Why Companies Build Factories in China and East Asia

Updated 20 October 2026

Quick answer: Companies from developed countries build factories in China and East Asia because the region offers a rare combination of advantages: large, skilled and productive workforces, dense networks of suppliers, world-class ports and infrastructure, speed and scale in production, supportive government policies and access to huge and growing consumer markets. Lower labour costs were the original attraction, but today supply-chain depth and manufacturing know-how matter more. Rising wages, trade tensions, geopolitical risks and lessons from pandemic disruptions are now pushing many companies toward "China plus one" strategies, expanding into Vietnam, India, Thailand, Malaysia, Indonesia and Mexico while keeping significant operations in China.

Look at the labels on electronics, clothing, toys, furniture or household appliances, and you'll often find "Made in China", "Made in Vietnam" or another East or Southeast Asian country. Over the past four decades, Asia, and China in particular, became the world's factory. Companies headquartered in the United States, Europe, Japan and South Korea built or contracted vast production networks across the region.

This article explains why this happened, what advantages the region offers, the risks companies face, how supply chains are shifting, and what it means for countries such as India.

How Asia Became the World's Factory

After World War II, Japan rebuilt its economy through manufacturing and exports, followed by the "Asian Tigers": South Korea, Taiwan, Hong Kong and Singapore. These economies moved from simple products like textiles and toys to electronics, ships, cars and semiconductors.

China's transformation began with Deng Xiaoping's reforms from 1978, which opened the country to foreign investment. Special Economic Zones, starting with Shenzhen in 1980, offered tax incentives and infrastructure to foreign manufacturers. China's accession to the World Trade Organization in 2001 accelerated the shift, giving it more secure access to global markets. Today, China accounts for roughly 30% of global manufacturing value added, more than any other country.

Southeast Asian nations, including Thailand, Malaysia, Vietnam and Indonesia, also developed export-oriented manufacturing, often as part of supply chains linked to Japanese, Korean, Taiwanese, American and European firms.

Offshoring, Outsourcing and Contract Manufacturing

When people say developed countries "open factories" in Asia, they may mean different arrangements:

Offshoring with owned factories: a company builds and runs its own plant abroad. Many carmakers and chemical companies do this.
Contract manufacturing: a company designs a product but pays a specialist manufacturer to make it. Much consumer electronics production works this way; for example, Taiwanese contract manufacturers such as Foxconn (Hon Hai) and Pegatron assemble devices for global brands.
Joint ventures: a foreign company partners with a local firm, a model that was often required for foreign carmakers entering China.
Sourcing from independent suppliers: retailers and brands buy finished goods from many independent factories, common in clothing, toys and furniture.

Understanding these models helps explain why a product labelled with a Western brand may be designed in one country, built from components made in several others and assembled in yet another.

The "Smile Curve": Where the Value Lies

Stan Shih, founder of the Taiwanese computer company Acer, described the "smile curve" of value in manufacturing industries. If you plot the stages of production from left to right, research and development, design and branding sit on the high left end of the curve; assembly and basic manufacturing sit at the low middle; and marketing, distribution and after-sales services rise again on the right.

Many companies in developed countries chose to focus on the high-value ends, such as design, software, brand and services, while moving lower-margin assembly to Asia. Over time, though, Asian economies have climbed up the curve. Taiwan, South Korea and China now lead in high-value areas such as advanced chips, batteries and electric vehicles, which is one reason why manufacturing has become a strategic concern for Western governments.

Why Companies Manufacture in China and East Asia

1. Labour Costs and Productivity

Historically, low wages were the main attraction. Wages in China have risen substantially since the 2000s, so it's no longer among the cheapest places to manufacture. However, Chinese workers are often highly productive thanks to experience, training, automation and efficient factories. Countries such as Vietnam, Cambodia and Bangladesh still offer lower labour costs for labour-intensive products like garments and footwear.

2. A Large, Skilled Workforce

China and other Asian manufacturing hubs have large pools of workers, technicians and engineers. Apple's chief executive Tim Cook has said that the company works in China not simply because of low costs but because of the depth of skills there, remarking that the number of tooling engineers available could fill several football fields, compared with far fewer in the United States.

3. Supply-Chain Clusters

One of China's biggest advantages is its dense network of suppliers. In regions such as the Pearl River Delta and the Yangtze River Delta, a manufacturer can source thousands of components, materials, packaging and services within a short distance. This clustering reduces costs, speeds up production and makes it easy to change designs quickly.

