With a massive population of nearly 1.4 billion, China’s workforce has been relied on for US product development for decades. In the 1980’s, when outsourcing to the East Asian country began to trend amongst US businesses, nobody expected that China would become the world’s manufacturing leader. In 2018, the nation accounted for 28% of worldwide manufacturing output.
Accounting for only a fraction of the world’s workforce, Thailand’s industry doesn’t get as much hype. But, Thailand is emerging as a major player in the global industrial game. Here, let’s explore the three key differences between product development in Thailand vs China in today’s market.
1. New Tariffs on Imports to the US
Tariffs are taxes charged for imports and exports on products in specific classes. Companies that outsource manufacturing overseas need to include these taxes into their budgets and pricing strategies.
Typical tariffs on industrial (non-agricultural) imports to the US range between 3-7%, which is what American companies that outsource all or part of their product manufacturing have come to expect. In 2018, the Trump administration implemented Section 301, which includes new China-only tariffs on imports. This led to a dramatic change. Now, tariffs on certain goods from the industrial superpower to the US are as high as 25%.
In response to this cost spike, businesses with stake in Chinese imports have attempted to get creative. Some companies tried adding value to Chinese goods through other countries with lower tariffs. Unfortunately, there are many hurdles and legal issues to such a strategy.
Other companies asked Chinese manufacturers to absorb the costs. In some cases, manufacturers were willing to do so temporarily, but were still left with a need for a permanent solution. Many of the tier-1 and 2 manufacturers decided to move their facilities and operations to other countries such as Thailand.
As of today, tariffs on products imported to the US from Thai manufacturing plants remain within the affordable range that companies have come to expect for the past decade.
2. Labor Cost Increases
The Chinese workforce, along with that of other developing nations, has evolved. Some companies sourcing products in China have assumed that with so many available workers, the cost of wages would remain low. But, that’s not how reality has played out.
As China has rapidly grown to become the world’s manufacturing leader, the demand for product quality has increased at a dramatic pace. And, with heightened quality comes the need for higher skills. Naturally, skilled workers demand higher pay. According to data from Trading Economics, between 2015 and 2019, average wages in China increased by nearly 32%.
You might assume based on above that if Thailand is behind the labor cost curve compared to China, they would also be behind the skill curve. But, this is not the case. Between 2015 and 2019, according to info published by Trading Economics, average wages in Thailand increased by just 6%. Furthermore, lean manufacturing strategies have been embraced to keep overall costs manageable and the cost of labor inputs in check.
3. Raised Costs of Environmental Compliance
In March 2020, China enacted three new, mandatory national standards on Volatile Organic Compounds (VOCs) in coatings, adhesives, inks, and cleaning agents that became effective December 1, 2020 and one that becomes effective April 1, 2021.
- GB 30981-2020, “Limit of harmful substances of industrial protective coatings”
- GB 33372-2020, “Limit of volatile organic compounds content in adhesives”
- GB 38508-2020, “Limits for volatile organic compounds content in cleaning”
- GB 38507-2020, “Limits of volatile organic compounds (VOCs) in printing inks”
These mandates have had a tremendous impact on manufacturers who are now required to take more bureaucratic steps to prove compliance, which can be costly.
It may surprise you to hear that Thai manufacturing processes are not different to those in China nor more hazardous to the environment. In fact, the environmental impact of creating products and parts that include VOCs in Thailand may have less negative impact on the local natural ecosystem — Thailand’s industrial waste management processes are quite similar to those in the US.
Final Thoughts
If you are making a decision whether to outsource manufacturing to China or Thailand, this information should help you choose a clear winner. When it comes to tariffs, labor costs and environmental impact, Thai industrial policies make it easier to build a strong foundation for your product development operations.
CJT Industry, Inc. is a Birmingham, MI located American company that is part of the CJT Industry Group, based in Hong Kong and Bangkok, with plants in both China and Thailand. We serve the automotive, major appliance, and consumer goods industries with electroplating, PVD nanotechnology, multi-material molding (MMM) and high-precision tooling.
Let us learn your project’s desired outcomes, constraints, and begin exploring a plan to overcome issues holding you back from a successful launch. Schedule a call today.
