In a world that is becoming increasingly split along geopolitical lines, multinational corporations are increasingly searching for alternatives to China and its allies for their manufacturing locations. Elisabeth Braw explains in Foreign Policy:
When Apple, once enthusiastic about manufacturing in China, announced in December that it was planning to move some of its production to Vietnam and India, it was clear that something had shifted in the way globalization worked. Now a new report documents what many have already surmised: Countries are aligning into two blocs—one led by the West, and one led, so far, by China. This development has enormous implications for businesses, which, since the end of the Cold War, have been able to operate globally with little concern for grand geopolitics. Now companies have to get used to a world where corporate neutrality is no longer a winning strategy—or even possible.
At one point, 85 percent of Apple’s Pro-series iPhones and many other Apple products are made by some 300,000 workers at the massive iPhone City plant in Zhengzhou. But the mobile-telephone giant appears to have come to the same conclusion as companies including its rival Samsung, which has moved some of its production to Vietnam. Globally operating companies, in fact, became uneasy about their dependence on China for manufacturing and sales some time ago. The global insurance broker WTW’s 2022 political-risk report, released in March last year, found that the ratio of executives saying they’re concerned about political risk in the Asia-Pacific region (in reality, China) to those saying they are unconcerned is now nearly 20-to-1, up from 2-to-1 less than two years ago. (I have occasionally consulted for WTW since November 2022, but I was not involved in the report.)
That’s a far higher leap than in any other region. And in a survey published last summer by the European Union Chamber of Commerce in China, 23 percent of companies said they were planning to move operations out of the country. “The only thing predictable about China today is its unpredictability, and that is poisonous for the business environment,” Bettina Schoen-Behanzin, a vice president of the chamber, said when the survey was released.
Companies are responding to the increasing risk by friendshoring, a process of redirecting parts of their manufacturing, supply chains, and sales to friendlier countries. Apple is far from the first company to consider Vietnam and India. So far, most of these firms aren’t divesting from China entirely—instead they’ve become conscious of the dangers of putting all their eggs in one basket. China’s tumultuous domestic politics and policy changes over the last three years have caused a big rethink about the country’s stability.
But the reputational and political costs of doing business in a state that now increasingly frames the West as the enemy are getting harsher. The risk doesn’t end with Chinese business because the world is dividing into two increasingly clear geopolitical blocs. In a report, to be released later this month, WTW and the research firm Oxford Analytica assessed 61 countries and territories typically included in political-risk reports: countries outside the political safety of the wider West (which includes countries such as Japan and South Korea) but whose markets are significant enough for international companies to want to operate in.
The report found that 25 of the countries lean West, while 18 lean East, opposing the Western powers on many key issues. The countries range from wealthy ones such as Saudi Arabia and the United Arab Emirates (UAE); to populous ones such as India, Pakistan, and Nigeria; to smaller and less wealthy ones such as Myanmar and Cambodia that are popular with international manufacturers. While both blocs are very loose, especially the Eastern bloc, given China’s lack of formal alliances, the Western bloc is led by the United States and the EU, and the Eastern bloc is led by China. Much as was the case during the Cold War, there’s also a nonaligned group. Of the 61 countries assessed by WTW and Oxford Analytica, 18 have attempted to be neutral.
“Geopolitical alignment doesn’t necessarily dictate trading relationships,” said Sam Wilkin, head of political risk analytics at WTW. “There are many countries that have strong trading relationships with the East but strong geopolitical ties with the West. But geopolitical alignment is increasingly driving investment risk.” That poses a fundamental risk for companies, which since 1991 have been able to set themselves virtually anywhere in the world without having to worry about greater geopolitics, just local conflicts and instability. Countries joining the globalized economy, in turn, were able to do so without choosing one side or another. Vietnam, for example, trades with the United States, China, and Japan.
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