4. Speed and Scale

Asian manufacturers are known for scaling production rapidly. Factories can ramp up to millions of units in weeks, which is crucial for products like smartphones with short life cycles and huge launch volumes.

5. Infrastructure

Massive investment in ports, highways, railways, power and industrial parks has made logistics efficient. Shanghai is the world's busiest container port, and China, South Korea, Singapore and Malaysia all have major global ports.

6. Government Support

Governments offer tax incentives, subsidised land, special economic zones, streamlined approvals and export support. Industrial policy has helped build entire sectors, from electronics to electric vehicles and solar panels.

7. Access to Large Markets

China has more than 1.4 billion people and a large middle class. Manufacturing locally helps companies sell within China and across Asia, which is home to a majority of the world's population and some of its fastest-growing consumer markets.

8. Trade Agreements

Regional trade agreements reduce tariffs and simplify trade. The Regional Comprehensive Economic Partnership (RCEP), which took effect in 2022, covers 15 Asia-Pacific economies, including China, Japan, South Korea, Australia, New Zealand and the ten ASEAN members. India withdrew from RCEP negotiations in 2019.

9. Specialised Expertise

Some locations have developed world-leading capabilities: Taiwan in advanced semiconductors, South Korea in memory chips, displays and shipbuilding, Japan in precision machinery and materials, Thailand in automobiles, Malaysia in semiconductor assembly and testing, and China in batteries, solar panels, electronics assembly and electric vehicles.

10. Improving Intellectual Property Protection

Intellectual property concerns have long been a worry for foreign companies, particularly in China. Over time, China has established specialised IP courts and strengthened some enforcement, though many foreign firms still regard IP risk and forced technology transfer as significant concerns.

Key Manufacturing Destinations in Asia

Country	Key strengths
China	Scale, supply-chain depth, infrastructure, electronics, machinery, EVs, batteries, solar
Vietnam	Electronics assembly, textiles, footwear, furniture; competitive labour costs
Taiwan	Advanced semiconductors and electronics
South Korea	Semiconductors, displays, cars, shipbuilding
Japan	Precision machinery, automotive, materials, components
Thailand	Automobiles and parts, electronics, food processing
Malaysia	Semiconductor assembly and testing, electronics
Indonesia	Nickel processing for batteries, textiles, consumer goods
India	Pharmaceuticals, automobiles, electronics assembly, engineering goods

How Companies Choose a Manufacturing Location

Companies rarely choose a factory location based on wages alone. They consider the total landed cost and a range of strategic factors:

Labour cost and productivity
Availability of suppliers, components and raw materials
Quality of infrastructure, power and logistics
Shipping time and cost to key markets
Tariffs and trade agreements
Taxes, incentives and subsidies
Political stability and policy predictability
Legal protections, including intellectual property
Ease of doing business, land acquisition and approvals
Skills, language and management talent
Environmental and labour standards
Exposure to natural disasters and geopolitical risk

A location with low wages can still be expensive if components must be imported, roads and ports are congested, or approvals take months.

An Illustrative Example: The Journey of a Smartphone

Consider how a typical smartphone from a global brand might be made. This is a simplified, illustrative picture rather than any specific company's supply chain.

The phone is designed and its software developed in the United States, South Korea or Europe.
Its most advanced processor chip is manufactured in Taiwan or South Korea using machinery from the Netherlands, Japan and the United States.
Memory chips come from South Korea, the display from South Korea or China, the camera modules from Japan or China, and the battery from China.
Hundreds of smaller components, screws, cables and casings come from suppliers across China and Southeast Asia.
Final assembly takes place in China, Vietnam or India, often in a contract manufacturer's factory.
The finished phone is shipped worldwide and sold through retailers and online stores.

No single country makes the whole phone. This web of specialised suppliers is why moving manufacturing is complex: shifting final assembly is relatively easy compared with relocating an entire ecosystem of component makers.

Workers and Factory Conditions

Manufacturing growth lifted hundreds of millions of people in Asia out of poverty, as workers moved from farms to factory jobs with higher wages. China's rise in particular is associated with one of the largest reductions in extreme poverty in history. At the same time, factory work has often involved long hours, strict discipline, dormitory living and, in some cases, unsafe conditions. Tragedies such as the 2013 Rana Plaza building collapse in Bangladesh, which killed more than 1,100 garment workers, led to stronger safety agreements and greater scrutiny of global brands' supply chains. Today, many companies audit suppliers and face legal requirements in some markets to address forced labour and human rights risks.

