Geopolitics is changing where firms manufacture faster than it is changing where the economic advantages of manufacturing reside. East Asia captures this dilemma particularly well. Japanese manufacturers are diversifying portions of production away from China towards Southeast Asia and India, while retaining large-scale operations within China. Chinese manufacturers are moving in the opposite direction, expanding production abroad as tariffs, market-access conditions and localisation pressures make overseas manufacturing increasingly necessary.
These movements run in opposite directions but expose the same underlying tension. Japanese firms must decide how much production can economically move away from China’s industrial base; Chinese firms must determine how much of that network can travel with them as they internationalise. In both cases, the factory is only part of the calculation.
Diversification away from concentrated production in China is real: surveys by the Japan External Trade Organization (JETRO) point to Japanese companies rebalancing manufacturing locations. Japanese electronic component maker Tamura plans to reduce its production bases in China, while fellow component maker TDK is adding battery-cell production in India even as China remains its principal production base for these batteries. Yet diversification has not generally translated into wholesale substitution of China.
For many firms, China’s supplier depth, scale, skills and manufacturing capabilities remain commercially attractive even when geopolitical risk argues for reducing exposure.
Fonte: When geopolitics outruns the economics of supply chains | Lowy Institute
