Southeast Asian factory building trend: Is the collective "going global" of domestic PP non-woven fabric enterprises an opportunity or a trap?
It is an undeniable fact that the domestic PP non-woven fabric industry is experiencing intense competition. The proliferation of low-end production capacity, price wars piercing profits, and the continuous expansion of production by giants squeezing the survival space of small and medium-sized manufacturers have completely shifted the domestic market from incremental competition to stock competition. In this context, a booming "Southeast Asian factory building trend" swept across the entire industry.
More and more non-woven fabric companies are no longer sticking to the domestic red ocean market, and are rushing to Southeast Asian countries such as Vietnam, Thailand, and Indonesia to build factories. By 2025, the number of joint venture factories established by domestic companies in Southeast Asia will skyrocket by 180% compared to 2020, and new projects with a capacity of 10000 tons will be launched one after another. Some people make a lot of money by overtaking on the bend of the sea, while others are not accustomed to the environment, suffer investment losses, and hastily withdraw. Is this collective wave of going global a golden opportunity to break through and increase income, or an investment trap with hidden risks? Today we will delve into the truth of the industry.
Why go out to sea in groups? The helplessness and necessity of domestic non-woven fabric enterprises
Enterprises going to Southeast Asia to build factories are not blindly following the trend, but a rational choice under the pressure of the industry environment. It is a necessary path to break through internal competition, avoid barriers, and reduce costs and increase efficiency.
Firstly, escape from the extreme internal competition within the country. At present, there is a serious overcapacity in the low-end production capacity of PP non-woven fabrics in China, and the homogenization of general-purpose geotextiles, interior fabrics, and cleaning fabrics is severe. In order to seize orders, various companies continue to lower prices, and industry profits are compressed to freezing point. Small and medium-sized enterprises lack technological, brand, and scale advantages, and their survival space in China continues to be squeezed. Going global has become one of the few breakthrough paths.
Secondly, it is to avoid international trade barriers. In recent years, the tariff review and trade restrictions on Chinese textiles and new materials in the European and American markets have continued to escalate, and the enforcement of rules of origin has become increasingly strict, greatly increasing the uncertainty of domestic production and direct exports. Many Southeast Asian countries have signed multilateral free trade agreements such as CPTPP and EVFTA, which have significant tariff advantages and are an excellent springboard for enterprises to avoid trade barriers and open up global markets.
Finally, we need to seize the overseas incremental market. The infrastructure, automotive, medical, and agricultural industries in Southeast Asia are developing rapidly, and the local PP non-woven fabric production capacity is scattered and high-end production capacity is scarce, leading to a continuous increase in market demand. At the same time, countries such as India and Indonesia have introduced industrial support policies, vigorously promoting the development of technical textiles, driving the continuous expansion of demand for non-woven fabrics, and creating enormous potential for overseas blue ocean markets.
Full of overseas dividends! Real opportunities for building factories in Southeast Asia
Compared to the domestic red ocean market, Southeast Asia has a very prominent investment advantage, which is also the core reason for attracting a large number of non-woven fabric enterprises to cluster and layout. The three major hard core dividends are visible and tangible.
Firstly, the cost advantage is significant and the profit margin is higher. The most crucial labor cost in the manufacturing industry, with Southeast Asian advantages crushing domestic costs. By 2025, the comprehensive cost of manufacturing workers in Vietnam will only be around 2200 yuan, which is 30% -40% of the cost in coastal areas of China. PP non-woven fabric belongs to labor-intensive and equipment intensive industries. The significant reduction in labor and operation costs can directly improve the gross profit margin of products and get rid of the low price and low profit dilemma in China. At the same time, the local industrial land rent and energy consumption costs are lower, further reducing the total production cost.
Secondly, the tariff dividend provides a wider range of export channels. Relying on free trade agreements such as RCEP and CPTPP, non-woven fabric products produced in Southeast Asia can enjoy extremely low or even zero tariffs when exported to Europe, America, Japan, and South Korea. Compared to the high tariffs on domestic exports, the cost advantage is extremely obvious. Moreover, the local origin recognition is high, which can perfectly adapt to the global customer's "China+1" supply chain layout needs and easily win high-quality overseas orders.
Thirdly, there is a large market gap and low competitive pressure. Local non-woven fabric enterprises in Southeast Asia are relatively small in scale and have low industrial concentration. There are few enterprises with complete vertical production capacity, and the overall market competition is far less intense than in China. Domestic enterprises with mature production processes, advanced equipment, and complete supply chains can quickly seize the market and achieve profitability, whether it is low-end general-purpose products or mid to high end functional products.
