05 Sep Companies Moving Sourcing Out of China
Companies Moving Sourcing Out of China: Is your company ready to take the step?
To say that global supply chains are currently in flux is putting it mildly.
The tariff wars and other factors such as geopolitical and intellectual property risk are causing many companies to rethink their China sourcing strategies. However, there are companies that are still sourcing from China, and they are not planning to stop: it is very difficult to make a switch.
Tech companies are especially challenged, as their supply chains are tightly intertwined with Chinese component makers. In some cases, there are simply no alternative parts suppliers outside of China.
And the process of re-engineering supply chains to work outside China can be costly and complex. Transition could take years, it would cause delays on projects and possible lower sales forecasting.
Manufacturers are diversifying
China has been losing share of Asian exports to the US, down about 9 percentage points over the past six years. Vietnam has gained the most of any country from China’s lost share, as shown in the chart below.
Source: AT Kearney
There are some other issues that have to be analyzed, such as scalability and capacity. Developing new supply bases are time consuming and should be faced as a new project. Companies specialized in developing new supply chains are more prepared not only to look for alternatives, but also to deal with logistics issues, for example, developing suppliers close to assemblers.
Moving out of China will lead to more disconnected supply chain operations, which could lead to inefficiencies, increase cycle times, and expose companies to multiple tax and labor rules across countries.
Another challenge: In China, US companies can often deal with the final assembly or contract manufacturers alone, and let those firms find all the suppliers underneath that together meet a price point and quality requirements.
Will moving away your supply chain from China work for all industries? The question remains unanswered, as the U.S. and China announced they will meet for face-to-face negotiations in October aimed at ending their tariff war.
Source: The Supply Chain Digest, CNBC News and Bloomberg.