EVERYONE IS TALKING ABOUT LEAVING CHINA
Social media is buzzing these days with companies talking about all the reasons that they have for leaving China and moving their manufacturing supply chains back home or to other low cost countries. What with trade tariffs and now this crazy corona-virus, there are a lot of reasons to be concerned. We have seen a slow trend that began several years ago from companies either looking to make a move, testing the waters elsewhere, or going forward with a move.
One large Asia based inspection company reported that inspection demand in Asia was down 14% in 2019 vs. 2018, while China volumes decreased 3.4%. For the same period, Southeast Asia (Vietnam, Taiwan, Myanmar, most popular) volumes were up by 9.7% and in South Asia (Bangladesh, most popular) up by 37%. And, USA companies continued near-shoring in Latin America (Mexico, Peru, Guatemala, Haiti, most popular) with volumes there more than doubling. Meanwhile, volumes in North Africa and the Middle East (Turkey, Morocco,Tunisia, Egypt, most popular) more than tripled.
LOOK BEFORE YOU LEAP. LEAVING CHINA MAY COST YOU!
Companies must consider the total cost, complexities, and consequences of relocating which may potentially outweigh any savings that they are seeking. When contemplating such a move companies are well advised to be realistic about the pros and cons of leaving China. Instead, we recommend companies to re-assess total landed costs and the strengths and weaknesses of China relative to the products they are producing in other low-cost, offshore countries.
CHINA STILL HAS THE BEST MATERIALS AND INFRASTRUCTURE
Manufacturers rely on local suppliers for an array of materials, parts, and components, so relocating production requires an expensive and time-consuming effort finding new suppliers that meet quality standards and that have adequate capacity to take on more business on a specified timetable. Qualified suppliers may not always be available when and where you want them. Finding proper materials can also present a challenge since China produces many of the materials used in other Asian counties and has an extensive, developed infrastructure to deliver them efficiently. It will take years and years before the entire ecosystem of manufacturers and suppliers can shift out of China—if it ever does. We are betting that China will recover and come back stronger than ever and remain competitive despite some short term pain.
CHINA STILL HAS THE BEST LABOR FORCE AND TREMENDOUS CAPACITY
Source has been part of the development and training of the workforce as it has matured over the past 25 years. Source professionals are unparalleled anywhere thanks to our rigorous training programs. No country has a workforce that is as dedicated and productive as China. No country serves such a wide range of industry as China. And, no country supports it’s industries like China. According to China’s National Bureau of Statistics, 3.8 million manufacturing jobs were lost in urban areas last year. As a share of overall urban employment, it was the biggest annual drop in five years, at 1.5% and employment in factories has been declining every year since 2015, as a result of automation and productivity increases. And, now, with the “phase one” trade deal with China in place, the Trump administration has agreed to scrap planned tariffs on $160 billion of Chinese goods and to cut the tariff rate on another $120 billion of goods in half to 7.5%. ALL THIS LEADS TO MORE AVAILABLE CAPACITY AND MORE NEGOTIATING STRENGTH.
THERE WILL BE A NEW NORMAL IN CHINA ONCE THE VIRUS FEARS SUBSIDE
We definitely see a “New Normal” emerging from a tough 2019 and a slow start to 2020. Many things will have to change to protect the workers and the public at large. A greener, more organized country is likely to emerge in a new push for health and public welfare. China is used to change and is likely to find novel ways to adapt and continue to prosper.
We caution companies to consider all of the factors before leaving China and shifting manufacturing to other low-cost countries in Southeast and South Asia, Africa, Eastern Europe, or Latin America. As for Source International, we are NOT leaving China but, instead, see this as a great opportunity to serve our customers in new and different ways. We plan to double down our efforts to provide new answers to the new, pressing manufacturing and quality assurance questions that have emerged.
LEAVING CHINA IS NOT THE BEST OPTION IN SPITE OF THE CHALLENGES
Source manufacturing and supply management teams have literally hundreds of years of combined experience in over 20 industries delivering superior products with savings and supply chain efficiencies. We expect to continue this service for years to come by adjusting and adapting to the current challenges the same way that we adjusted to all the past challenges that we have faced. We came through all our past challenges better in the end and this time will not be any different. Our goal is to continue to do what we do better and better each day.
Source International established operations in China in 1995 and we have experienced continual growth from our Xiamen hub. Sure, we established operations several years ago in over 8 other low-cost Asian countries and we opened a new full time office in Vietnam a couple of years ago too so that we could offer some diversity to our customers. But, China is home for us and for our bi-lingual staff. We have created a hybrid family integrating the best of both cultures for a greater whole.
SOURCE WILL BE HERE WHEN YOU NEED US
We see better times ahead for China. Everywhere that we operate, the Source Product Management Process leads to no misunderstandings about manufacturing standards or concerns about raw material availability or quality, no substandard workmanship, and no delivery logistics black holes. Access all the info about your products 24/7 is available on our exclusive SIS cloud portal. We are your guide to navigate you through to harness the competitive power of global manufacturing and give your company a competitive edge. CONTACT US TODAY for more information about how our contract manufacturing and supply manufacturing programs can add value for your company’s product supply chain.