In July 2013, while I was chairman of Stratfor, I oversaw a project called the Post China 16 (PC16). It identified the 16 countries that were likely to succeed China as the high-growth, low-wage countries. Three years later, it is time to review and adjust that list.

The decline of China as an economic power has been precipitous. So, the question of who will succeed China has become more urgent. Geopolitical Futures has focused on this question and narrowed the list of potential successors to 13, with some important shifts among the remaining countries.

The international system has usually had low-wage, high-growth countries producing basic and inexpensive manufactured goods. More advanced countries took advantage of their production, while successful developing countries used exports to vault into the first tier of economies.

Before China, there was Japan. Before Japan were South Korea and Germany. All had been shattered by World War II. In the 1870s, the United States was in this role. You might think of the countries we have identified as preposterous. We ask you to consider the condition – before their rise to global prominence – of China and these other countries, including the United States, which was fresh from the Civil War. All were preposterous in their time.

This is a difficult time for new economic powers to emerge. China emerged in the 1980s and 1990s, a period where the global economy was robust and demand for cheap manufactured goods was surging. The 2010s are a very different world. That does not mean that the rotation isn’t there. It does mean that the rotation is quite slow.

This is not a forecast. This project looks at what is, not what we expect to be. The study is based on a simple method. First, identify how prior countries emerged. Then, identify the products – or equivalents – that could be useful tools for introducing disciplined industrialization to a society. Last, search for the places where this process is already underway. Having seen what is in place, we can designate a country as a potential successor.

This is a longer Deep Dive than we normally take, but we regard the issue as so fundamental to the international system that detailed analysis is justified. We do not expect this list to be definitive in all respects, but are confident it will be in most respects.

We welcome your comments and questions.

George Friedman
Geopolitical Futures


China can no longer sustain its role as the world’s leading producer of low-cost, basic manufactured goods given higher wages and lower global demand in recent years. It was a matter of time before China would outgrow this role. Production of labor-intensive, basic manufactured goods has historically rotated through developing economies.

The purpose of this report is to identify where this production has been migrating as it leaves China and, therefore, which developing economies will attract more investment in the future.

Countries emerging as successors to China were identified based on three criteria. The country must be producing and exporting basic manufactured goods – textiles, footwear, basic electronics, etc. Production of these goods has, in the past, led to more complex industrialization. The country must also have a pool of cheap labor to carry out these manufacturing activities. Lastly, the country must have enjoyed high GDP growth rates in this decade.

Our key findings are:

  • No one country can replace China’s labor force and manufactured output. However, these production levels can be achieved by a combination of countries. They are: Bangladesh, Cambodia, Ethiopia, India, Indonesia, Kenya, Mexico, Mozambique, Myanmar, Nicaragua, Paraguay, Peru and Vietnam.
  • Three states with diverse internal economies – India, Indonesia and Mexico – appear on the list. While there are developed areas within these large countries, there are also specific regions that meet the conditions to support low-wage, basic manufacturing.
  • The emerging, underdeveloped nature of these countries is what makes them attractive locations for producing basic manufactured goods. Therefore, infrastructure, security and political scenes will appear questionable and inadequate compared to developed economies. But these conditions do not necessarily preclude industrialization or development.
  • The current exporter crisis means that moving production from China to these other countries will be a slow process. The countries on our list will assume their roles as successor producers gradually, rather than emulate the boom seen in China.

Identifying China’s Successors
Multiple Economies Countries
South and Southeast Asia
East Africa
Central and South America

Identifying China’s Successors

Financial markets and media outlets have become obsessed in recent months with the deceleration of the Chinese economy. With every release of new trade, production and other economic data, there is renewed commentary on how the Chinese economy keeps going from bad to worse. It’s no secret that China’s economic boom has passed. Rather than focus on what has been, this Deep Dive focuses on the new centers of low-wage manufacturing activity, which once drove the Chinese economy.

Until recently, China served as the primary motor for the world’s production of basic consumer goods. At its peak in early 2015, the country produced nearly half the world’s shoes, clothes, electronic devices, furniture, utensils and other similar products. High growth rates and abundant exports had been commonplace in the country for the last 30 years when its economic boom began. However, years of high growth do not mean unending growth.

The 2008 financial crisis marked the beginning of the end for the Chinese export-dependent economy. Consumption began to fall in developed countries, which were major markets for Chinese goods. The government was able delay the impact of declining exports by pumping money into the economy, but this could not go on forever.

An even more critical factor that slowed global consumption is China’s transition out of its most recent phase of economic development. China’s days as a low-wage, high-growth economy that produces basic manufactured goods are coming to an end, as its economy starts to produce more high-value goods and services.

This was possible due to the capital generated from low-priced exports. These exports boosted growth, which in turn brought more wealth and investment into the country. More money entering the country meant that standards of living, including wages, increased. Lower global demand coupled with higher wages have negatively impacted profit margins, leading companies to look for cheaper workforces.

When considering the impact of China’s decline, keep in mind two critical issues. First, even though China is transitioning out of its basic manufacturing phase, the world still needs cheap, basic consumer goods. The world’s most advanced economies are focused on producing high-cost products and services efficiently made by an expertise-oriented workforce. These economies have a competitive advantage in this market. But they also have a demand for cheap consumer goods that cannot be fulfilled by domestic production.

Second, the economic transformation underway in China is by no means exceptional. Rather, it marks the end of an economic development cycle. Manufacturers of cheap consumer goods occupy a niche in the global economy and different countries have rotated through this spot since the Industrial Revolution. Examples include the United States at the end of the 19th century and Japan in the 1980s.

Economies that fill this niche start with a large, cheap, unsophisticated labor force that develops over time. Eventually, these countries transform into more complex and advanced economies.

The combination of these two conditions begs the question: Who will produce cheap consumer goods in lieu of China? Who are China’s successors? The short answer is the 13 countries highlighted on the map below.


