China Is Losing… and You Could Profit

I remember a sunny summer day in the 1970s. I’d just acquired some or other gizmo and showed it off to my friends at school. They turned up their noses because it was “Made in Japan.”

When I was older, the dreaded source of origin was “Made in South Korea/Taiwan/Hong Kong/Singapore.” For the last two decades or so, the joke has been about low-priced tchotchkes “Made in China”…

China’s domination of consumer manufacturing, however, isn’t long for this world … and if you act now, you could profit big time from the next regional economic shift. Here’s why.

The product life cycle model of manufacturing has four stages:

	Characteristics	Implication for Manufacturing
Introduction	Innovation and design happen in high-cost countries; production is initially local.	High wages are tolerated because margins are high, and production is low volume.
Growth	Demand expands rapidly; production scales up; cost pressures rise.	Firms begin seeking cheaper labor and inputs.
Maturity	Technology becomes standardized; competition increases.	Production shifts to lower-cost countries; original innovators focus on branding & design.
Decline	Margins erode; demand shrinks or moves to substitute products.	Mass production moves to even cheaper locations; original producers deindustrialize.

You’ve seen this in practice. The US invented televisions in the 1940s. Many of us grew up with RCAs, Zeniths, and Philcos in the living room. Today no major television brands are manufactured in the US. The same is true of most consumer electronics, athletic footwear, desktop computers, power tools, and a bunch of other products.

But the same thing happened in Japan, which initially stole the US’ manufacturing thunder. Major Japanese consumer electronics firms like Sony no longer make products at home. They relocated manufacturing to South Korea, then other countries, then China.

Today, Japanese firms are poised for yet another move. At every shift, the process is identical.

First, low wages and basic skills attract labor-intensive manufacturing. Then skills improve, capital investment rises, and technology arrives from abroad. Rising incomes lift living standards but erode the country’s low-cost advantage. Manufacturing then shifts to cheaper countries. The country must then move up the value chain—R&D, branding, services—or risk economic stagnation.

We’re seeing this play out in China right now, although geopolitical tensions have upped the ante.

The question is, what’s next? Which countries are poised to become the workshops of the world?

My money is on Southeast Asia.

Consider Thailand. The country has long had a foothold in some manufacturing industries, such as hard disk drives. But those eventually became obsolete as solid state drives became the standard. The same thing happened to cathode ray tubes, VCRs, and printed circuit boards.

Thailand never mastered the technology for those products, so those industries evaporated as new technologies emerged. Domestic firms could make these things, but they couldn’t design them. Moreover, manufacturing was confined to Bangkok, and supply chains stretched to other countries, not to other parts of Thailand itself.

But the country’s government has decided to take another approach. A few years back, it launched what’s known as the Eastern Economic Corridor (EEC) initiative. This has many moving parts, but essentially, it’s an infrastructure-driven investment program designed to boost multiple industries, including both manufacturing and services.

The starting point is the construction of a high-speed rail line and multi-lane highways from Bangkok to the eastern coastal city of Rayong. The government chose that area because land is cheap, there’s a deepwater port nearby at Map Ta Phut, and low-cost labor is abundant. And since it’s close to Bangkok, it’s an attractive place for foreign industrialists to set up shop.

There will be some manufacturing facilities as part of the project, but also some interesting additions. Currently, the major regional aircraft maintenance, repair, and overhaul (MRO) hubs in East Asia are in Singapore and Indonesia. But as those countries’ wages increase thanks to industrialization, Thailand spotted an opportunity to undercut its neighbors. That’s why the EEC includes a new MRO facility as well as a cargo airport.

Similarly, the EEC won’t jump straight into manufacturing. Instead, it’s focusing on attracting research and design, which will eventually provide Thai manufacturing industries with the local wherewithal to survive product life cycles. Instead of seeing product after product rise and fall, the country will be able to adapt quickly to new technologies, keeping its foot in the global manufacturing game and allowing wages to rise as skills develop.

Naturally, you may be wondering how you can get a piece of this action.

For the August issue of Jeff’s Global Intelligence Letter, I spoke to Bart Walters, International Living’s Thailand correspondent. In between sharing stories of adventures in Southeast Asia—I’ve had a few myself—we talked about how the EEC is poised to spike a dramatic increase in real estate property values in and around Rayong.

For example, today it’s possible to buy beachfront condos in Rayong for under $150,000. But once CEOs and other corner suite execs start moving into town to run the companies building facilities as part of the EEC, those prices will double, then triple. The same will be true up and down the property ladder from the most expensive oceanside villas to the residential neighborhoods.

So, if investing in foreign real estate is part of your wealth management plans—as it should be—you might want to take a side trip to Rayong next time you’re in Southeast Asia.

Just make sure to bring your checkbook.