A wave of supply chain relocation away from China is partly driven by the desire of companies to diversify their geopolitical risks, Tung Tzu-hsien (童子賢), chairman of Taiwan-based contract electronics maker Pegatron Corp (和碩), said on Wednesday.
Speaking at the Taiwan Women on Boards Association’s annual convention on the impact of geopolitics on Taiwanese businesses’ investment strategies, Tung said that geopolitical factors have to be accounted for when companies consider where to manufacture products.
“In 2000, businesses did not have to worry about international politics. As long as you provided good services and were capable of good marketing, you could sell your products globally,” he said.
Photo: Fang Wei-chieh, Taipei Times
“But now you have to take note of geopolitical changes, such as wars and trade friction, to keep your products from being banned or sanctioned,” he said.
That shift can be seen in how the workforce of Pegatron, which as a contract manufacturer deploys most of its capacity overseas — usually in economies with relatively low labor costs — has changed in recent years.
The company’s Chinese factories used to employ about 200,000 workers during peak seasons, Tung said, but in the past three years, Pegatron’s factories in Mexico, India, Vietnam and Indonesia have had a combined workforce of about 30,000.
Beyond political factors, Tung said today’s relocation wave to countries such as India and Vietnam mirrors the massive migration of Taiwanese manufacturers to China in the 1990s, and that “history is repeating itself.”
“China’s GDP per capita has reached about US$13,000, which was the level when Taiwanese factories started to relocate to China and away from Taiwan years ago,” he said.
Even Chinese companies are complaining about the high cost of labor in Shanghai and Suzhou and are moving to Southeast Asia, Tung said.
“Taiwanese businesses started to move to China around 1995,” and because supply chains were still not mature in China they had to rely on sources of supply in Taiwan, Tung said.
“But a few years later in 2000, China’s local supply chains began to take shape, with costs about one-fifth of those in Taiwan,” Tung said.
By 2003, “Asustek Computer Inc (華碩) could not find supply chains in Taiwan as all the mold makers, and component and PCB [printed circuit board] factories had moved to China’s coastal regions such as Guangdong, Shanghai and Suzhou,” Tung said.
This is what is happening now, Tung said, adding that supply chain clusters are taking shape in countries in the Global South such as India, Mexico, Indonesia and Thailand.
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