In order to understand how we reached this conclusion, we must first understand the necessary conditions for producing basic manufactured consumer goods and this industry’s role in economic development. This industry tends to be labor intensive. This means that labor accounts for a large portion of the total cost of the finished product compared to other costs such as input materials, currency values and equipment.

Labor is considered a variable cost and directly impacts profit margins. When the final product is intended to be a cheap consumer good – like a t-shirt, shoe or a cellphone casing – keeping labor costs low is key to making a profit. The higher the labor cost, the lower the profit margins and less competitive the product becomes.

When wages and standards of living rise like they did in China, this type of manufacturing activity is relocated to places where labor can be acquired at lower costs. When China entered the nascent phase of its manufacturing boom in 1980, GDP per capita was a mere $193 (at 2014 rates), according to the World Bank. Over the next three decades, it averaged 10 percent annual growth and the country as a whole became richer. By 2010, GDP per capita reached $4,514 (also at 2014 rates), increasing 23-fold in the span of one generation.

As wealth grew, so did wages. According to the Center for American Progress, from 2001 to 2011, the real monthly wages in purchasing power parity for apparel factory workers increased by 124 percent, from $144.86 a month in to $324.90 (at 2001 rates). As a result, China was no longer the cheapest source of labor for manufacturing. Production of basic consumer goods can easily be relocated to other countries, allowing companies to take advantage of lower-wage workforces as market conditions change and countries evolve.


While the geography of manufacturing shifts over time, other features of the industry remain unchanged. Three low-skill manufacturing sectors are consistent features of the contemporary global economy: textiles, footwear and cellphone assembly. In Japan and China, the basic consumer goods that sparked the manufacturing and economic booms were textiles, footwear and personal electronic devices (like cellphones). Where the production of these goods went, economic growth followed.

For this reason, the first step in compiling our study involved identifying where textile, footwear and electronics production is going. Our conclusions are based on market reports, news reports and anecdotal evidence. It can take years before the nascent stages of this development begin to register on a statistical level, so if we only use statistical data, some countries experiencing growth in these sectors may not show up on our radar. This process started in 1978 to 1980 in China, but the boom was not acknowledged until at least a decade later.

The countries that appear on this list may surprise some given their lack of development and wealth. But no one imagined in 1978 that China would develop into the global leader of basic manufactured goods and then transition into more advanced economic activities. The countries with the most potential for future growth and development will be those with large, relatively unskilled and low-paid workforces.

Many of these countries on our list may also be unexpected areas of growth because they are known for political instability and high crime, as well as susceptibility to corruption in the public and private sectors. But these conditions are common in countries with large informal economies and labor markets. Basic manufacturing industries often initially develop in this informal sector, which is therefore a key part of economic development in these countries.


The countries on our list have a number of shared characteristics. They all show signs of growing activity in at least two of the three key industries (textiles, footwear, cellphone assembly). Additionally, they all have high growth rates in recent years well above the global average and unsophisticated workforces that will work for low wages.

While it does not need to be robustly developed, at least basic infrastructure is also necessary to support small production centers of a couple dozen people and ensure the export of goods. The presence of major companies that establish large-scale factories (a couple hundred workers) and invest in major infrastructure projects is an indicator that this process is well under way. Unique characteristics and specific attributes for each country are further discussed in the profiles below.

We did not include some countries – Tanzania, Uganda, the Dominican Republic and Sri Lanka – that were on Stratfor’s PC16 list because basic manufacturing has not taken hold since that list was developed. For example, in Tanzania, no notable cellphone assembly activity is taking place. While the country is a large producer of leather hides from its livestock, 90 percent of leather exports are raw hides and skin rather than manufactured leather products.

There are also multiple reports of textile factories closing indefinitely or permanently due to a variety of reasons, including electricity shortages and import competition. It should be noted that this all happened despite government policies designed to promote the country’s cotton and textile industries. In geopolitics, policies matter very little. What matters is the reality on the ground.

One PC16 country, the Philippines, was not included in our list because it is too advanced. The Philippines has been home to low-value manufacturing for over a decade and has already started producing more high-value manufactured goods.

Before diving into the specifics of each country on our list, two main concepts must be kept in mind. First, three countries – India, Indonesia and Mexico – have varying levels of economic development in different regions. In other words, these countries have very well-developed and wealthy regions, as well as underdeveloped, poor regions where there is still room for basic manufacturing. These economies require a more nuanced understanding of their economic activity and workforces, and are placed in a separate section below.

Second, the changes and reduction in the Geopolitical Futures list (compared to Stratfor’s list) reflect the current economic challenges brought on by the exporters’ crisis. China’s expansion took place in the 1990s. This was a prosperous time with intensifying global appetites for exports. The present economic environment is weaker and more complex. Therefore, the countries on our list will experience more competition and slower growth than China at the height of its development.

Multiple Economies Countries


India’s inclusion on our list is an obvious one. It is not a secret that the world’s second most populous nation is a logical new location for jobs leaving China. According to fDi Intelligence, India surpassed China in 2015 as the world’s top recipient of foreign direct investment (FDI). UNCTAD also estimates that FDI doubled in the 10 years prior to 2015. In addition to FDI, India has also experienced high growth in its economy – for the last 12 years, according to the World Bank, India’s GDP has grown at a rate of 7.7 percent.

The secret is out about India. But India cannot be thought of as one coherent economic entity because it includes very diverse states at different stages of economic development. There are over a billion people living in India, with at least 22 different languages spoken and officially recognized. The standard of living and basic infrastructure are far better in places like Goa, Delhi and Sikkim, while other states are falling behind national standards.

One of the effects of this diversity is that, while Indian law requires a national minimum wage, in reality, wages vary from state to state and from industry to industry. A 2010 report by the International Labour Office (ILO) noted that 42 percent of all wage earners in India actually received less than the national minimum wage. India has a massive informal sector. A 2012 ILO report revealed that, in some areas, up to 94 percent of women in the manufacturing sector work informal jobs. In 2013, John Hopkins University Associate Professor Rina Agarwala estimated the informal sector in India includes over 400 million workers.


