By Mark Geary
A recent survey of 200 companies with global supply chains carried out by inspection company QIMA found that 95 per cent of US respondents planned to move to suppliers outside China, but fewer than half of the EU respondents had plans to move their sourcing.
China’s manufacturing base has already recovered strongly from the shutdown in the early part of the year and the independent June Caixin PMI has increased to 51.2 (above 50 indicates expansion). However, many of the alternative markets to China are still struggling with COVID especially as not all staff have returned to factories as many countries rely on imported workers.
A more immediate priority for many customers is getting access to their existing suppliers given that companies without a local presence are effectively locked out of their supply chain at the present time
Major companies like Apple (i.e. Foxconn), Samsung and Nintendo have already been moving some of their manufacturing from China to Vietnam where labour costs are much cheaper. This tends to work well for the electronics industry with highly automated large-scale production. However, such moves are more challenging for smaller less automated firms. Few markets are able to compete with China on speed, cost and quality.
Companies have been saying over the last 3 years they want to move from China to Vietnam, but they still have not done it! The reality is finding new suppliers is not an easy process, especially in a new country. Changing suppliers takes a long time when you need to source a factory, materials, accessories, review samples as well as manage quality, logistics and communication issues. It is a complicated process that can take up to 12 months.
Many smaller firms will still look to China as they prefer to work through agents in Hong Kong and China who are used to dealing with foreign companies and can speak English as well as the local languages. China will always have an important place in the supply chain, as it moves forward on initiatives like digitisation, its ability to do small runs, or handle mass customisation and being able to work direct to customer. These will all be wins in the new economy as it starts to unfold post COVID
Mark Geary is Chief Executive of Asianet Group. Asianet is a specialist executive search company which has been in business since 1988.
