COVID-19 has exposed the myriad weaknesses of cross-border value chains. Once the backbone of globalization, now they are associated with vulnerability to disruption.
Thanks to the pandemic, value chains are being reconfigured with a focus on resilience. At the same time, China’s changing role in the global economy is forcing companies to reconsider it as a manufacturing hub. The world’s factory has reinvented itself as the world’s investor. Increasing digitalization of production and ongoing trade tensions with the United States have also contributed to an exodus of companies from China.
The departures include firms from a wide range of countries and industries. U.S. toymaker Hasbro closed its Chinese factory in favor of facilities in Vietnam; Japanese electronics giant Sony has transferred operations to Thailand; and South Korea’s Cotton Club is relocating production to the Philippines, Cambodia and Indonesia. Even Chinese firms are leaving the country for less expensive destinations. Wage rates in China are more than double those in Vietnam and close to 70% of those in South Korea. Labor shortages also have made it difficult to keep manufacturing costs down.
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