The map above divides India into its constituent states and shows the variation in GDP per capita between states. A few observations jump out from the map. The first is that GDP per capita is particularly low in the highly populous states of Uttar Pradesh (with about 200 million people), Bihar (with about 100 million people) and Jharkhand (with 30 million people). GDP per capita in Uttar Pradesh and Bihar was less than $800 in 2014. In Jharkhand, GDP per capita was barely above $1,000.

However, low incomes often attract investors. Among the most striking findings in a 2015 report by fDi Intelligence was that Jharkhand attracted over over $3 billion in FDI in 2015, even though it had practically no FDI in the previous four years.

To the south of these three poor states is another row of states with very low GDP per capita. Three of these – West Bengal, Odisha and Chhattisgarh – are poor for the same reason as Bihar and Jharkhand: the ongoing Naxalite insurgency in India is concentrated mainly in these areas. The threat of the Naxalites has by no means disappeared, but the territory in which the Naxalites can operate has been reduced to the point that it is possible to do business without fear of disruption.

Further to the west, the large states of Rajasthan and Madhya Pradesh are essentially the natural extensions of Delhi, Maharashtra and Gujarat. These states include some of the richest areas of India, where much of the kind of development we are examining in this study began a decade ago.

To the north, the potential for instability in Jammu and Kashmir looms over the developing states of Punjab, Himachal Pradesh and Uttarakhand. To the east, there is another pocket of relative poverty, and though infrastructure is poor and these areas are somewhat out of reach for the central government, evidence suggests low-end textile and garment making is beginning to develop. The central government announced plans in December to create factory centers in each of the eight states in the northeast.

Southern Indian states have been one of the focal points for garment manufacturing in India. The government has set up Special Economic Zones (SEZs) to attract foreign investment and, of the four SEZs related to garment making, three are in the southern states of Tamil Nadu, Andhra Pradesh and Karnataka. Tamil Nadu alone is responsible for a third of India’s textile production.

In terms of shoemaking, the biggest area for production is the city of Agra, in Uttar Pradesh. Uttar Pradesh is becoming a major center for production of basic manufactured consumer goods. The northeast has also been an attractive destination for many shoe companies.

When it comes to cellphones and other personal electronic devices, a number of states stand out. Uttarakhand in the north has industrial zones that didn’t exist four years ago churning out hundreds of thousands of products a month.

Odisha, which is trying very hard to attract business, is developing an electronic manufacturing cluster to bring this industry to the state. The cellphone industry has begun actively looking for places in Odisha to manufacture their products. While its jungle interior is susceptible to unrest caused by the Naxalite insurgency, Odisha’s main city, Bhubaneswar, has taken measures to attract businesses to the area and is located on the coast, making transportation and shipping easier.

However, India also faces stiff competition and some parts of the country are starting to feel the impact. In Rajasthan, which built industrial centers and managed to attract factories and businesses, some factories have reportedly closed down. The president of the Bhiwadi Manufacturers Association noted in May that over 100 factories have shut down in the last two years due to decreasing profits.

Indian Prime Minister Narendra Modi has pushed his “Make in India” campaign, but there is only so much the national government can do to encourage companies to manufacture products in the country. In some places, infrastructure is developed and functional – in other places it is practically non-existent. India’s ports, compared to China’s, leave much to be desired. In the last year, India’s busiest container port has been plagued by labor disruptions, frequent gate closings and congestion, and long delays. Red tape remains an issue in some states, and Bangladesh and Vietnam have been attracting attention away from India, especially in the apparel industry.

There is tremendous regional variation within India, but the areas that will drive economic development in the future are the poorer states that attract basic manufacturing. States like Maharashtra or Karnataka are still notable and fuel growth in the Indian economy, but they have already received billions of dollars-worth of FDI for both the low-end industries we are focusing on and more complex manufacturing.

We are more interested in the poorer states that will attract this investment in the future – where factories are beginning to take advantage of low wages and industrial centers are being rapidly constructed. This includes states in the center and north of the country, as well as the eight northeastern states where government policies are being tailored to attract businesses, and companies are building factories in search of high profit margins.


Indonesia’s unique geography has played a large role in establishing the country as a leading exporter in Southeast Asia. As an archipelago in the Indian Ocean, Indonesia has ports on both the South China Sea and the Bay of Bengal, granting it direct access to two of the largest and fastest growing consumer markets in the world, India and China, as well as South Korea and Japan.

Indonesia’s large population of nearly 256 million people is also attractive to potential investors. With a labor force of an estimated 122.4 million – the fifth largest in the world – Indonesia has the human capital needed to manufacture on a grand scale. Additionally, Indonesia has experienced sustained levels of high GDP growth, fostering strong domestic consumption.

Indonesia’s large population and economic growth make it an outlier among other exporting countries in Southeast Asia. Thus, it has more in common with India and Mexico than neighboring Vietnam or Cambodia. Indonesia’s economy is relatively well established in Jakarta, on the island of Java, which is home to over half the country’s population despite accounting for only 7 percent of Indonesia’s total land mass.

Jakarta has many wealthy elites and a burgeoning middle class, which make up a large portion of the domestic consumer demand. However, Jakarta is also home to a poor working class, which allows Indonesia’s manufacturing sector to thrive. The population living across the rest of Java and the country’s other islands (which we will refer to as the periphery) provide abundant opportunities for the expansion of the manufacturing sector into areas with lower wages and more natural resources, including Sumatra, Medan and Surabaya.

Formerly known as the Dutch East Indies, Indonesia gained its independence from colonial rule in 1949. Jakarta was established as the capital, and Java became the nucleus of Indonesia’s 17,508 islands. Efforts to maintain control of the sprawling archipelago led to centralization that left Indonesia’s periphery underdeveloped and often exploited. However, political changes over the past decade have pushed Indonesia toward decentralization.

