Five China Alternatives for Sourcing in Southeast Asia
It’s no secret that China holds a long-standing reputation as the manufacturing hub. And while China still has a number of competitive advantages over some of the smaller manufacturing counterparts, it’s always good to weigh all options.
There are a lot of up-and-coming players vying to become the world’s next manufacturing hub. Five of the most popular China alternatives are Malaysia, India, Thailand, Indonesia, and Vietnam – often referred to as MITI-V or the Mighty Five.
Each country in the Mighty Five has their distinct advantages and disadvantages. So, how to know which one to pick for your sourcing and manufacturing? Let’s walk through some of the pros and cons of sourcing from each of these five countries.
Sourcing from Malaysia
Despite its small population, Malaysia’s economy is the third-largest in Southeast Asia. With a large middle class and openness to trade, Malaysia is definitely a sourcing country to consider.
Advantages to sourcing from Malaysia
For starters, Malaysia is ranked as the easiest of the “Mighty Five” to do business with and outranks China as well according to the World Bank’s 2018 ease of doing business metric. What’s more, Malaysian exporters benefit from no VAT compared to a 13% tax on exports from China, making for lower costs for importers purchasing Malaysian-made goods.
In terms of shipping and location, Malaysia’s geography is a major advantage. Located on the Strait of Malacca, the country is home to the Port of Tanjung Pelepas and Port Klang – the second and third busiest ports in Southeast Asia.
The workforce of Malaysia is also known for being highly skilled, coming in at 6th place on the Economic Forum’s ranking of workforce skills.
Disadvantages to sourcing from Malaysia
The biggest disadvantage to sourcing from Malaysia is the political instability with an inconsistent government approval rating which has scared off many foreign investors.
Sourcing from India
India is another sourcing country that’s often seen as an alternative to China with a large labor force and low labor costs.
Advantages to sourcing from India
Labor costs are also quite low with the minimum wage being about $65 per month.
One of the biggest advantages of sourcing from India is English being one of the official languages of the country. Foreign businesses don’t face the same communication problems that often occur when sourcing from China.
Disadvantages to sourcing from India
Quality infrastructure is greatly lacking in India as it ranks well below China in terms of the World Bank’s Logistics Performance Index. It also ranks lower than Thailand, Vietnam, and Malaysia in terms of infrastructure.
Sourcing from Thailand
Thailand is a major manufacturer of computers, cars, rubbers, and food processing – they’re also the world’s second-largest hard drive producer, responsible for nearly one-third of all hard disk drives sold.
Advantages to sourcing from Thailand
According to the World Bank, Thailand has a similar infrastructure as China when it comes to arranging international shipments and their timeliness.
With plans to upgrade the infrastructure with the three main manufacturing provinces, Chonburi, Chachoengsao, and Rayong, the country will soon have two deep-sea ports and high-speed rail lines coming within the next 5-10 years.
What’s more, Thailand outranks China in terms of how easy it is to do business.
Disadvantages to sourcing from Thailand
Thailand is feeling the effects of the US-China trade war, with most of Thailand’s goods being linked to China’s supply chain.
Thailand also has a relatively high minimum wage that are higher than Vietnam and some small provinces of China. The average monthly wage ranges from $200-210 per month, with workers calling for more increases over the next couple of years.
Sourcing from Indonesia
Indonesia is home to Southeast Asia’s second-largest economy and the world’s fourth-largest population. In terms of the country’s export industry, it mostly consists of agriculture and raw commodities.
Advantages to sourcing from Indonesia
Despite a smaller population than China and India, those looking to source from Indonesia will benefit from the country’s large workforce. Also, the general population is very young with the median age being 28 years old.
In terms of wages, Indonesia’s labor costs are relatively low with the average monthly salary ranging from $110-$277. Indonesia also offers a much more stable political climate compared to Malaysia and Thailand.
Disadvantages to sourcing from Indonesia
The manufacturing industry in Indonesia isn’t nearly as developed as its neighbors. Most manufacturing plants in the country are small which makes large-scale projects very difficult.
Logistically, Indonesia’s geography can cause some problems – especially with the number of earthquakes and tsunamis that occur.
Sourcing from Vietnam
Vietnam is the most popular sourcing alternative to China, often referred to as the “new China”. Vietnam is known for its low labor costs, growing manufacturing exports and a young workforce.
Imports from Vietnam rose by 40% in just the first three months of 2019. What’s more, the country’s economy improved by 7% in 2018 bringing it to the highest it’s been in 12 years.
There are many China alternatives in Southeast Asia for sourcing. While Malaysia, India, Thailand, Indonesia, and Vietnam are the most popular, finding the country to source from comes down to you unique sourcing needs. Let us help you find the right country for your sourcing needs.