More and more lead-acid battery manufacturers are moving out of China, in part as a consequence of the Chinese Government measures to consolidate and curb the industry, but not only.
China suffers overcapacity – too many manufacturers, with too much capacity – and this drives down prices and depresses margin. As a result all manufacturers are struggling to turn a profit.
South-East Asia, on the other hand, is a big market (although nowhere near as big as the Chinese domestic market) with, until recently, no “domestic” manufacturers of lead-acid batteries for industrial applications.
China was and still is the world’s biggest manufacturer by far; in recent years however, production capacity overseas has been ramping up, and Vietnam appears to be the destination of choice.
What are the criteria driving the choice of a manufacturing location, and equally importantly, will they stand the test of time – namely, given that uprooting the equipment of a heavy-duty manufacturing facility is not something you want to be doing every few years, is it a choice that will still prove itself correct in 10 or 15 years? Why not, for instance, Thailand of Malaysia or Indonesia or Philippines instead of Vietnam?
There are several factors to consider:
Labour cost: simply put, China is not cheap anymore, and getting more expensive year after year. Several Asian countries are considerably cheaper, and offer more flexibility.
Infrastructure: roads, highways, ports to bring raw lead in and to ship finished batteries out, plus access to reliable and abundant water and electricity supply, both indispensable for lead-acid battery manufacturing (as opposed to for example sport shoes)
Geographic location: closest as possible to end-market
Domestic market size: it makes economic sense to locate a plant in a country with relevant domestic demand rather than having to rely 100% on export market
“ease of doing business” factor, as in level of corruption or transparency in Government regulations
Increasingly, Government attitude towards “environment-sensitive”, i.e. industries which require close oversight due to their potential for pollution
Vietnam does not come out on top in any of these criteria, but has consistently good ranking all across the board.
Its labour cost is definitely cheaper than China, but hardly the cheapest in SE Asia. Philippines or Indonesia or Myanmar are much lower.
Its infrastructure is improving quickly, and its location is central to South-East Asia. Thailand and Malaysia have better infrastructure and similar position, but much higher labour costs and in the case of Malaysia, small domestic market.
In terms of domestic market, Vietnam with 90+ million people is the third biggest market in ASEAN after Indonesia and Philippines, which however both fare badly on infrastructure and ease of doing business indicators.
For most of these countries, and Vietnam is no exception, environmental protection issues only become a factor when the Government is forced/can afford to face them. Except possibly Thailand and Malaysia, all other countries are at a similar level.
So all in all, it appears that in this moment in time, Vietnam is indeed the place to set up a lead-acid battery factory in South East Asia.
Will this still be the case 5 or 10 years from now? Let’s not forget that the outlook in China changed pretty much overnight. Not so long ago manufacturers were vying to build up capacity which now they’re struggling to fill.
Will Myanmar become the destination of choice? It appears hardly likely, at the moment.
Incomplete infrastructure notwithstanding, Myanmar suffers, and will continue to suffer for some years to come, from a severe deficit of electric power, indispensable for the manufacture of batteries. Until this issue is solved, industrial production will not take off in Myanmar.
There is one more country, which is not part of ASEAN but is still in South-East Asia, which has a very big domestic market, huge and cheap workforce, and whose Government is hinting at wanting to attract foreign investments in the industrial sector; that country is Bangladesh, and it might become a player in the near future as several companies are considering it as a manufacturing base.
And finally there is India. Indian manufacturers have seldom ventured overseas to sell their batteries in the past, for a number of reasons. That might be about to change soon, but the relevant discussion is beyond the scope of this post.
So at least for the immediate future, Vietnam’s position appears solid.
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