As the central government loosens its grip and grants more power and autonomy to local governments beyond Jakarta, the Indonesian population outside of Java has become more integrated. This has fostered economic cohesion between Jakarta and the periphery, the latter supplying the former with raw materials in a non-exploitative and mutually beneficial way. The country has much to gain from this exchange.

Investors from around the world have recognized Indonesia’s potential, and the country participates in all three of the key industrial activities this report focuses on: textiles, footwear and cellphone assembly. Indonesia’s access to raw cotton and its skilled workforce makes the country a textile manufacturing hub in the region.

Though a large majority of textile factories are located in and around Jakarta, some are also opening in other parts of the country. For example, garment company Pan Brothers invested $60 million in 2015 to build a new factory in Central Java to produce garments for fashion giant Uniqlo.

With companies like Nike setting up shop in Jakarta, footwear production is also a huge industry in Indonesia. In 2015, Indonesia’s footwear exports grew an estimated 7 percent, totaling roughly $4.7 billion. Jakarta is also a large hub for cellphone manufacturing, which recently implemented government policies have supported. In 2015, Samsung began manufacturing cellphones in Jakarta, hoping to benefit from Indonesia’s comparatively low labor costs and to access its growing domestic market.

However, investors in Indonesia face several persistent issues posing a challenge to the country’s ability to compete with other exporters in the region. First, Indonesia has high labor costs compared to its neighboring competitors. The average monthly salary in Indonesia is $243 and has been steadily climbing over the past several years due to frequent labor strikes and minimum wage hikes in Jakarta.

Additionally, Indonesia has notoriously poor infrastructure. Constant traffic congestion and a limited number of ports operating at maximum capacity makes exporting goods difficult and time-consuming. Lastly, Indonesia is home to the world’s largest Muslim population and has faced consistent threats from groups like the Islamic State and al-Qaida. The current government has cracked down on terrorism, but potential unrest cannot be ruled out.

Though Indonesia’s struggles with terrorism are likely endemic, the first two of these issues – rising labor costs and poor infrastructure – can be overcome. Investors can avoid wage hikes by focusing on areas outside of the capital, as Pan Brothers did when it decided to build its new factory in Central Java. Research by the Financial Times showed that, due to lax application of federal regulations, wages outside of the greater Jakarta area are often less than half of wages in Jakarta.

As textile manufacturing requires the least skilled workforce and least infrastructure out of the three key industries, it makes sense that it would be the first industry to move into the periphery. Other industries may follow in an attempt to cut costs. And since low-cost manufacturing attracts investment, Indonesia’s infrastructure problem will likely be addressed as investors build the infrastructure needed to manufacture and export their goods.


Geopolitical Futures does not consider Mexico to be an emerging economy. Mexico’s annual GDP totals about $1.4 trillion, making it the 15th largest economy in the world. The country’s population distribution reflects that of an industrialized economy. Only 21 percent of the population lives in rural areas, with nearly 80 percent in urban areas.

The high rate of urbanization is due to the development of industrial activities, which are already well developed in Mexico’s central and northern regions. On a whole, its manufacturing production tends to have large value-added components. It produces finished products like cars and airplanes. Value-added industrial activity accounts for 34.5 percent of Mexico’s GDP, according to the World Bank.

That said, Mexico still produces the three key basic manufactured goods: textiles, footwear and cellphones. Though competitive, Mexican textile exports have declined in recent years, from $6.2 billion in 2012 to $5.2 billion in 2014. Since then, the government has worked to install protective customs measures to support the 8,600 companies in the textile industry.

Mexico is the ninth largest producer of footwear in the world. Footwear exports continue to grow but at a slower rate than recent years. In 2011, footwear exports by volume grew by 10 percent year-over-year. In 2013, footwear exports grew by 9 percent year-over-year. By 2014, they increased a mere 2 percent.

In the small electronics and cellphone industry, there are already 945 production locations in the country. Just over 40 percent of them are located in the states of Baja California, Chihuahua and Jalisco. Exports of these devices totaled approximately $58.6 billion in 2014.

But Mexico’s wealth is not equally distributed throughout the country. Mexico has the 10th largest population in the world at approximately 122 million and ranks 14th by land mass. Rarely do large, diverse countries experience an even distribution of income and economic activity among their populations. Mexico is no exception.

The map below illustrates how two different economies coexist within Mexico. Mexico’s National Institute of Statistics and Geography generated this data by measuring several development indicators, including housing infrastructure, basic furnishings, overcrowding, health, education and employment levels. The higher a state’s overall standard of living, the higher its ranking on the map.


There appears to be a rather clear divide between highly ranked states in Mexico’s northern and central areas and low-ranking states located in the south. Economic activity in each state correlates with these rankings. The states with a ranking of five or above are home to advanced industry, attract foreign direct investment and/or are strategically located near the U.S. border, where there is a heavy flow of commerce.

The states ranked three or below tend to have economies dependent on agriculture and primitive industry, with higher numbers of informal, low-wage laborers. Government figures show that from 1980 to 2014, the per capita GDP in central and northern states grew about 50 percent. In the south, this figure grew a mere 9 percent.

Mexico has been included in this study because three poor southern states – Chiapas, Guerrero and Oaxaca – fit our model’s profile for desirable places to produce basic manufactured goods. Findings by the National Council for the Evaluation of Social Development Policy put those living in extreme poverty at 74 percent in Chiapas, 67 percent in Guerrero and 61 percent in Oaxaca. This region of some 13 million inhabitants currently generates only 2 percent of the country’s manufacturing production. It has untapped potential for growth and basic manufacturing activity.

The Mexican government is currently creating the conditions needed to spark this growth in basic manufacturing. This year, the congress passed an initiative to create three special economic zones to help develop economies in Mexico’s south. China created similar zones in 1978, which initially helped spark its entrance into a low-wage, high-growth basic manufacturing economy.

