Is labor arbitrage dead?

Published in fDi Intelligence | By John Evans, Tractus

For decades, the manufacturing site selection playbook in Asia was simple: find the lowest hourly wage, add a government incentive, and build the factory. From 1995, that logic sent a generation of manufacturers to China, then chased frontier wages into south-east Asia and beyond. Korea now leads the world with 1,200 robots per 10,000 workers. China installed more than half of all new industrial robots in 2024. Japan’s average taxi driver is 60 years old, and Nissan is launching a driverless ride service in 2027 rather than wait for young drivers who may never arrive.

In his latest column for fDi Intelligence, Tractus Managing Director John Evans argues that the old playbook is done. The factor now deciding where manufacturing capital goes is the capacity to automate, and the economies that hold that advantage are the ageing ones that were forced to build it first. Machines can be shipped anywhere. What does not travel is the human capital to run them.

The piece traces the shift through government behavior. Thailand is putting B5bn ($148.7mn) behind training 100,000 workers, its first time backing skills with direct funding rather than tax breaks. Japan is rewriting its immigration rules. The Asian Development Bank has created a new “Advanced Asia” classification for the region’s most developed economies. John’s closing argument is direct: a tax holiday cannot conjure a mechatronics graduate, and a cheap wage cannot run a smart factory. Site selection strategy should start with a workforce analysis, not end with it.