Antonio Manaytay Tech 10.21.2022 12:Oct PM EDT

German Optical Company Bucks Trend, Breaks Ground on US$25 Million Plant in Suzhou, China

While other multinational companies reduced their dependence on China, considered "The World's Factory," the German optical company bucked the trend when it broke ground for its US$25 million plant in the eastern city of Suzhou, China.

Germany's optical systems giant, Carl Zeiss AG, said the work on the new plant started on Tuesday, Oct. 18, the company, according to South China Morning Post, said.

The company will use the new facility for the production of ophthalmic equipment as well as research and development.

China Is 'World's Factory'

China, the second largest economy in the world next to the United States, has become a powerhouse in manufacturing. Its products with "Made in China" tag have found every corner of the world as its market.

Other investors may have thought that China is all about cheap labor propelling it to become an economic powerhouse.

There is so much about China other than cheap labor, according to Investopedia.

While labor is relatively low in China, Investopedia said other factors include a strong business ecosystem, low taxes and duties, lax regulatory compliance, and a competitive currency.

Here are the four reasons why multinationals flocked to China:

Companies relocate their production facilities to China because of the availability of lower-wage workers.
The country's business ecosystem - the network of suppliers, component manufacturers, and distributors - resulted in a more efficient and cost-effective country for manufacturing.
Western manufacturers easily fall in line to comply with various health, safety, employment, and environmental regulations. Their Chinese counterparts do not.
China was able to keep the value of its currency at a rate that kept the prices of its products cheaper than those produced by Western competitors.

Not Anymore

However, the trend has shifted with more companies relocating their manufacturing businesses somewhere in Southeast Asia.

One of the top reasons cited by investors is the rigid Covid control China has implemented. Due to this rigid control, many companies suffered losses as their production hit bottom.

Another reason is the rising labor cost in China as its economy matures.

A Cushman and Wakefield report, Where in the World," has identified Taiwan and Malaysia as the new favorite destinations of manufacturing companies.

The report cited that the cost of labor and operational costs are rising.

Confidence in China

China has been the destination of choice for multinationals due to its competitive advantage, mainly because of its cheap labor cost.

But the economic behemoth is losing that edge, The Wall Street Journal reported. Many manufacturers are relocating to Southeast Asia, where labor costs remain attractive.

This trend did not deter Germany's optical maker from building its new plant, some 80 kilometers from Shanghai.

Maximilian Josef Foerst, Zeiss China president, said the company remains confident in China. The new plant in Suzhou is a testament to that confidence,

The new plant Zeiss has started to build, he said, reflects the company's commitment to strengthen its ties with China further, its largest market worldwide.