The planned special economic zones are Chiapas Port, Lázaro Cárdenas Port and the Isthmus of Tehuantepec, which connects the Gulf and Pacific coasts between Coatzacoalcos and Salina Cruz. Included in the plans are tax incentives, duty-free customs benefits, streamlined regulatory processes, improved infrastructure, better logistical connections to the rest of Mexico and credit for small and medium-sized companies. These companies are scheduled to have their facilities built and production starting in 2017 and 2018.

As mentioned previously, the locations of low-wage, basic manufacturing units can move easily. It is reasonable to envision the relocation of basic manufacturing activities from Mexico’s north and central states to these three southern states. Not only would there be financial incentives and cheaper labor, but the production units would still enjoy the intrinsic benefits that come with producing in Mexico. These include port access to both Pacific and Atlantic oceans and direct access to one of the largest consumer markets in the world, the United States.

South and Southeast Asia


Bangladesh is the world’s most densely populated country, ranking 95th in surface area with a population of 162 million. More than half its people are rural farmers, yet the bulk of its export earnings come from the garment sector.

Bangladesh is currently the second largest garment exporter behind China, and the world’s largest apparel exporter for Western brands. Total export earnings hit a record $3.2 billion for December, with the apparel industry accounting for 83 percent of that figure. Exports account for 20 percent of Bangladesh’s GDP. The industry is expected to remain a key driver of economic growth moving forward.

Bangladesh, perhaps more than any country on our list, has built a reputation for cheap labor and lax regulations. Its average monthly wage of $100 is among the lowest in Asia for garment workers. Purchasing power among Bangladesh’s garment workers decreased from 2001 to 2011 (while China’s doubled), even as productivity increased.

One reason for Bangladesh’s low wages and poor working conditions is that many of the country’s operations specialize in ready-made garments, which involve extremely low margins. Yet, the working-age population continues to grow, ensuring a steady stream of cheap workers.

But the Bangladesh Garment Manufacturers and Exporters Association points out a few challenges to industry growth in the country, including high interest rates on loans, devaluation of the dollar and intense global competition.

In this environment, the government is resisting further wage increases and excessive labor rights and safety regulations so that it can remain competitive with other low-cost manufacturers.

The 2013 Rana Plaza collapse – the deadliest garment factory accident in history – and other factory-related tragedies have put the country and big name companies that operate there under scrutiny. This has led some to stay away and others, like Walmart and Gap, to implement safer working conditions.

In addition to safety concerns, international pressure has mounted over regulating workers’ ages, which further forces companies to weigh the pros and cons of manufacturing in the country. After the Rana Plaza collapse, Mahbub Ahmed, who was the top civil servant in Bangladesh’s Commerce Ministry at the time, urged the EU not to “impose any harsh trade conditions” that could hurt the country’s competitiveness.

But if it can stay competitive, Bangladesh could break into other areas of low-cost manufacturing, such as electronics and footwear. In 2014, a partnership of OK Mobile and state-owned Telephone Shilpa Sangstha announced the first locally assembled smartphone. Footwear production has yet to take off, but more U.S. buyers are reportedly sourcing from Bangladesh. Several large brands including Timberland, Hugo Boss and Armani are already producing shoes in Chittagong, an eastern port city.


Wedged between larger and more developed Vietnam to the east and Thailand to the west, Cambodia has shown great determination not to be left behind. GDP growth averaged 9.2 percent between 2004 and 2011, and poverty decreased by more than 50 percent.

A good chunk of the expansion over that period can be attributed to the country’s garment and footwear sector. The sector employs 600,000 people, among a total population of 15 million. The number of factories in the sector rose from 528 in 2013 to 640 by March 2014.

In 2014, Bangladesh’s exports grew by 9.3 percent, with footwear exports up 24 percent year-over-year to $438 million and garment exports up 8.3 percent year-over-year to $5.4 billion. In 2015, the EU received 43 percent of Cambodia’s garment and footwear exports, while the U.S. was the destination for 30 percent.

Most factories are owned by foreign companies based in other Asian countries. These companies rely on Cambodian factories for cut, make and trim (CMT) processing, which uses imported fabric and design processes. Labor laws, low wages and the country’s proximity to many other Asian nations has led to high levels of foreign investment. Around 90 percent of the industry’s private investment is foreign.

Cambodia raised its official minimum wage to $140 per month in October following mass faintings at several factories. But its actual wages stayed fairly low as a result of poor government oversight and still compare favorably to its main textiles and footwear competitors, Myanmar and Vietnam. Average wages for manufacturing jobs, many of which are in the informal sector, are closer to $113 a month in Cambodia, compared to $127 in Myanmar and $176 in Vietnam.

While FDI has grown, poor infrastructure and logistics have limited Cambodia’s potential, as have high electricity costs due to imported fossil fuels and persistent power shortages amid rising demand. Poor labor conditions have led to migration and worker shortages.

Productivity in the garments and footwear sector dropped roughly 14 percent between 2011 and 2014, most likely because growth in employment exceeded the value the sector’s products added to the economy. Nonetheless, the sector is expected to grow, given the country’s cheap labor, lax regulatory environment and the fact that it allows companies operating in the country to be 100 percent foreign owned.

The government, meanwhile, is looking to tackle the infrastructure deficit through construction of ports and roads in the hopes of attracting more FDI and better integrating the country into the regional electronics and auto parts supply chains.


Vietnam has lifted more than 30 million people out of poverty in the last 20 years. Low-cost manufacturing has been a large contributor to that success. The country is active in all three industry areas but is particularly active in sport footwear. Vietnam is the world’s third largest shoe exporter after Italy and China. Vietnam’s footwear industry has 812 enterprises and 624,000 employees, according to official statistics.

