In This Episode...
Adrian and Renaud talk about the current trend of moving manufacturing operations away from China, either partly or completely. This really started to gain pace due to the US/China trade war and the punitive tariffs imposed by the US government on some 'Made-In-China' goods, and, in some ways, the coronavirus pandemic hastened it, too, as companies sought to diversify supply chains to reduce risk.
So is this exodus from China going to continue into 2021 and does it affect you? We discuss the trends and some of the realities of transferring some or all of your supply chain to other countries in this episode.
00:00 - Introduction / What has caused some companies to move operations away from China in recent years.
02:47 - Is the trend of moving supply chains out of China still realistic and ongoing? It's still a trend amongst many companies to be researching and planning to make this move in 2021 or beyond. How large companies have been most successful in moving, mainly, assembly out of China into countries like Vietnam up to now.
04:44 - What challenges do smaller companies face when trying to make the switch? Smaller companies, such as many e-commerce sellers who private label products from an ODM or OEM, have been much slower to move operations due to their agreements with their manufacturer. They often have little say in what the Chinese manufacturer does, so, even if they want to diversify out of China, it's either impossible or slow progress if they can't find a similar manufacturer to work with in, say, India, who provide the same product. Also, smaller companies may not have the budget, especially after 202, to finance such a move of the supply chain overseas after working with an ODM/OEM, as this could include needing to pay for new tooling, product development, and more (which the Chinese supplier provided to them as a part of the package).
07:31 - Why companies who have designed and developed their own products are at an advantage when it comes to moving some of their supply chain out of China. If their manufacturing contract is written correctly they should own their molds and tooling and can transfer this from a Chinese supplier to another supplier either in China or a different country. But even if assembly can be done in Vietnam, for example, it may still be necessary to have some of the supply chain in China, such as certain component suppliers.
08:46 - Imports from Vietnam to the USA have increased by almost 40% in recent years. Does this mean that it's possible to do assembly and get components there, too? In fact, not really. Many of the facilities opened in Vietnam are either close to the Chinese border or in port cities where components from China can be readily shipped in. This may change in future, but, for now, Vietnam doesn't provide a full supply chain infrastructure in most cases.
10:52 - Is assembly and packing done in SE Asia a way to circumvent US tariffs? It depends on the amount of value creation in the final country, but it can sometimes be illegal. The issue is the lack of sub-suppliers for components and materials outside of China.
12:49 - Has India benefited from any companies moving some operations out of China? We discuss some Taiwanese companies moving to Chennai as it has an existing network of suppliers and workforce from its electronic and automotive industry there, although a lot of components still come from China. The conflict between India and China does not help matters in India right now, as the Indian customs are processing Chinese imports very slowly which increases risks for manufacturers there. So when you look at the costs of having an extended supply chain across China and India, does this make avoiding tariffs on China-made-goods worthwhile? It may not, so you have to research this.
16:21 - Foxconn's new factory in Northern Vietnam. Why is it here and how does it benefit Apple? How about components - are they still going to be coming from China?
18:24 - What does a Biden presidency mean for American companies moving forward? Discussion on if the US/China trade war will continue and how it could change, if at all?
22:44 - How have Chinese exports to the US and other countries started booming in 2020 due to the coronavirus pandemic and how is the logistics industry struggling to cope with the strain? What types of sectors have really benefited, even with the US/China trade war in effect?
27:08 - Are companies from other countries aside from the USA also trying to move supply chains out of China? If so, why? The US tariffs still affect companies who manufacture in China for the US market, too, even if they aren't American companies, so it's still a cause. The coronavirus shutdown of China's manufacturing sector in early 2020 also prompted many global companies to start the process in order to diversify and have less risk in future due to being less reliant on China. However, due to the inability to travel, many companies plan to move but have put the projects on hold for now which, of course, benefits China...for now.
31:02 - If your business sells in the China market, is it wise to move operations out of China? There is some debate about this point. Importing into China is complex and bureaucratic, so this could cause you a lot of hassle in future. It may well also be that the Chinese authorities will not take kindly to brands who are very active internally moving supply chains out of China. This is a source of risk to be aware of and assess if that's your company.
32:25 -Wrapping up and festive wishes from Renaud and Adrian! 🎄
Articles about moving supply chains out of China to read next...
- The pros and cons of moving manufacturing operations to Vietnam, India, Malaysia, & Thailand.
- From the WSJ, why breaking up with China is difficult for businesses.
- Foxconn opening a new Apple factory in Northern Vietnam.
- India’s possible opportunity to capitalise on a manufacturing exodus from China post-COVID.
- How a Biden presidency may influence the US/China trade war.
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