Manufacturing technology in China is not at a monopoly and is not highly automated. In fact, if you look at what's being built in the Chinese tech hubs (e.g. Shenzhen), it tends to be more of an advanced assembly hub than raw component manufacturing because the that's where China wants to sit in the value chain for now.
Manufacturing of the components can be done pretty much anywhere, even incredibly high-tech components like CPUs (e.g. Intel has fabs in the US, Ireland, Israel and China, but also used to be in Malaysia, Vietnam, Costa Rica and so on). However, most component manufacturing is commodity stuff like capacitors or springs or whatnot. Very low profit and growth. It's not to say that China doesn't make a large number of those things, but those are even easier to manufacture pretty much anywhere and there's no real monopoly on those things in China and once they're automated it means that there's no specific reason they have to stay in China.
China manufacturers want to move up the value chain and thus are really doing final assembly of the components or sub-assembly work (with final assembly perhaps also being performed in China) of other people's designs. The next step up the value chain is of course to sell their own designs, and services around selling designs, and it's pretty clear that there's ample talent in China's domestic market to get there very soon.
Anyways, what makes money and grows is figuring out how to put the existing components together into novel products and then charge for profit for product demand. A capacitor might cost $.01, but in an iPhone that same capacitor might be "worth" $.03 as a fraction of the total sale price. It's better to be Apple selling 1,000,000 iPhones than to be the capacitor maker selling 1,000,000 capacitors because Apple gets to pocket the extra $.02.
The reason China has become such a major manufacturing center is because of two factors:
1) The raw components are readily available.
2) The labor is cheap.
As I've mentioned, #1 isn't really important for mass manufacturing. Over the decades similar major tech manufacturing centers have sprung up in quite a few places, for example Akihabara in Tokyo or Yongsan in Seoul. These places are now shadows of their former selves, but you can still go to Yongsan and buy 100,000 3" computer power supply fan motors for cheap if you really want to.
What made the whole thing work in China is #2 - cheap labor. And that exactly why it used to work in Japan and then Korea. But the economy got better in those places and the labor got less cheap. It's why Akihabara mostly just sells used stuff and video games and nobody really buys computers and radios at Yongsan anymore. The labor market is just simply got too expensive to keep employed manually soldering tiny components together.
Folks I know now say that things aren't so cheap in Shenzhen anymore. Facilities cost as much as any first-world country, and labor is getting to be Eastern European levels or higher. The availability of components is still unstoppable, but that only exists because the manufacturers exist and that only exists because the labor was cheap. Which means Shenzhen is becoming more and more of a good place to rapidly prototype and engineer designs for manufacturing...but is starting to feel less and less like the place you want to do the final factory work for a million copies of the thing you just designed.
Once the labor pool prices itself out, the ubiquitous availability of parts will eventually dry up and it will no longer be the manufacturing paradise it was and won't even be a great place to design stuff. So where does it move to? I don't really know, but you need a good combination of:
a) poor to not wealthy
b) reasonably well educated
c) ability to move materiel in and out
d) not a global pariah
e) a culture of hard work
f) not lots of other natural resource traps to focus the economy on
I think there will be a few years of fooling around with repatriating some manufacturing in the U.S., but the conditions here are bad for electronics manufacturing. So I think it'll eventually settle for a generation in maybe SE Asia or somewhere in Latin America. Wildcards might be Eastern Europe (maybe Poland, Slovakia, Czech, Hungary) or or a few places in Africa (Kenya, Ethiopia, South Africa, etc.).
Or even more intriguing, the countries that China has focused their Belt and Road program on -- after all China will need a future China to make cheap stuff for them!
There is specialized machinery, a whole set of very specific skills, and the supply chain is considerably more than 'resistors'.
Walking down the street in Shenzhen you see a vast array of all sorts of components, like a raspi/makers candy land. And they are all cheap.
There's a layer of specialization on top of much of the assembly that requires bonafide 'know how'.
We sent a factory a schema and 3D design, they basically had to redo everything for the purposes of manufacturing, and it was more than trivial. We had to work back and forth in a detailed way.
Also - there is the civil infrastructure, access to capital, export friendly terms - etc.
The electricity is stable in China, not so in India. etc.
So yes, it's mostly volume and labour, but it's much more.
I think your list of a-f applies to things like sewing shoes, but not to iPhones, for example.
> There is specialized machinery, a whole set of very specific skills
This is true, but it's only as sticky as how long it takes to place the equipment and to train people in the next place.
> I think your list of a-f applies to things like sewing shoes
It wasn't really all that long ago when China could only manufacture things like shoes and was considered to be basically a third world country. The only special conditions that China had that made it the next Akihabara was access to a cheap and reasonably well educated labor pool (and one could argue a government that had the political will to push for rapid economic development pushed forward by Deng Xiaoping style reform).
Every other thing that's happened, happened after that. Every nut, bolt, high temperature vacuum sealer...every special soldering skill and QA plant, every automated CAD driven metal milling machine. All of it came to a place that made cheap shoes.