Seemingly, the blue ocean hides a dark pit! The deadly trap that is easy to fall into when going out to sea
High opportunities inevitably come with high risks. Many companies only see the low-cost and low competition dividends of Southeast Asia, but ignore the local policies, infrastructure, and compliance risks. After blindly going global, they fall into business difficulties and numerous hidden traps are exploited by countless companies.
Firstly, there are infrastructure shortcomings that constrain the release of production capacity. Most countries in Southeast Asia have incomplete industrial infrastructure, and some parks face problems such as unstable power supply, frequent power outages, and logistics congestion. The PP non-woven fabric production line requires continuous and stable production. Power outages and shutdowns not only affect production capacity, but also lead to raw material and equipment losses, significantly reducing production efficiency and offsetting cost dividends.
Secondly, the compliance risk is extremely high, and the cost of fines is staggering. Customs, quality inspection, and labor policies in Southeast Asian countries are complex and varied, with strict requirements for origin certification, product standards, and employment norms. For example, Indonesia's SNI protective material standards and Vietnam's import and export customs declaration rules, once the raw material traceability and processing procedures do not meet the standards, not only will they not be able to enjoy tariff benefits, but they will also face high fines and goods seizure. At the same time, the local labor policies are strict, and labor disputes and strikes occur frequently, which increases the difficulty of enterprise management.
Furthermore, there are exchange rate and capital risks, which can easily lead to a decrease in profits. The exchange rates of Southeast Asian currencies such as the Vietnamese dong and Indonesian rupiah fluctuate violently, coupled with strict foreign exchange controls in some countries, making it difficult for companies to return funds after making profits. Book profits are easily swallowed up by exchange rate fluctuations, resulting in an awkward situation of "seemingly profitable but actually unprofitable".
Finally, there is the challenge of localization adaptation. The high temperature and high humidity climate environment in Southeast Asia has special requirements for the formula and production process of PP non-woven fabric raw materials. Directly copying domestic production standards can easily lead to problems such as poor product stability and shortened service life. At the same time, the technical level of local workers is low, and there are significant differences in management concepts. Enterprises need to invest a lot of costs in personnel training and process adaptation, and the hidden costs far exceed expectations.
Opportunities outweigh pitfalls! But when going out to sea, one must choose the right path
Overall, domestic PP non-woven fabric enterprises going global is not blindly following the trend, but an inevitable trend of industry transformation and upgrading, and global layout. Overall, long-term opportunities far outweigh short-term risks, and going global is not a trap. The key lies in how companies layout and avoid risks.
For top large enterprises, they can rely on their advantages in capital, technology, and channels to layout large-scale and high-end production capacity, deeply cultivate overseas mid to high end markets, build a global supply chain system, and completely get rid of domestic competition. For small and medium-sized enterprises, it is important to avoid blindly investing on a large scale. They can first try the waters with joint ventures, contract manufacturing, and small-scale landing models, familiarize themselves with local policies, markets, and supply chains, and gradually expand their scale to reduce investment risks.
At the same time, overseas enterprises must abandon the thinking of "low-cost extensive production", rely on mature domestic technology, focus on high value-added functional products, avoid local low-end homogeneous competition, and firmly establish themselves in overseas markets with technology and quality.
Going out to sea is not about escaping from internal competition, but about upgrading and rebirth
The collective overseas expansion of PP non-woven fabric enterprises is not just a simple transfer of production capacity, but also an important step towards the globalization of China's new materials industry. The domestic market is fiercely competitive with the peak of growth, while the Southeast Asian market is vast with abundant dividends, making it a new growth trough for the industry.
In the future, industry differentiation will become more apparent: companies that cling to the low-end domestic market will eventually be eliminated by internal competition; Enterprises that dare to go global, are good at layout, and deeply cultivate high-end industries will seize the global market dividends and complete the transformation from "domestic competition" to "global leadership". The trend of building factories in Southeast Asia will eventually become an important turning point for the transformation and upgrading of China's PP non-woven fabric industry.
Dongguan Liansheng Non woven Technology Co., Ltd. was established in May 2020. It is a large-scale non-woven fabric production enterprise integrating research and development, production, and sales. It can produce various colors of PP spunbond non-woven fabrics with a width of less than 3.2 meters from 9 grams to 300 grams.