Chinese manufacturing to Vietnam.

But, in light of recent world events, crises and uncertainties, moving away from Chinese manufacturing, or at least reducing reliance on it, may present significant benefits for opportunistic businesses beyond the hyped-up security fears you might read about in the media.

Supply Chain Resilience

The COVID-19 pandemic exposed vulnerabilities in global supply chains, with disruptions highlighting the risks of over-reliance on a single country. Should another worldwide crisis or geopolitical flare-up render Chinese manufacturing untenable, businesses that effectively have all their eggs in one basket may once again face significant supply chain disruptions.

On the other hand, businesses that seek more resilient supply chains will be able to withstand unexpected events more readily. Diversifying manufacturing locations also offers greater operational flexibility and enables businesses to adapt quickly to changing market dynamics, customer preferences, or shifts in regulations. Having multiple manufacturing bases, in essence, facilitates quicker responses to market demands. 

Historically, Chinese manufacturing has long been associated with cost effectiveness and scalability. However, with rising labour costs - due in part to a growing white collar workforce - the price advantage it once offered is eroding. 

By manufacturing goods and components in different countries, businesses can take advantage of more competitive labour costs, hedge against currency risks, benefit from favourable exchange rates, and circumnavigate import and export duties - bringing down costs whilst building a more resilient supply chain. 

Beyond the supply chain  

Concerns about intellectual property (IP) protection have been a longstanding issue in China. Companies often worry about the potential for IP theft or unauthorised replication of products and therefore shifting manufacturing to countries with stronger IP protection measures can safeguard proprietary technologies and innovations.

Additionally, from an ESG (environment, social, governance) perspective, stringent environmental regulations and sustainability goals in the modern day may encourage businesses to seek locations with more eco-friendly links and socially acceptable practices. Countries with better environmental regulations than China may offer incentives for green manufacturing, aligning with corporate sustainability initiatives.

Ultimately, the shift away from Chinese manufacturing is not just a short-term trend which has emerged in light of current world politics, but signals the start of a long-term diversification of manufacturing geography. As manufacturing sectors across different markets emerge, develop and start to compete with China’s affordability and efficiency, businesses will be able mitigate the risks associated with geopolitical and economic uncertainties and in turn, build a more resilient, future-proofed business.