How to find manufacturers in emerging markets

how to find manufacturers in emerging markets

The manufacturing map of the world has changed substantially over the past decade, making former manufacturing stalwarts less attractive than emerging markets and a resurgent US.

For a couple of decades, when figuring out how to find manufacturers in emerging markets, the first choice was obvious: offshoring your manufacturing was the choice for so many US companies, and often their chosen destination was China.
It offered low wages, an eager and seemingly limitless supply of labor, plus fast-growing consumer markets that would provide the growth markets of the future. All this justified the effort of finding Chinese partners, forming joint ventures where needed and shipping the product from China.

Eastern Europe, Latin America and Southeast Asia also held advantages in certain areas, attracting further interest from those seeking to find cheaper manufacturing destinations that could also supply the right mix of skills and infrastructure.

And this is more or less how the market evolved – until recently, when many of these trends began unexpectedly reversing.

 

The Shifting Landscape

Wages in China have crept up as the country’s working-age population shrinks and productivity growth tails off. The recent turmoil in China’s housing and stock markets, together with far lower growth than expected, has only added further impetus to this trend.

The last decade has also seen the competitiveness of other emerging markets erode. Brazil now ranks among the most expensive markets, while Russia and some Eastern European nations are nearly at parity with the US, according to a 2014 BCG report.

 

The New Pretenders

Meanwhile, Mexico has quietly emerged as the new star performer, with lower direct manufacturing costs than China. According to BCG, Mexico’s competitiveness has improved against every major export economy over the past decade. The key metric is its cost of labor adjusted for productivity, in which it outperforms all others.

Foreign investment in Mexican factories has boomed, even in electronics and other industries in which China has been dominant. Mexican exports of electronics more than tripled to $78 billion from 2006 to 2013, and it’s making significant headway in other sectors, even those high-tech areas that have traditionally been the domain of developed economies.

While many Asian contenders such as Thailand and Indonesia have treaded water in the past decade, India has begun to shape up. It now has the potential to emerge as a regional star. Strong productivity growth, a depreciating currency and expanding logistical capabilities in container terminals and expressways are removing some of the barriers to its progress as an assured manufacturing destination.

New special economic zones combined with a dynamic and business-friendly government all count in India’s favor, but fundamental reforms in labor, energy and investment regulations are required before it can fully capitalize on its low-cost advantage to realize its potential.

 

The case for reshoring when determining how to find manufacturers in emerging markets

For US companies with a focus on regional US markets when aiming to figure out how to find manufacturers in emerging markets, reshoring manufacturing has become far more attractive too. The US has seen its absolute labor productivity rise 19 percent in the past decade while energy costs have plummeted.

According to BCG’s 2014 Made in America, Again report, 16 percent of US-based manufacturers were reshoring to the United States, and 54 percent were considering reshoring.

Regionalization, a strong workforce, a more reliable supply chain and quality control are all major drivers of this transition. The report also found that advanced manufacturing technologies and the capacity for automation are helping manufacturers using in-country production to reduce costs, lower supply chain risks and get a leg up on their competitors.

Yet while the labor and cost arbitrage that many emerging markets offered has faded somewhat, the opportunity for how to find manufacturers in emerging markets will tempt many to continue to look for manufacturing partners beyond US shores.

 

The New Power Players

In 2013, the emerging markets’ combined GDP surpassed that of the developed ones, underlining their importance, and it’s just the start of a trend that will see them dominate future world trade. Asia’s fast-growing middle class is the big story for now. But Africa is coming up quickly as well, threatening to leapfrog other regions in time.

Today’s emerging markets are becoming tomorrow’s main markets, and many US businesses know they must be present in them.

With this growing market position come emerging market suppliers with their own needs and ideas. No longer just price-taking widget makers, they’re increasingly sophisticated partners with their own needs and ambitions. They have much to contribute but will want much in return. They will want to assess your business and know what you can do for them.

In turn, they will help their US partners understand the operational, technical and financial imperatives of the marketplaces of the future when trying to figure out how to find manufacturers in emerging markets.

Wherever your ambitions for manufacturing partners lie, how to find manufacturers in emerging markets and beyond has never been easier thanks to the reach and insights Powerlinx offers your business.

By Andrew Stone