(Yicai Global) April 3 -- Multinationals will start to move higher up the industrial chain, such as into more technology-enabled manufacturing and other areas where China has an emerging advantage, the managing partner of US management consulting firm Oliver Wyman’s Asia Pacific branch told Yicai Global in an exclusive interview.

China's competitive advantage has been changing for quite some time, Jacob Hook said during the Boao Forum for Asia Annual Conference 2023. Cheap labor costs are becoming relatively less important, and access to technology, innovation, infrastructure, strong production bases and supply chain ecosystems are becoming more important for multinationals.

Extracts from the interview are given below.

Yicai Global: Global supply chains are being regionalized and localized. Do you agree it’s a zero-sum game?

Jacob Hook: No, I don't agree with that. I don't think it's a zero-sum game. I think supply chains evolve naturally over time as countries’ competitive advantages change. China's competitive advantage has been changing for quite some time. Cheap labor costs are becoming relatively less important, and access to technology, innovation, infrastructure, very strong production bases, and supply chain ecosystems have become more important.

While that's been happening, we've had lots of shocks. We've had Covid, we've had geopolitical tensions. What we're seeing is that multinational companies are looking at supply chains to increase resilience and to reduce concentration in particular markets, to make sure they're more robust for all kinds of shocks and risks. They are also trying to make sure that they are producing in the right places to take advantage of the different capabilities of different countries.

So, for China, I think that means that multinationals will look to move up the value chain. They will focus on more technology-enabled manufacturing. They will look at areas where China has an emerging advantage. A good example is electric vehicles and batteries and all of the components that go into the EV supply chain. There's lots of innovation and technology development that's been happening in China in this space. And there's a huge local market to help stimulate demand over time. So multinationals will look more to some of these types of clusters to focus their China-related efforts on. Some of them will also seek to serve the local market and they will think about how to localize more of their upstream providers.

So if you're a fast-moving consumer goods company, how do you source more local agricultural and food products in order to make sure that you're serving local needs better.

YG：Having said that, some production has been relocated to Vietnam, Indonesia and even Mexico, but none of these countries have the same size of population nor the same degree of industrial chain integrity. What is China’s comparative advantage?

JH: I believe China will remain the key global manufacturing hub for many years to come. Certainly, it's not going to be replaced overnight in any of the areas you're mentioning. If you look at the shift of production to Vietnam, for example, it has been in a few specific areas. Consumer electronics is a good example.

I think therefore, we can see that as part of the natural evolution of supply chains shifting to where the competitive advantage suggests they should be, I think very much the focus for China should be on continuing to develop those higher-end capabilities, continued innovation, continued building of infrastructure and continued building of ecosystems.

Opportunities, I think, will continue to grow because of these investments.

Editor: Kim Taylor