Some major shoe brands are shifting their operations to Vietnam and away from China. For example, Nike’s largest manufacturing base is now in Vietnam, surpassing China in 2010. Wolverine, which owns brands like Keds and Saucony, says Vietnam now accounts for nearly 30 percent of its output, while China’s share has dropped from 90 percent to 50 percent. The result of this migration can be seen in Vietnam’s share of footwear exports to the U.S., which grew 24 percent in 2014, compared to China’s 0.3 percent.

Average industry wages are $176 per month, which is 70 percent less than Indonesia, Vietnam’s main footwear rival in Southeast Asia.

From 2013 to 2015, Vietnamese exports to the U.S. rose nearly 50 percent, from $2.9 billion to $4.3 billion, according to the U.S. International Trade Commission. That figure could get a boost if the Trans-Pacific Partnership receives U.S. Congressional approval. The 12-member trade deal would phase out tariffs on Vietnamese footwear by up to 40 percent.

Vietnam’s footwear industry, however, remains heavily reliant on foreign technology and sourcing. Local leather factories, for example, can’t meet 10 percent of demand. So the country spends roughly $300 million importing leather and imitation leather, according to the government.

Canvas, PVC, paint and glue are also largely imported, which generally account for a significant amount of the cost in footwear. This has relegated the country largely to the role of contractor, which means it is not adding much value to the products and has a lower likelihood of developing its own brands.

Up to this point, though, Vietnam’s role as a contractor has not slowed production. To grow more competitive and move up the value chain, the government is urging local businesses to develop specific production and business plans and to upgrade production line methods and technology.

Meanwhile, the country is advancing in other low-wage areas of manufacturing, namely textiles, cellphones and small electronics. Vietnam is home to 3,800 textile companies and the industry employs roughly 1.5 million people. Vietnam also exported an estimated $46 billion worth of mobile phones and electronics last year, up 33 percent from 2014.

In May, LG Display Group, a subsidiary of LG Electronics, pledged to invest $1.5 billion to start a screen factory in Hai Phong. Samsung, which already produces up to 50 percent of its smartphones in Vietnam, increased its investment in Vietnam to $2 billion in December toward production of smart TVs and other electronic goods. Other companies, including Microsoft and Intel, are also laying down roots, drawn by the cheap labor pool and Vietnam’s proximity to China.

Investor confidence in Vietnam has periodically been challenged by social unrest. In 2014, 15 Chinese and other foreign-owned factories at industrial parks in the country’s south were set ablaze amid protests over China’s actions in the South China Sea. Rioters shouted nationalist slogans and demanded more workers’ rights.

Last year, tens of thousands of footwear workers went on strike over a proposed change to their government pension scheme that would have delayed payouts until they retire. And in February, nearly a thousand garment workers in Quang Nam province went on strike due to a delay in their bonus pay.


Since a nominally civilian government replaced Myanmar’s military junta in 2011, the country has opened up its economy to foreign investment. Foreigners no longer must have a local partner to start a business, and the U.S., EU and other developed countries have started to reduce or eliminate economic sanctions. The Yangon Stock Exchange opened its doors in March.

Against this backdrop, the former pariah state is quickly growing its garment sector. The country is starting from a low base; only around 200 export-oriented producers are operational. But 2014 revenues reached an estimated $1.5 billion ($300 million more than 2013). FDI in manufacturing, most of it in garments, hit a record $750 million in 2014. The country has also secured quota and duty free access to the EU market, which is the country’s biggest export market for textiles after the U.S. and Korea.

Korea is the industry’s top foreign investor, followed by China, Taiwan and Japan.

Roughly 250,000 people – 1 percent of the country’s working population – are employed in the garment sector, 95 percent of which is in Yangon, according to the Myanmar Garment Manufacturers Association (MGMA). The MGMA predicts that in 10 years the garment industry will employ 1.5 million people and be worth $8 billion to $10 billion.

Myanmar tends to specialize in higher quality garments that typically are sourced from China. Like Cambodia, Myanmar’s garment industry operates mainly on CMT processing, so designs, patterns and raw materials are all imported, limiting the development of a more vertically integrated system.

The government has signaled a desire to move up the value chain through its National Export Strategy, which calls for the sector to push into a freight-on-board (FOB) model over the next three years. This model entails local factories arranging the purchase and import of raw materials, as well as participating in the design, warehousing and other logistics, which would increase profit margins.

The plan is a blueprint for the type of legislation that would help the industry transition to the FOB model. Deep seaports along Myanmar’s long western coast and sector-dedicated economic zones, which the National Export Strategy also calls for, will further help.

In the meantime, Myanmar is primed for continued growth at the lower end of the garment manufacturing process. Its minimum wage of $67 a month is among the lowest in the world, and two of its main competitors, Bangladesh and Cambodia, have recently come under scrutiny for health and safety standards. This is reportedly leading more companies to consider the former pariah state. H&M arrived in 2013; Gap followed in 2014.

In addition, shoe production is fledgling, with Taiwan-based Pou Chen Group, the world’s largest contract manufacturer of footwear by shipments, announcing in December 2014 that it is putting $100 million toward a manufacturing plant in Myanmar.

East Africa


Ethiopia has become a manufacturing hotspot despite being landlocked. A big part of Ethiopia’s success is due to its large population of 97 million people, who form a substantial workforce. Persistently high unemployment and the absence of a national minimum wage have ensured an abundance of cheap labor. At an average wage of $40 per month, Ethiopian factory workers are among the lowest paid in the world. Development in Ethiopia has led to sustained levels of high GDP growth, with an average of 10.6 percent annual growth since 2010.

After Eritrea gained independence in 1991, Ethiopia lost access to its ports on the Red Sea. As tensions today remain high between Ethiopia and Eritrea, the government of Ethiopia works to maintain good diplomatic relations with Djibouti to ensure access to a port from which it can ship products, though this situation is not ideal.