Automation and the Future of Factories

Automation is changing the economics of manufacturing. China installs more industrial robots each year than any other country, according to the International Federation of Robotics, which helps offset rising wages. In developed countries, automation makes it more feasible to bring some production back home ("reshoring"), especially for high-value or strategic goods. However, automated factories still need suppliers, engineers and technicians, so supply-chain clusters remain important.

Environmental Considerations

Moving manufacturing to Asia also moved a large share of industrial emissions and pollution. Some of the carbon emissions counted in Asian countries are linked to goods consumed in developed countries, which complicates debates about climate responsibility. Asian manufacturing hubs have faced serious air and water pollution, though China in particular has invested heavily in pollution controls and has become the world's largest producer of solar panels, wind turbines and electric vehicle batteries. Companies increasingly consider renewable energy availability and emissions rules, including measures like the EU's Carbon Border Adjustment Mechanism, when choosing where to produce.

The Risks of Manufacturing in China and East Asia

Geopolitical tensions: trade disputes and strategic rivalry between the United States and China have led to tariffs, export controls and investment restrictions. The US imposed tariffs on many Chinese goods from 2018, and further rounds of tariffs and countermeasures followed in later years.
Supply-chain concentration: relying on a single country makes companies vulnerable to disruptions.
Pandemic disruptions: COVID-19 lockdowns shut factories and ports, causing global shortages.
Rising costs: wages, land prices and environmental compliance costs have increased in China's coastal regions.
Intellectual property risks: concerns over IP theft and technology transfer persist.
Regulatory uncertainty: sudden policy changes can affect operations.
Reputational concerns: labour conditions and human rights issues in some supply chains have drawn scrutiny from consumers, investors and regulators.
Long shipping routes: distance from Western markets increases transport time and exposure to shipping disruptions.

Lessons From the Pandemic and the Chip Shortage

The COVID-19 pandemic exposed the fragility of long, concentrated supply chains. When factories and ports in China closed during lockdowns in 2020 and again in some cities in 2022, companies worldwide struggled to obtain parts and finished goods. Shipping costs soared as container capacity ran short, and delivery times stretched for months.

A global semiconductor shortage in 2021 and 2022 showed how dependence on a few suppliers could disrupt entire industries. Carmakers, which use many chips, had to cut production, leaving dealers with empty lots and pushing up prices. Because advanced chip manufacturing is concentrated in Taiwan and South Korea, governments in the United States, Europe, Japan and India launched programmes to build more chip capacity at home.

These experiences shifted corporate thinking from pure "just-in-time" efficiency, keeping inventories minimal, toward "just-in-case" resilience: holding more stock of critical parts, qualifying multiple suppliers, mapping supply chains in more detail and spreading production across countries.

The "China Plus One" Strategy

Rather than leaving China entirely, many companies adopt a "China plus one" approach: keeping operations in China while adding production in at least one other country to diversify risk. Popular destinations include Vietnam, India, Thailand, Malaysia, Indonesia and Mexico.

Electronics: Samsung produces a large share of its smartphones in Vietnam, and Apple's suppliers have expanded iPhone production in India.
Apparel and footwear: brands have increased sourcing from Vietnam, Bangladesh, Cambodia and Indonesia.
Nearshoring: some companies selling in North America have moved production to Mexico to be closer to customers.
Friend-shoring: governments encourage supply chains among allied countries for strategic goods such as semiconductors and critical minerals.

However, China's supply-chain depth means that many "plus one" factories still depend on Chinese components and materials.

What This Means for India

India sees supply-chain diversification as a major opportunity. Its strengths include a large and young workforce, a growing domestic market, engineering talent, improving infrastructure and political stability.

The Make in India initiative, launched in 2014, aims to boost manufacturing's share of the economy.
The Production Linked Incentive (PLI) schemes, introduced from 2020, offer incentives tied to production in sectors such as mobile phones, electronics, pharmaceuticals, automobiles, textiles and solar modules.
Electronics manufacturing, particularly smartphones, has grown rapidly, with India becoming a major exporter of mobile phones.
Semiconductor fabrication and assembly projects have been approved with government support.

