Manufacturers are looking for lower-cost sourcing locations as China’s wages rise well above those in other emerging markets.
Mexico, India and Vietnam have their own advantages and disadvantages as new sourcing sites, according to a panel on alternate sourcing locations at The Journal of Commerce’s 12th Annual Trans-Pacific Maritime Conference in Long Beach on Tuesday.
As the U.S. baby boomers near retirement, their consumption patterns are shifting from retail goods to services, so the products they buy require shorter supply chains and much more flexibility, said Anne Landstrom, principal adviser for the commercial group at engineering and construction consultant Moffatt & Nichol.
“Retailers have to look at the market and change quickly, so it makes sense for them to look at Mexico, which is certainly very attractive,” she said.
Security is a problem in areas along the U.S. border, she said, but manufacturing locations in the middle of Mexico aren’t as risky. “Companies can deal with it,” Landstrom said.
Despite severe port congestion and the poor state of its inland infrastructure, India is emerging as a favorable investment location, said Thiagarajan “TJ” Sridhar, president of Quantum Strategic Advisors, of Newton, Mass. “India is increasingly attractive as an alternate sourcing location for IT services and low-cost manufacturing,” he said.
India has a young, educated work force with skills and technical degrees. “There is a growing and affluent middle class that is used to consuming,” Sridhar said. “Manufacturers will discover a good domestic market especially in the automobile sector.” India will become a more attractive investment site in the next decade as the country invests more to expand its port infrastructure, completes the four-lane highway network charted in its National Highway Plan and builds a dedicated freight rail corridor.
“A lot of global players are interested, so I am optimistic that manufacturers will invest in India,” Sridhar said.
Vietnam is a third alternate sourcing location drawing investment in sourcing of furniture, garments, textiles and footwear, said Michael Them Rasmussen, general director of Cai Mep International Terminal. But although Vietnam’s labor force is young and dedicated to work, it lacks skills and has little or no middle management, he said.
A great deal of foreign investment has poured into the country’s port infrastructure in recent years, Rasmussen said, but “infrastructure is still the country’s single biggest challenge.”