The country has made great strides to improve the rest of its infrastructure. In 2012, a Turkish company signed a $1.7 billion contract with the Ethiopian Railways Corporation to build a safer and more reliable railroad from Addis Ababa to Djibouti. In 2015, Chinese investors helped the Ethiopian government build a light rail system in Addis Ababa to connect the suburbs and surrounding areas to the city. In addition, the Grand Ethiopian Renaissance Dam is expected to provide cheap electricity when it is completed. But the dam has faced intense political opposition because it affects the flow of fresh water from the Nile River to Egypt.

Ethiopia currently participates in all three of the key industrial areas this report focuses on. The government has taken steps to encourage investment in manufacturing and related areas. The largest investors in the country include China, Turkey and India, with the United States and European Union also contributing. Chinese-run facilities, like the GG Super Garment factory located 30 miles outside Addis Ababa, employ hundreds of Ethiopian workers and produce garments for companies like Swedish fashion giant H&M.

Located only half an hour away from the GG Super Garment factory is a large shoe factory run by the Chinese company Huajian, which employs nearly 4,000 workers and makes shoes for companies like TOMS. In addition, Chinese companies like ZTE Corporation and Tecno Telecom are manufacturing smartphones in factories near Addis Ababa.

However, the country faces some challenges. In late 2015 and early 2016, the Oromo people, an ethnic group that has opposed the government for years, protested the requisition of public land that will be used to build more industrial parks. This raised concerns about future development, but such demonstrations often occur during a transition from an agrarian to an industrial economy.

As foreign investors build new factories, the country’s infrastructure will likely improve. If the government continues to support economic development, stability is maintained and GDP growth remains strong, Ethiopia’s rise as a globally significant exporter will continue.


In the Great Lakes region of East Africa, Kenya lies just south of Ethiopia and has a population of 46.7 million people. Economic and industrial activity is concentrated in Nairobi, Mombasa and Kisumu. Mombasa also has the largest port in East Africa, though efficiency can be an issue. A high speed railway connecting Nairobi to Mombasa is more than three-quarters completed. The second phase of this project will connect Nairobi to Kisumu and Malaba.

Newly industrializing Kenya is active in the textile and cellphone manufacturing sectors, but less so in the footwear sector. Apparel exports are composed largely of bulk basics like trousers and were valued at $380 million in 2015. Over 30,000 people work in the textile industry and factories have an average of 1,500 workers. In the last two years, Chinese and Indian companies have setup and expanded factories in Nakuru and Uasin Gishu counties.

Cellphone and small electronic assembly are also strong industries in Kenya. Samsung has a laptop assembly plant in the country and LG has a cellphone assembly plant. Tecno also has plans for cellphone and tablet assembly in Kenya. The company was founded in 2006 in Shanghai, but now does business exclusively in Africa.

Though a pair of local entrepreneurs are in the process of making the first made-in-Kenya running shoes, footwear production is minimal. Kenya has the potential to produce leather from its large cattle stock, which could be used to develop a footwear industry. For this to happen, the country must further develop its leather industry.

Though it shows promise, Kenya has some competitive disadvantages in basic manufacturing. Electricity costs are up to three times higher than in Ethiopia and can account for up to a quarter of a company’s operating costs. Wages are also higher in Kenya than in Ethiopia. The lead time for fabrics to arrive in Kenya for manufacturing also contributes to higher costs.

Kenya’s main strategy for increasing basic manufactured exports is to take advantage of the United States’ African Growth and Opportunity Act (AGOA), which gives Kenya preferential trade status with the U.S. According to Kenya’s Export Processing Zone Authority, Kenya’s AGOA exports, employment and investment grew by 17 percent, 12 percent and 21 percent respectively per year from 2010 to 2014. Over 90 percent of Kenya’s apparel exports go to the United States. The industrialization secretary is also looking for ways to use AGOA to stimulate footwear production and exports to the United States. Last year, the government implemented tax exemptions for the Overseas Private Investment Corporation, the development financing arm of the U.S. government, to help encourage investment.


Roughly twice the size of California, Mozambique rests along Africa’s eastern coast, bordering South Africa’s northeastern edge. The 28.4 million inhabitants of the country reside primarily along the coast. The country’s main metropolitan areas include Nampula, Beira and Maputo. Beira and Maputo, along with Nacala, are also the locations of the country’s major ports. Mozambique has an extensive river system of 25 sizable rivers. The most notable is the Zambezi River, which is the fourth largest on the continent and largest river flowing into the Indian Ocean.

The exodus of Portuguese businesses after Mozambique’s independence in 1975 and the ensuing civil war (1977-1992) dramatically affected the country’s economy. Prior to independence, the country had well-established industrial activity. The civil war destroyed the country’s economic and industrial base, as well as most of its infrastructure. It was not until the 2000s that the economy started showing signs of recovery.

The textile industry, which was well-developed before the civil war, has started showing signs of recovery in the last five years. From 2011 to 2014, Mozambique’s textile exports doubled from $44 million to $88.36 million. Anecdotal evidence also points to a textile rebirth, a key example being the Riopele Textile factory in Marracuene, just north of Maputo. A consortium of Mozambican and Portuguese businesses spent $40 million over three years to resume textile production in 2014 at the factory, 10 years after production stopped.

Additionally, in the past two years, cotton producers in Mozambique have received technological support from the Brazilian Cooperation Agency (part of Brazil’s Foreign Ministry) and financial support from the Islamic Development Bank. The goal of these projects is to, over time, improve domestic cotton production for the textile supply chain.

Industrial activity in cellphone and small electronic assembly has started taking hold in Mozambique. Malaysia’s M.Mobile invested in a cellphone handset manufacturing plant while South Africa’s Sahara Computers set up a computer assembly plant. Both companies invested more than $3 million in their factories. Most recently, German company Fosera started a commercial assembly line for its solar lights.

Mozambique appears also to be attracting some footwear production in recent years. Footwear exports in 2014 were valued at nearly $26 million. In March, businessmen from Felgueiras, Portugal – where 60 percent of footwear in Portugal is produced – expressed interest in developing the footwear industry in Mozambique. The expectation is that a footwear factory in Mozambique could produce good yields. Business associations in the country are also exploring the possibility of setting up a tannery for treating leather used in footwear production to attract more manufacturing. These are signs that the industry may grow in the future.