> Walking down the street in Shenzhen you see a vast array of all sorts of components,
During the 80s you could walk around Akihabara in Tokyo or maybe even Ximending in Taipei and see the same thing. In the 90s it was Yongsan in Seoul.
There is no special geographic, resource or economic reason why it has to be in China. And we know this because it was previously in other places. Shenzhen is simply the latest stop for global manufacturing.
Foxconn, the symbol of Chinese manufacturing, after all, is Taiwanese.
It's not like the change happened over night, or even that it's entirely completed today. Japan still makes some of the highest-end precision optical components on the planet, video games and robotics. South Korea still dominates in memory and display technologies. Hell, the U.S. still designs some of the best consumer electronics anywhere.
Someday, people will speak in awe of the tech ecosystem in <insert city in some other country> and talk about the grand 'ol days in Shenzhen...which will be known mostly for drones and pinball machines or something. It may take a decade, but it will happen.
But that kind of change is very rare. China has done more economic growth in 30 years than any nation in history.
I don't see India or Vietnam moving that quickly in any direction.
Vietnam does not have the scale or institutions, India has all sorts of problems.
China declared Shenzhen to be a global city for this and they 'made it happen'. I'm not sure if there are going to be other candidates.
But in the end, it's diffusive and I agree with you, maybe some countries are able to carve out niches.
Maybe India beats China to chip fabs or something, due to their competitive position in adjacent things like software, and their relationship with American companies on that front, and the fact it may not take 'a national directive' to do it.
Manufacturing of the components can be done pretty much anywhere, even incredibly high-tech components like CPUs (e.g. Intel has fabs in the US, Ireland, Israel and China, but also used to be in Malaysia, Vietnam, Costa Rica and so on). However, most component manufacturing is commodity stuff like capacitors or springs or whatnot. Very low profit and growth. It's not to say that China doesn't make a large number of those things, but those are even easier to manufacture pretty much anywhere and there's no real monopoly on those things in China and once they're automated it means that there's no specific reason they have to stay in China.
China manufacturers want to move up the value chain and thus are really doing final assembly of the components or sub-assembly work (with final assembly perhaps also being performed in China) of other people's designs. The next step up the value chain is of course to sell their own designs, and services around selling designs, and it's pretty clear that there's ample talent in China's domestic market to get there very soon.
Anyways, what makes money and grows is figuring out how to put the existing components together into novel products and then charge for profit for product demand. A capacitor might cost $.01, but in an iPhone that same capacitor might be "worth" $.03 as a fraction of the total sale price. It's better to be Apple selling 1,000,000 iPhones than to be the capacitor maker selling 1,000,000 capacitors because Apple gets to pocket the extra $.02.
The reason China has become such a major manufacturing center is because of two factors:
1) The raw components are readily available.
2) The labor is cheap.
As I've mentioned, #1 isn't really important for mass manufacturing. Over the decades similar major tech manufacturing centers have sprung up in quite a few places, for example Akihabara in Tokyo or Yongsan in Seoul. These places are now shadows of their former selves, but you can still go to Yongsan and buy 100,000 3" computer power supply fan motors for cheap if you really want to.
What made the whole thing work in China is #2 - cheap labor. And that exactly why it used to work in Japan and then Korea. But the economy got better in those places and the labor got less cheap. It's why Akihabara mostly just sells used stuff and video games and nobody really buys computers and radios at Yongsan anymore. The labor market is just simply got too expensive to keep employed manually soldering tiny components together.
Folks I know now say that things aren't so cheap in Shenzhen anymore. Facilities cost as much as any first-world country, and labor is getting to be Eastern European levels or higher. The availability of components is still unstoppable, but that only exists because the manufacturers exist and that only exists because the labor was cheap. Which means Shenzhen is becoming more and more of a good place to rapidly prototype and engineer designs for manufacturing...but is starting to feel less and less like the place you want to do the final factory work for a million copies of the thing you just designed.
Once the labor pool prices itself out, the ubiquitous availability of parts will eventually dry up and it will no longer be the manufacturing paradise it was and won't even be a great place to design stuff. So where does it move to? I don't really know, but you need a good combination of:
a) poor to not wealthy
b) reasonably well educated
c) ability to move materiel in and out
d) not a global pariah
e) a culture of hard work
f) not lots of other natural resource traps to focus the economy on
I think there will be a few years of fooling around with repatriating some manufacturing in the U.S., but the conditions here are bad for electronics manufacturing. So I think it'll eventually settle for a generation in maybe SE Asia or somewhere in Latin America. Wildcards might be Eastern Europe (maybe Poland, Slovakia, Czech, Hungary) or or a few places in Africa (Kenya, Ethiopia, South Africa, etc.).
Or even more intriguing, the countries that China has focused their Belt and Road program on -- after all China will need a future China to make cheap stuff for them!