Turnkey Manufacturing (EPC): The Newest Contracting Trend in Southeast Asia

Find out what turnkey manufacturing is, why it is taking over Southeast Asian supply chains and how it can help your manufacturing process.

There has been a growing prevalence of turnkey projects or engineering-procuring-contracting (EPC) operations in Southeast Asia over the last two decades, especially in power production. Vietnam, in particular, is employing more and more foreign contractors in sectors such as infrastructure, renewable energy, and consumer foods processing. As a result, turnkey manufacturing is now common in both private and public projects across Southeast Asia.

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What is Turnkey Contract Manufacturing?

The term “turnkey manufacturing” refers to the entire manufacturing process that consists of services associated with manufacturing and supply chain management, starting from material acquisition, assembly, testing, and logistics, warranty to aftermarket support. Services such as design and delivery are also covered in this process. It’s essentially a service that covers the entire A-Z process of production. The Turnkey Manufacturing industry is gaining popularity among investors doing business in South East Asia.

Benefits of Turnkey Manufacturing

In recent years, for example, some of the largest food processors in South East Asia have decided to outsource their new project lines to turnkey manufacturers. There are many benefits to outsourcing such projects. It helps you put your project in the hands of a reliable, professional, turnkey manufacturer who takes care of the entire process under one roof. This departs from the classic form of manufacturing, which involves the logistical complexity of bringing together different vendors under a project manager to produce one product or line of products. .

Here are a few more reasons why several companies are switching to turnkey manufacturing: 

Correspondence with one Company

It will take longer to complete your project if you have to interact with different companies and get them to correspond with one another. The process of keeping everyone working efficiently on one project takes significant time and resources. 

Multivendor management is eliminated by using a turnkey manufacturer. It is less time-consuming to deal with the turnkey manufacturers directly than with the equipment designer, the provider of raw materials, the manufacturer, and your designer again.

Avoiding the invoice fiasco when dealing with many companies

New production lines are notoriously difficult to manage because there are so many invoices coming from different companies. If you have large projects that need many instruments, softwares, and programmes, finding lost, misplaced, or unpaid invoices can put the process at risk.

Due to the fact that all invoices are generated by one company, turnkey manufacturers get rid of the invoice problem.

Bringing design and manufacturing together

Introducing changes becomes easier when the same company designs and manufactures your equipment and facility layout. The designer does not need to be contacted, followed up with manufacturing, and then recontacted once manufacturer information is available. When it comes to turnkey manufacturers, all three parties communicate through the same company. Any changes to your equipment’s design are communicated to the manufacturing and installation process immediately, eliminating any further efforts.

Reduced costs

Having one company handle all of your design, manufacturing, and installation saves you time and money. The more efficient centralized model of a turnkey manufacturer can reduce costs compared to getting concessions from multiple service providers.

In addition, when outsourcing manufacturing and design to a turnkey manufacturer, you won’t need as many employees to handle such a large project.

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Greater Quality

By letting one company handle your entire project, you can be sure of a better product. It is possible for the turnkey maker to decide from the start what quality standard is required for the project and to ensure that all teams – design, manufacturing, and installation – meet that standard.

SEA, Asia’s Manufacturing Powerhouse

Southeast Asia is home to 650 million people with a combined Gross National Product (GNP) of USD 3.08 trillion as of the year 2020.

In recent years, there has been an increase in investment flows from indigenous companies expanding their operations to neighboring countries, indicating a shift toward what might be called “Market Asia.”

Over the last few decades, multinational companies from developed economies have set up manufacturing and export platforms in the SEA region because of abundant and cheap labor, export-driven and investment-friendly government policies. Many multinational companies use the region as a manufacturing hub, including Nike, Adidas, Western Digital, and Toshiba.

Southeast Asia, in the past, had been overshadowed by the rise of China. According to the Asian Development Bank, China has been the world’s largest manufacturing exporter since 2011, edging out the U.S., which had led since 1980. However, with the U.S.-China trade war, Southeast Asia has regained prominence.

Due to the enforcement of U.S. tariffs on Chinese goods, Chinese companies are reworking their supply chain strategy. Southeast Asia is an attractive alternative because of its proximity to China, its reasonable operating costs and its growing economy.

Based on a survey conducted by the American Chamber of Commerce in China in 2019, nearly 40% of its members have relocated manufacturing operations outside China or are weighing their options. Among that 40% that were moving or had moved, Southeast Asia came top as the alternative location, with nearly 25% of respondents indicating a preference for the region.

While corporate efforts are focused on pursuing domestic market opportunities, there are rising intra-regional investment flows as well. According to a report by nikkei, intra-regional investment increased by 22 times since the 1997 Asian financial crisis — from USD 1.2 billion in 2000 to almost USD 27 billion in 2017. Almost 20% of foreign direct investment flows into ASEAN were accounted for by foreign direct investment, according to a joint report published by the ASEAN Secretariat and United Nations Conference on Trade and Development (UNCTAD). 

Vietnam, the new China of Contract Manufacturing

The rise of Chinese USD wages, about 15 to 18% per year, has already led to many U.S. companies reshoring and diversifying their supply chains. There has been a three-fold increase in Chinese labor costs since 2000. Additionally, the one-child policy has resulted in a decline in the workforce to 3.5 million a year. Increasing dissatisfaction among workers has resulted in frequent strikes that have halted production. Compared with Vietnam, China’s cost of labor was estimated in 2018 to be USD 5.51 per hour, while Vietnam’s cost was USD 2.73 per hour.

According to VNexpress, Vietnam’s operating costs are among the lowest in Asia, and its logistics development potential is the greatest. An annual minimum operating cost for a manufacturing company in Vietnam is USD 79,280, compared to USD 366,561 for Singapore, and USD 142,344 for Thailand, according to a business transformation consultancy TMX.

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