Central and South America


Nicaragua rests in the middle of Central America with the vast majority of its 6.1 million inhabitants living near the western coast. Nicaragua’s main ports – Corinto, Puerto Sandino and San Juan del Sur – and industrial activity are also on the Pacific coast. At present, infrastructure connecting the country’s Pacific and Atlantic coasts remains limited. However, feasibility studies are under way for a possible canal in the south from Brito through Lake Nicaragua to Punta Gorda.

Safety tends to be a major concern for business operations and investments in Central America. But compared to its neighbors, Nicaragua is less violent. Drug routes do not overlap with major population centers and, according to a 2015 homicide report by InSight Crime, which studies organized crime in Latin America, homicides are at a 15-year low in Nicaragua with only eight deaths per 100,000 inhabitants.

Free zones established by the government have helped foster the growth of textile and footwear manufacturing and exports. From 2008 to 2012, the country’s free zones achieved 17 percent compound annual growth in exports. Light manufacturing in Nicaragua, which is dominated by textiles and footwear, employs 83,000 people in the free zones. In 2014, exports in these two key industries totaled $1.38 billion.

Foreign companies like South Korea’s Hansoll Textile and Peru’s Hilandería de Algodón Peruano will continue to invest millions of dollars this year in Nicaragua’s textiles industry. Nicaragua’s exports go to an array of international markets, most notably the U.S. and EU where the country holds preferential access status. This year’s first quarter textile exports to the U.S. increased by 10.6 percent in volume and 5.3 percent in value compared to 2015.

The looming economic challenge for Nicaragua is the fate of Petrocaribe, a Venezuelan government program through which Nicaragua imports about 70 percent of its oil. Venezuela sells oil to Nicaragua at a discounted price with long-term payback periods at very low interest rates. Venezuela has started decreasing the amount of oil it supplies through Petrocaribe because of low oil prices. As a result, and given President Nicolás Maduro tenuous hold on power in Venezuela, Nicaragua’s future access to Venezuelan oil at low rates is very uncertain. Ending this program would increase oil-related production costs.


Paraguay’s population of 6.9 million inhabitants includes one of the youngest workforces on this list, as over 65 percent are under the age of 35. The country is in the early stages of developing its manufacturing industry. The three largest industrial manufacturing exports are auto parts, textiles and leather. Small textile factories of a few hundred workers have sprung up in areas outside of Asunción. Output and the number of employees at these factories have increased annually. For example, textile company Grupo Texcin opened a factory in 2015 and doubled output in the first quarter of 2016, compared to 2015.

Textile exports by value in Paraguay are still modest compared to others on this list, totaling $94.5 million in 2015, but are growing fast. So far this year, textile exports have grown 8 percent year-on-year and the total value of textile exports is on track to at least quadruple in value compared to 2007. Mercosur member states receive about 80 percent of these exports but the remaining 20 percent go to the U.S., Mexico and Southeast Asia. Footwear manufacturing is limited, but the abundance of leather production in the country means there is potential for future production.

Mercosur membership limits Paraguay’s ability to engage in bilateral free trade agreements. However, the country is in the final stages of expanding its Economic Complementation Agreement with Mexico, which will be equivalent to a free trade agreement.

Though landlocked, Paraguay has two export routes to the Atlantic – one via the Paraná River and the other a well-establish land route through Brazil to either Santos or Paranaguá ports. Additionally, in recent years, Paraguay has acquired access to Chile’s Antofagasta Port and its own section of the Nueva Palmira Port in Uruguay.

Paraguay also has reliable domestic sources of energy, which will help attract investors and build its manufacturing industry. The country has the largest hydroelectric dam in the world, Itaipu Dam, which provides a large supply of electricity. Expansion projects for the domestic electrical grid are already underway. In 2013, the government also passed legislation to allow the creation of public-private associations that will help facilitate infrastructure projects.


Peru’s national borders stretch from the Pacific coast, over the Andes Mountains and into the Amazon rainforest. However, the area that lies west of the Andes along the coast, particularly Lima, is of most interest for this study. The capital city accounts for a third of the country’s 31.7 million inhabitants and about half of all economic activity.

The textile industry in Peru employs 350,000 people. In 2013, the country registered 2,349 textile and apparel exporting firms with exports totaling $1.37 billion. T-shirts and polo shirts are the main items for export, and the United States is the largest market.

However, Peru’s textile exports have declined in the last year. In May, the Association of Exporters of Peru (ADEX) reported that first quarter textile exports had fallen by 17 percent, marking the fourth consecutive quarter of decline. One explanation for this is that China is dumping textiles into Peru’s markets.

Also, in an effort to keep export levels high, China has subsidized producers, ensuring their production costs and export prices remain low. This is not a sustainable practice and eventually Chinese export prices will rise. While Chinese oversaturation of the market may cause some Peruvian producers to close, the ones that survive will be highly competitive.

However, ADEX has argued Peru’s lower exports are due to rising labor costs, infrastructure deficits and taxes. Peru’s average monthly manufacturing wages are lower than China’s but still the highest of the countries on this list. Also, the country’s infrastructure deficit for 2016 to 2020 is estimated at $68.8 billion.

Therefore, Peru’s role as a successor of China is more tenuous that other countries on this list. However, the country has some bright spots. Callao Port was modernized this year and is now able to service super post-Panamax ships, which is an advantage considering some ports are not able to service these large cargo ships.

The country also has 16 bilateral free trade agreements, including with the United States, European Union and Mercosur. Lastly, the government is drafting a plan to construct a special textile production zone in Paracas to improve the city’s competiveness and position it as a hub of textile production and export. Details on this project are limited, so it is difficult to judge prospects for successful implementation.