What’s the Right Global Footprint for You?

Just three weeks shy of the presidential election and thousands of viewers across the country tune in to the presidential debates between Republican nominee Mitt Romney and President Barack Obama. And while it’s to be “debated” (no pun intended) whether the debates will have a major impact in who is elected for office on November 6, they serve as an important platform for both parties to voice their stance on the issues affecting not just the U.S., but the global economy as well.

For businesses—both small and global—how each party’s future plan for the reshoring and outsourcing of U.S. jobs pans out is of utmost importance. It’s evident that U.S. manufacturers continue to bring jobs back home (see last month’s coverage at http://bit.ly/S83UQ2 and http://bit.ly/R05bhp) as countries like China experienced coastal wage inflation in manufacturing plants. But not all jobs will be reshored and a number of companies—such as Crown Equipment and TomTom—continue to expand their global footprint to countries like Brazil and India.

And with such activity, it is important to understand what each country offers to companies looking to globally expand. For ex., in China’s case—where taxes are becoming more expensive, land is scarce and energy cost is escalating—“this is giving rise to us starting to read more about companies bringing manufacturing back home,” explained Darin Buelow, Principal, Deloitte Consulting, New York, N.Y.

“China fundamentally is evolving and it’s moving up the curve in terms of its middle income and consumer class,” said Buelow. “About eight to 12 years ago, China was exclusively an export processor—they wanted to be the world’s manufacturing shop and they’ve largely succeeded. But as they achieved success, they developed a burgeoning middle class—one that wants all the same things that the Western middle class has. More and more of the Chinese people have emerged from poverty and became spenders—while at a slow pace because their culture is to save money. They want expensive sunglasses, cars and food. So more and more Western manufacturers view China as a destination for products. And many of the plants that are being deployed to China are not going to export processing zones but instead are designed to build products destined for the Chinese market. As we coach manufacturers on how to look at China, the question is: ‘Are they viewing China as an export platform? Or are they viewing China as a market?’ That’s an important distinction and one that some manufacturers need to define,” Buelow continued.

Such developments in China caused other countries to work on building up their own infrastructure. Additionally, it’s making some supply chain players—such as export processors—reconsider locations outside of China and if there is a set of emerging markets in Asia that perhaps makes more sense for export processing.

Where is next after China?

“There are alternatives to China,” confirmed Buelow. “There are several countries in the Asia-PAC region that the Chinese themselves are moving manufacturing to because of China’s coastal wage escalation, increasing utilities costs, regulations and environmental restrictions. Places like Vietnam, Thailand and Indonesia come to mind as low-cost locations that are not really huge consumer markets yet and serve as more of an export platform. Vietnam has an abundant labor supply, a safe operating environment and relatively affordable electricity and good port access. So some of the Chinese companies already deploy there—and some Western companies are also already there and more of them will begin to look at such regions.”

In fact, Thailand and Indonesia ranked 57^th and 58^th in the World Economic Forum’s top emerging economies, according to its “Global Enabling Trade Report 2012.” And in the cases of the BRIC countries, “they are maturing to the point where they are no longer the first choice for export platform production,” said Buelow.