Challenges remain, including land acquisition, logistics costs, regulatory complexity, skills gaps, power reliability in some areas and dependence on imported components. Building deep supplier ecosystems, as China did, takes time.

What India Needs to Compete

To attract more manufacturing, India is working to address several gaps. Experts commonly highlight:

Logistics: faster, cheaper movement of goods through dedicated freight corridors, better ports and simpler customs processes.
Supplier ecosystems: encouraging component makers to set up alongside assembly plants, so factories don't depend heavily on imports.
Skills: training technicians, engineers and supervisors for modern factories.
Ease of doing business: faster approvals, predictable regulation and efficient dispute resolution.
Land and power: ready-to-use industrial parks with reliable electricity and water.
Trade policy: balancing protection for domestic industry with access to the imported inputs and export markets manufacturers need.

Advantages and Disadvantages for Developed Countries

Advantages	Disadvantages
Lower production costs and consumer prices	Loss of manufacturing jobs in home countries
Access to fast-growing Asian markets	Dependence on foreign supply chains
Focus on design, research, marketing and services at home	Strategic risks in critical goods like semiconductors and medicines
Higher corporate profits	Loss of manufacturing know-how over time

These trade-offs have prompted many developed countries to introduce policies encouraging domestic manufacturing in strategic sectors, such as the US CHIPS and Science Act of 2022 and the European Chips Act.

What It Means for Consumers

For consumers in developed countries, Asian manufacturing has meant lower prices and a far wider choice of goods, from affordable smartphones to clothing and appliances. Diversifying supply chains, adding tariffs and reshoring some production may make supply more reliable and support domestic jobs, but it can also raise costs, at least in the short term. For consumers in Asia, manufacturing growth has brought jobs, rising incomes and access to goods once considered luxuries. How these trade-offs are balanced will shape prices, jobs and economic power in the coming decades.

Frequently Asked Questions

Why do companies manufacture in China?

Because of China's skilled workforce, supply-chain clusters, infrastructure, speed, scale, government support and large domestic market.

Is China still cheap for manufacturing?

Not as cheap as it once was. Wages have risen significantly, but China remains competitive because of productivity, infrastructure and supply-chain depth.

What is China plus one?

A strategy where companies keep operations in China but add production in another country to reduce risk.

Which countries benefit from companies leaving China?

Vietnam, India, Thailand, Malaysia, Indonesia and Mexico have attracted significant new investment.

Can India replace China as a manufacturing hub?

India is growing rapidly as a manufacturing destination, especially in electronics and pharmaceuticals, but matching China's scale and supply-chain depth will take many years.

What is reshoring?

Reshoring means bringing manufacturing back to a company's home country. It's often supported by automation, government incentives and concerns about supply-chain security.

Why is Vietnam attracting factories?

Vietnam offers competitive labour costs, political stability, trade agreements with major markets, proximity to Chinese suppliers and growing experience in electronics and apparel manufacturing.

Why is Taiwan so important for semiconductors?

Taiwan is home to TSMC, the world's largest contract chipmaker, which manufactures most of the world's most advanced chips for companies such as Apple and Nvidia. This concentration makes Taiwan central to the global technology supply chain.

Are companies leaving China completely?

Very few are leaving entirely. Most are diversifying by adding capacity elsewhere while keeping Chinese operations, especially to serve the Chinese market and to use its supplier networks.

Do tariffs bring manufacturing back to developed countries?

Tariffs can encourage some production to move, but often it shifts to other lower-cost countries rather than back home. Reshoring usually also depends on automation, skilled labour and incentives.

What is friend-shoring?

Friend-shoring means locating supply chains in countries that are political allies or trusted partners, to reduce the risk that geopolitical conflicts disrupt access to critical goods such as semiconductors, medicines and minerals.

Final Thoughts

Developed countries' companies built factories in China and East Asia because the region offered an unmatched combination of skilled labour, supply-chain clusters, infrastructure, speed, scale and market access. Those advantages remain powerful, but rising costs, geopolitical tensions and pandemic lessons are reshaping global supply chains. The future is likely to involve more diversified networks spread across several countries, creating opportunities for emerging manufacturing hubs, including India, that can offer reliability, skills and efficiency.

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Cite this page: Blog Digest, “Why Companies Build Factories in China and East Asia”, updated 2026-10-24, https://randomthoughtsever.blogspot.com/2023/06/why-developed-countries-want-to-open.html